Question

There was a contract to supply oil-seeds. But the Government rendered the sale and purchase of oil-seed illegal under the Defence of India Rules. Identify the effect.

• A. Party at default is held liable
• B. Both parties are discharged from the performance of such contract
• C. Both parties are directed specific performance of the contract
• D. None of the above

Hint:

Remember the key grounds for frustration of contract under Section 56: destruction of subject matter, death or incapacity of a party (in personal contracts), and supervening illegality (change in law). The result is that the contract becomes void and parties are discharged.

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
The scenario describes a situation where a contract, which was legal and possible to perform when it was made, subsequently becomes impossible or unlawful to perform due to a change in the law. This is known as the doctrine of "Supervening Impossibility" or "Frustration of Contract."
Step 2: Key Formula or Approach:
The relevant provision is Section 56 of the Indian Contract Act, 1872. The second paragraph of this section states: "A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful."
Step 3: Detailed Explanation:
In the given case, the contract to supply oil-seeds was valid when formed. However, the subsequent government order under the Defence of India Rules made the sale and purchase of oil-seeds illegal. This supervening illegality makes the performance of the contract unlawful. According to Section 56, the effect is that the contract becomes void. When a contract becomes void, both parties are discharged from their respective obligations to perform. There is no question of one party being at default or seeking specific performance of a contract that is now illegal.
Step 4: Final Answer:
The effect is that Both parties are discharged from the performance of such contract.

Answer 2

The question describes a contract that was lawful when made, but which later became illegal to perform because of a change in law. This raises the doctrine of supervening impossibility or frustration under the Indian Contract Act. Let's assess each option.

1. Party at default is held liable: this option assumes one party is at fault, but neither party did anything wrong here, the contract became impossible to perform purely because of a new government restriction, an external supervening event, so there is no defaulting party to hold liable in the ordinary sense.
2. Both parties are discharged from the performance of such contract: Section 56 of the Indian Contract Act, 1872 provides that a contract to do an act which, after it is made, becomes impossible or, due to some event the promisor could not prevent, unlawful, becomes void when that impossibility or unlawfulness arises. Since the sale and purchase of oil-seeds was rendered illegal by the Defence of India Rules after the contract was formed, the contract becomes void by operation of this rule, and both parties are released from their obligations.
3. Both parties are directed specific performance of the contract: specific performance is a remedy used to compel performance of a valid, enforceable contract. Once an act becomes unlawful, courts cannot direct parties to perform something that would itself now amount to breaking the law, so this cannot be the outcome.
4. None of the above: since Section 56 directly and clearly answers what happens in exactly this situation, there is a definite legal answer, so this catch-all option does not apply.

Because the change in law made performance itself unlawful, Section 56 automatically voids the contract and frees both sides from performing it.

Therefore, the correct answer is Both parties are discharged from the performance of such contract.