Contracts and Sales Multistate Bar Practice Exam

What must occur in order for a contract to be discharged by supervening illegality?

1. The subject matter of the contract must significantly change

2. A new law must make the contract illegal after it is formed

3. One party must declare the contract void

4. Both parties must agree to cancel the contract

The correct answer is: A new law must make the contract illegal after it is formed

For a contract to be discharged by supervening illegality, it is necessary for a new law to come into effect that renders the contract illegal after it has already been formed. This principle is rooted in the idea that contracts are inherently based on mutual consent and the legality of their subject matter at the time of entering into them. When a contract is established legally, both parties are bound by its terms under the existing law. However, if subsequent legislation makes the performance of that contract illegal, then the contract is automatically discharged because the foundational requirements of legality for a valid contract are no longer fulfilled. This means that neither party can be obligated to fulfill their contractual duties since doing so would violate the law that has now come into effect. Other choices, while they touch on aspects of contract law, do not accurately address the specific condition under which supervening illegality operates. For instance, the significant change in the subject matter or declaring a contract void does not necessarily align with the concept of supervening illegality, which is specifically focused on changes in the legality of the contract due to new laws.