Contract Defenses

Contract defenses allow a party to avoid enforcement of an otherwise valid contract due to defects in formation or changed circumstances. The major defenses fall into two categories: formation defenses and performance defenses.

Formation defenses attack the validity of the agreement itself. Mutual mistake (Sherwood v. Walker) makes a contract voidable when both parties share a false assumption about a basic fact that materially affects the exchange. Unilateral mistake is a defense only when the non-mistaken party knew or should have known of the mistake, or when enforcement would be unconscionable.

Fraud and misrepresentation render a contract voidable when a party makes a false statement of material fact with intent to deceive, and the other party reasonably relies on it. Duress involves wrongful pressure that overcomes a party's free will — either physical coercion (making the contract void) or economic duress (making it voidable). Austin Instrument v. Loral Corp. established that economic duress requires threats to breach an existing contract when the threatened party has no adequate alternative.

Unconscionability (Williams v. Walker-Thomas Furniture) allows courts to refuse enforcement when a contract is so one-sided as to be oppressive, examining both procedural unconscionability (unfair bargaining process) and substantive unconscionability (unfair terms).

Performance defenses address changed circumstances after contract formation. Impossibility (Taylor v. Caldwell) excuses performance when an unforeseen event makes performance objectively impossible. Impracticability (Transatlantic Financing v. United States) applies when performance remains possible but would be unreasonably burdensome. Frustration of purpose excuses performance when the principal purpose of the contract is substantially frustrated by an unforeseen event.