What is the Operation of Law
Operation of Law refers to a situation in which a right or obligation is transferred without any action on the part of the property holder, except for perhaps the agreement for a transfer or the passage of time. It sometimes seems to be a loosely applied term that is used when a transfer of ownership requires little effort, but it is not to be confused with a transfer that occurs simply by application of law. The term much more closely aligns with a transfer where an individual receives both ownership and title, both being required to transfer interest in an asset to another individual.
The clearest example of this is inheriting property. In this circumstance, the decedent’s property is set to transfer to heirs through the probate process. These heirs have no control over what happens in the decedent’s estate . At the conclusion of the process, however, the transfer will occur "by operation of law." This may be the result of a will, but it is not essential. Even in the absence of a will, property can transfer to heirs directly through operation of law.
For example, California Probate Code section 6402 provides that if a person dies with children, any property not transferred to specifically identified beneficiaries or within a trust will automatically be divided equally among those children. The resulting property transfer would be by operation of law because none of the children have any need to take action to effectuate the transfer. If the children are all of legal age and not disabled, they can simply wait for the process to conclude. The transfer will occur after the probate process concludes and is therefore not initiated by the children.
Instances of the Operation of Law
The term operation of law is familiar to us all in its use in such phrases as "by operation of law." The term, however, is ambiguous because it may refer to a number of different things. This ambiguity arises because of the conjunction of the word operation with the word law. Sometimes the word law refers to something which has been formally enacted. At other times, law may refer to something outside of formal written law, such as equity and public policy, and it may refer to things not recognizable by judge-made law. So once a court states that something takes effect by operation of law, it does not tell us very much unless we really know what the court is talking about and the context in which the word operation of law was used.
One obvious example of an operation of law is when real estate title is taken in joint tenancy. If any of the joint tenants dies, the surviving joint tenant owns the surviving joint tenancy property free and clear of any claim by the estate of the deceased joint tenant. All parties may intend that result but it occurs automatically by the operation of law.
Another example is an insolvency, such as bankruptcy. The United States Bankruptcy Code provides many instances where a debtor’s obligations are terminated by the operation of law. For example, a debt which existed immediately before the debtor filed for bankruptcy is no longer enforceable by the creditor after the bankruptcy is final unless the debt is a non dischargeable debt such as fraud or intentional injury to another.
A final example is the dissolution of marriage. In California, if the parties to the marriage have not yet distributed their assets but they were married at the time the insolvent spouse’s debt was incurred, then the community estate, including half of separately owned assets of the insolvent spouse are subject to the claims of creditors.
In these three obvious examples of errors in property transfers which are effected by the operation of law, there is some act, operation or contract which causes an automatic legal consequence.
Operation of Law in Legal Matters
The legal ramifications of operation of law can be significant, impacting upon the effective operation of wills, legislative amendments and company takeovers. The basic premise of operation of law is simple: that an event or action occurs because of the accord of the law. It does not occur because a person or entity intends for it to happen, but rather that it happens as a necessary consequence of the legal system at the time. Statutes, common law precedents and equitable principles all create legally enforceable rights and obligations which might arise without an individual’s intervention. As a consequence of operation of law, people may find that their rights are altered. Similarly, the obligations of individuals may also shift or become more onerous. Infringement of these legal rights and obligations can lead to civil and sometimes criminal liability. For instance, a person who was unaware that a statute had changed may attempt to engage in conduct that was previously lawful, only to find that it is now prohibited. The problem lies in the fact that even though a person is unaware of the altered law, he or she is still subject to its requirements. For businesses, operation of law can alter how a business operates in practical terms. A change in law may require the re-negotiation of agreements, the alteration of corporate structure or change in information disclosures. Failure to adhere to such requirements can also result in civil liability for companies and individuals.
Contract Law and Operation of Law
In the context of contract law, operation of law is instrumental when discussing scenarios such as the assignment of rights, the termination of contracts, the discharging of contractual obligations, the passing of property, or the transfer of legal title to an asset. For these concepts, the phrase "by operation of law" means that an event, commonly an event or act of a third party, causes certain legal consequences by operation of law without the involvement of any party’s will or intent. Consider the example of the assignment of rights. Often their is a prohibition from the assignment of rights without consent by the debtor, however there are instances where the law permits the assignment of rights by operation of law. For example, if a party entitled to sue has assigned their rights to sue, then any proceeds of the lawsuit are apportioned equitably in accordance with the relative strengths of the competing claims of the parties asserting claims to the proceeds. In these scenarios, despite any contractual terms prohibiting the assignment of rights, the assignment is nevertheless permitted by operation of law . Similarly, if a contract is terminated in cases of a msinterpretation of a contract by one of the parties, the party who has suffered due to the misinterpretation may be "discharged by operation of law". Any enforcement provisions in the contract would not affect the discharge of the respective parties obligations because the operation of law prevents it from being enforced. Operation of law may also be applied to the transfer of title of an asset from one party to the other. For example, pursuant to the laws of emininent domain, when the government expropraites property pursuant to a statute, there may be a transfer of the real property of one person to another by operation of law. Similarly, corporate law statutes may provide for the transfer of legal title to an asset to the shareholders by operation of law on the dissolution of a corporation. In the case of inheritance and wills, the creation of a testamentary trust upon one’s death is an example of conveyance of property passing by operation of law, as the legal title to the property transfers to the beneficiary irrespective of any legislation or agreement altering these rights and obligations.
Not to be Confused with Judicial Decisions
It is important to distinguish between the concept of the legal consequences arising under the operation of law and those that arise as part of a decisions or order of a Court. Many judicial decisions or orders give rise to legal consequences, but they do not arise under the operation of law. Typically a judicial decision or order requires intervention by a judge or court officer. The effect of the judicial decision or order is given further force by the delivery of an order that puts the decision or order into operation. In contrast, where an event occurs under the operation of law there may be no requirement for a decision or order by a judge or court officer. The event itself will create the legal consequences and those will be binding without the need for a further order that puts the event into operation. In other words, an order is not needed to put the decision or order into operation, the event does that.
Regulation of Operation of Law Around the World
Across the globe, the concept and legal doctrine of operation of law varies very widely. In Canada, provincial legislatures may define the term in legislation and may create exceptions to laws that otherwise apply as a matter of operation of law. The jurisdictional scope of the operation of law is also limited by principles of public policy underlying conflict of laws and private international law in Canada. The concept of operation of law is also found in other private law systems. In France, the doctrine of effet translatif includes operation of law as one of the elements that distinguishes a transfer from a sale . Concepts broadly similar to operation of law exist in the civil law systems of other countries. An example of the concept of operation of law in civil law systems exists in the Netherlands in the context of succession law. It applies to the transfer of property to heirs. The effect in the Netherlands also is that the transfer takes place upon the moment of death, but the transfer does not happen by mere operation of law, rather, it only operates as an obligation to transfer property. Under the rules in §4:192 of the Dutch Civil Code the decedent’s heirs are obliged to transfer the estate property to each other respecting their respective shares in the estate.
