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CMA Foundation · Fundamentals of Business Laws and Business Communication · Discharge of Contracts

Kabir promised Leela to supply a special machine part, knowing that its import had been banned by law, which Leela did not know. Kabir could have known it with reasonable diligence. Leela suffered loss because the part was not supplied. Which statement is correct under Section 56?

Kabir must compensate Leela. Section 56 requires a promisor to pay compensation where he knew, or with reasonable diligence might have known, that the act was impossible or unlawful and the promisee did not know. Leela's lack of knowledge entitles her to compensation for her loss.

  1. AKabir must compensate Leela for her lossCorrect
  2. BLeela must bear the loss, as the contract is void
  3. CBoth parties share the loss equally
  4. DKabir is liable only if Leela also knew of the ban

Explanation

Section 56 provides that where a promisor knew, or with reasonable diligence might have known, that the act was impossible or unlawful, and the promisee did not know, the promisor must compensate the promisee for loss from non-performance. Kabir fits this description and Leela was unaware. The option placing the loss on Leela ignores this rule, and the fourth option reverses the condition, since Leela's knowledge would remove the claim.

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