Contracts and Sales Multistate Bar Practice Exam

What is a common result of discharge by impossibility?

1. The parties are bound to fulfill the contract

2. Restitution of any performance or payments made may be sought

3. The contract is automatically reformed

4. Parties can demand penalties from each other

The correct answer is: Restitution of any performance or payments made may be sought

Discharge by impossibility occurs when a party cannot fulfill their contractual obligations due to unforeseen events that make performance impossible. In such cases, the objective is to restore fairness between the parties involved. When discharge by impossibility is established, courts often allow for restitution of any performance or payments made prior to the impossibility occurring. This means that if one party has provided something of value under the contract before the impossibility arose, they can seek to recover that value. This principle is rooted in the idea that it would be inequitable for one party to benefit from the efforts or payments of another when performance can no longer be completed. The law seeks to return the parties to their pre-contract position as much as possible, thus allowing for restitution of any payments or performance provided before the impossibility arose. In contrast, the other options do not accurately reflect the legal consequences of discharge by impossibility. For instance, parties are not bound to fulfill the contract if performance is impossible. The concept of automatic reformation does not apply since reformation typically involves correcting a contract rather than nullifying obligations due to impossibility. Lastly, the idea that parties can demand penalties contradicts the contractual principle that both parties should be treated fairly when unforeseen events disrupt their contract.