Contracts Practice Question 1 | Make This Your Last Time

Contracts: Defenses to Enforceability

A stockbroker, who collects and restores old cars as a hobby, passes the same antique car shop on his way home every day. One day he decided to stop and enter. Inside the shop, the stockbroker saw his dream car on display and immediately inquired about it to the owner of the shop. The owner told the stockbroker that the car previously belonged to his father and needed a great deal of work if it would ever run again. The owner agreed to sell the car to the stockbroker for $30,000. Later that evening, while packing away some old paperwork on the car, the owner learned that the car was once used in a famous movie and is actually worth much more than $30,000. The owner is now refusing to deliver the car to the stockbroker.

If the stockbroker sues, is he likely to recover?

A: He will not recover on the contract due to mutual mistake.

B: He will not recover on the contract due to incapacity to contract.

C: He will recover because a valid contract was made.

D: He will recover under the principles of estoppel.

Answer and Explanation

A is correct. The stockbroker will not recover because there was a mutual mistake concerning a basic assumption of the contract: the value of the car due to its origin. A mutual mistake that goes to the essence of the contract, in that it changes the value of the subject matter tenfold due to a basic assumption of fact, excuses the seller’s executory obligation if he did not assume the risk that the assumption was mistaken. Here, the owner did not assume the risk that the car was a valuable old piece of memorabilia.

B is incorrect. There is no evidence in this fact pattern that either party was incapable of understanding and incurring binding contractual obligations.

C is incorrect. Even if a valid contract was made, mutual mistake is a defense.

D is incorrect. The principles of estoppel are only invoked to prevent injustice. Here, there is no evidence that the stockbroker detrimentally relied on the contract to the point that not enforcing it would amount to injustice.

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