Contracts

The parties must mutually assent to the proposed objectives and terms of a contract in order for it to be enforceable. The manifestation of the common intent of the parties is discerned from their conduct or verbal exchanges.

What one party secretly intended is irrelevant if his or her conduct appears to demonstrate agreement. In a few limited cases, however, where there is no stated expression of the parties' intent, their subjective intentions may establish an enforceable contract if both believe in the same terms of the contract.

There will be no binding contract without the real consent of the parties. Apparent consent may be vitiated because of mistake, fraud, innocent misrepresentation, duress, or undue influence, all of which are defenses to the enforcement of the contract.

Mutual Mistake When there is a mutual MISTAKE OF FACT with respect to the subject of the contract, the subjective intention of the parties is evaluated by the courts to determine whether there had been, in fact, a meeting of the minds of the parties.

If the mutual mistake significantly changed the subject matter of the contract, a court will refuse to enforce the contract. If, however, the difference in the subject matter of the contract concerned some incidental quality that has no (or negligible) effect on the value of the contract, the contract is binding, even though the mistake altered or removed what had been the incentive to one or both parties to enter the contract.

Unilateral Mistake Ordinarily, a unilateral mistake (i.e., an error made by one party) affords no basis for avoiding a contract, but a contract that contains a typographical error may be corrected. A contract may be avoided if the error in value in what is to be exchanged is substantial, or if the mistake is caused by or known to the other party. Unilateral mistakes frequently occur where a contractor submits an erroneous bid for a PUBLIC CONTRACT. Where such a bid is accepted, the contractor will be permitted to avoid the contract only if the agreement has not been executed or if the other party can be placed in the position that they occupied prior to the contract. If the mistake is obvious, the contract will not be enforced, but if it is inconsequential, the contract will be upheld. The mistake must consist of a clerical error or a mistake in computation, as an error in judgment will not permit a contractor to avoid a contract.

Mistake of Law When a party who has full knowledge of the facts reaches an erroneous conclusion as to their legal effect, such a MIS-TAKE OF LAW will not invalidate a contract or affect its enforceability.

Illiteracy Illiteracy neither excuses a party from the duty of learning the contents of a written contract nor prevents the mutual agreement of the parties. An illiterate person is capable of giving real consent to a contract; the person has a duty to ask someone to read the contract to him or her and to explain it, if necessary. Illiteracy can, however, serve as a basis for invalidating a contract when considered in relation to other factors, such as fraud or overreaching. If the person whom the illiterate designates to read or explain the contract misrepresents it and acts in collusion with the other party to the contract, the contract may be set aside.

Fraud Fraud prevents mutual agreement to a contract because one party intentionally deceives another as to the nature and the consequences of a contract. It is the willful misrepresentation or concealment of a material fact of a contract, and it is designed to persuade another to enter into that contract. If a special relation-ship exists, such as that of attorney and client, nondisclosure of a material fact is fraud. Many courts have held that mere silence concerning a material fact did not constitute fraud, but the emerging trend is to find a duty to disclose and, therefore, deliberate concealment of a material fact gives rise to an action for fraud.

A contract that is based on fraud is void or voidable, because fraud prevents a meeting of the minds of the parties. If the fraud is in the factum, (i.e., during the execution of the contract) so that the party would not have signed the document if he or she understood its nature, then the contract is void ab initio (i.e., from its inception). The signatory is not bound if a different contract is substituted for the one that he or she had intended to execute. If, however, a party negligently chooses to sign the contract without reading it, then no fraud exists and the contract is enforceable. If the fraud is in the inducement, by which a party is falsely persuaded to sign a contract, the terms of which he or she knows and understands, then the contract is not void but is voidable by the innocent party, as that party executes what is intended to be executed. If, however, due to fraud, a contract fails to express the agreement that the parties intended it to express, then the defrauded party may seek a decree of reformation, by which the court will rewrite a written agreement to conform with the ORIGINAL INTENT of the parties.

Misrepresentation without Fraud A contract may be invalidated if it was based on any innocent misrepresentation pertaining to a material matter on which one party justifiably relied.

Duress Duress is a wrongful act or threat by one party that compels another party to perform some act, such as the signing of a contract, which he or she would not have done voluntarily. As a result, there is no true meeting of minds of the parties and, therefore, there is no legally enforceable contract. Blackmail, threats of physical violence, or threats to institute legal proceedings in an abusive manner can constitute duress. The consensus of most jurisdictions is that the threat to commence legal proceedings, which otherwise might be justifiable, becomes wrongful when done with the corrupt intent to coerce a transaction that bears no relation to the subject of such proceedings and is grossly unjust to the victim.

A contract that is induced by duress is either void or voidable. If the duress consists of one party taking the other's hand as a mechanical instrument by which to sign his or her name to a contract, then the contract is void ab initio for lack of any intent on the victim's part to perform the act. The result is the same if the victim is compelled to sign a contract at gunpoint without any knowledge of its contents. These are highly unusual situations. In most cases involving duress, the contract is voidable, and the person who was subjected to the duress may ask the court to declare the contract unenforceable.

Undue Influence Undue influence is unlawful control exercised by one person over another in order to substitute the first person's will for that of the other. It generally occurs in two types of situations. In the first, a person takes advantage of the psychological weakness of another, in order to influence that person to agree to a contract to which, under normal circumstances, he or she would not otherwise consent. The second situation entails undue influence based on a fiduciary relationship that exists between the parties. This occurs where one party occupies a position of trust and confidence in relation to the other, as in familial or professional-client relationships. The question of whether the assent of each party to the contract is real or induced by factors that inhibit the exercise of free choice determines the existence of undue influence. Mere legitimate persuasion and suggestion that do not destroy free will are not considered undue influence and have no effect on the legality of a contract.