Defenses Overview
Name the FIVE defenses to contract enforcement covered in this unit.
Mistake · Misrepresentation · Duress · Illegal · Unconscionable
Any of these defenses can make an otherwise valid contract voidable or unenforceable
What is the legal definition of a MISTAKE that can serve as a contract defense?
A MATERIAL mistake of FACT (not opinion or judgment) that goes to the MAIN OBJECTIVE of the contract — i.e., the core of what the parties were bargaining for
Define MISREPRESENTATION as a contract defense. What are its three required elements?
Misrepresentation = a FALSE STATEMENT of a MATERIAL FACT that is REASONABLY RELIED UPON to the detriment of the relying party.
3 Elements: 1) False statement 2) Of a material fact 3) Reasonably relied upon (to their detriment).
Give TWO examples of contracts that are ILLEGAL and therefore unenforceable
1) A contract to BRIBE a judge or public official
2) A contract to buy or sell COCAINE (or other illegal controlled substances)
Illegal contracts are VOID — courts will not enforce them or award damages to either party
STAMBOVSKY v. ACKLEY (1991): What were the basic facts of this case? What was the unusual property condition?
The seller had publicly promoted her house as HAUNTED (published ghost stories). When she sold the house, she did not disclose this to the buyer. The buyer (Stambovsky) later discovered the 'haunted' reputation and sought to rescind the contract.
TRUE or FALSE: A defense to enforcement means the contract never existed
FALSE — a valid contract CAN exist, but a defense to enforcement means it may be AVOIDED or is unenforceable. The contract is typically voidable, not void ab initio.
Customer buys a poodle for $2,500. Both parties believe it's a purebred (based on records). A vet later reveals it's a mixed breed worth $500. What type of mistake is this, and is the contract enforceable?
MUTUAL MISTAKE — both parties shared the same false belief about a material fact (the dog's breed).
Result: The contract is generally VOIDABLE. Customer can rescind and return the dog for a refund, OR keep the dog and sue for $2,000 in damages.
What is CAVEAT EMPTOR and what is the seller's duty of disclosure under this doctrine?
CAVEAT EMPTOR = 'Buyer Beware' — the buyer has a duty to inspect, ask questions, and investigate.
Seller's duty: Generally NO duty to disclose UNLESS the seller knows a material fact the buyer could NOT reasonably discover on their own (information asymmetry).
What makes a contract UNCONSCIONABLE? What is the court's general attitude toward this defense?
Unconscionable = contract terms so GROSSLY UNFAIR they 'shock the conscience' of the court, arising from unequal bargaining power.
Courts are RELUCTANT to find unconscionability because: free market principles favor upholding contracts; courts don't want to second-guess every deal.
STAMBOVSKY v. ACKLEY (1991): What did the court rule and what was its rationale? How did it affect Caveat Emptor?
RULING: Buyer could RESCIND the contract.
RATIONALE: The seller herself created and publicized the haunted reputation — she could not then use Caveat Emptor to hide what SHE promoted. 'Having created the condition, seller is estopped from denying its existence.'
IMPACT: Eroded Caveat Emptor — sellers who CREATE or publicize a condition must disclose it.
What is the difference between a contract that is VOID and one that is VOIDABLE?
VOID: The contract has no legal effect from the start — neither party can enforce it (e.g., contract to commit a crime).
VOIDABLE: The contract is valid but one party has the right to cancel it (e.g., contract induced by duress or misrepresentation).
TYPOGRAPHICAL ERROR: Seller discusses selling a car for $6,000. The emailed offer mistakenly says $60. Buyer immediately accepts. Is Seller bound to sell for $60?
NO — this is a UNILATERAL MISTAKE, but the Buyer KNEW (or should have known) the price was a typo given prior discussions. A party cannot 'snap up' an offer knowing it contains a clerical error. Contract is VOIDABLE by Seller.
Define DURESS as a contract defense. Give one example that IS duress and one that is NOT.
DURESS: One party makes a THREAT OF IMMEDIATE HARM forcing the other to agree to terms they otherwise would not.
IS duress: Clay threatens Dev with violence unless Dev sells his car cheaply — Dev's consent is coerced.
NOT duress: Faith offers Evan a low price knowing he needs cash — taking advantage of economic hardship is NOT duress.
What is the difference between PROCEDURAL and SUBSTANTIVE unconscionability? Give one example of each.
PROCEDURAL — problems in CONTRACT FORMATION:
Examples: Fine print, confusing language, language barriers, unequal bargaining power, lack of education.
SUBSTANTIVE — unfair CONTRACT TERMS:
Examples: Excessively high prices, one-sided clauses, oppressive provisions, no meaningful choice.
STRAWN v. CANUSO (1995): What were the facts, and what material fact was not disclosed to buyers?
A developer sold homes near a HAZARDOUS WASTE SITE. The developer and real estate brokers knew about the nearby contamination but did NOT disclose it to buyers. Buyers purchased homes unaware of the environmental hazard affecting property value and health.
A party successfully raises a contract defense. What are the TWO possible remedies available to them?
1) LEGAL remedy: Keep what was received and sue for money damages.
2) EQUITABLE remedy: Rescission — cancel the contract and receive restitution (return to original position as if contract never happened).
PROPERTY VALUATION: Seller sells her house for $675K believing it's worth ~$700K. After signing, she learns similar homes sold for $800K. Can Seller rescind the contract?
NO — this is a UNILATERAL MISTAKE about value/market conditions, which is generally NOT a valid defense. Sellers bear the risk of undervaluing their property. Mistake of JUDGMENT or VALUE (not fact) does not excuse performance.
Why does CONTRACT LAW recognize information asymmetry as a reason to impose disclosure duties on sellers? What is the policy justification?
Sellers often possess information buyers CANNOT reasonably discover (hidden defects, hazardous conditions, legal issues). Requiring disclosure:
1) Levels the information playing field
2) Prevents unjust enrichment through concealment
3) Promotes fair dealing and market efficiency
Without disclosure duties, the stronger (more informed) party profits from the weaker party's ignorance.
A contract is legal but uses complex legal jargon, and one party lacks education and speaks limited English. The price is 3x market value. Which unconscionability factors are present?
PROCEDURAL factors: Complex language, language barrier, unequal bargaining power, lack of education — the weaker party could not meaningfully understand the contract.
SUBSTANTIVE factors: Price 3x market value = excessively high price term that is one-sided and oppressive.
Both types present → strong unconscionability claim.
JONES v. STAR CREDIT CORP. (1969): What happened and what unconscionability factors did the court identify?
FACTS: Welfare recipients bought a home freezer for $1,234.80 (including credit charges) — the freezer's retail value was ~$300.
FACTORS: PROCEDURAL — buyers had no bargaining power, limited financial sophistication. SUBSTANTIVE — price was 4x market value, oppressive credit terms. Court found the contract unconscionable under UCC § 2-302.
Why does contract law allow defenses to enforcement even when a valid contract technically exists? What policy goal does this serve?
Contract law aims to protect the INTEGRITY of voluntary agreements. Defenses ensure contracts reflect true consent — free from mistake, fraud, threats, or grossly unfair terms. Without them, enforcement would reward deception and coercion, undermining public confidence in the legal system.
What is the KEY DISTINCTION between mutual and unilateral mistake in terms of enforceability? When is a unilateral mistake EVER a valid defense?
MUTUAL: Both parties mistaken about the same material fact → contract is voidable by either party.
UNILATERAL: One party mistaken → contract is generally ENFORCEABLE against the mistaken party.
EXCEPTION: A unilateral mistake CAN be a defense if the other party KNEW of the mistake and failed to disclose it — that silence crosses into misrepresentation.
DOUBLE JEOPARDY: How do misrepresentation and a unilateral mistake OVERLAP as defenses? How does a court decide which doctrine applies?
OVERLAP: Both involve one party having incorrect information about a material fact.
KEY DISTINCTION:
• Mistake: The misinformed party formed the false belief INDEPENDENTLY — the other party may not have known.
• Misrepresentation: The other party ACTIVELY made a false statement or KNEW of the error and stayed silent (fraudulent concealment).
Court looks at: Did the other party cause or exploit the misinformation?
Why do courts distinguish between FREE ENTERPRISE principles and PROTECTING VICTIMS when evaluating unconscionability? What is the tension, and how do courts resolve it?
FREE ENTERPRISE (thin rule of law): Adults should be free to make their own deals; courts should not re-write contracts; market efficiency requires enforceability.
PROTECT VICTIMS (thick rule of law): Courts exist to ensure fairness; grossly one-sided contracts undermine trust in commerce.
RESOLUTION: Courts require BOTH procedural AND substantive unconscionability (or very strong evidence of one) before intervening — a high bar that preserves freedom of contract while preventing egregious exploitation.
JONES v. STAR CREDIT CORP. (1969): What remedy did the court choose and WHY did it leave the parties 'as is' rather than fully rescinding?
REMEDY: Court ruled no further payments were owed — the amount already paid ($619.88) was deemed sufficient for the freezer's actual value (~$300).
WHY 'AS IS': Rescission would require return of the freezer (impractical; buyers had used it). The court balanced FREE ENTERPRISE (don't rewrite all contracts) vs. FAIRNESS (stop the exploitation). Modifying rather than voiding preserved some market freedom while protecting the victims.