The Enforceability of a Contract
Even contracts that satisfy all the requirements of a valid contract can be unenforceable. Contracts should have the attributes of agreement and exchange of consideration; they must be made between competent parties, and have a legal purpose. Nevertheless, there are circumstances surrounding the formation of the contract that make it unenforceable — among them, mutual mistake of fact, fraud, duress, or undue influence, and the absence of a written document.
Mutual Mistake of Fact
The doctrine of mutual mistake of fact focuses on the requirement that the parties agree about the same thing at the same time. A mistake of fact relates to the subject matter of the contract. The mistake must be mutual (shared by both parties).
Mistakes of value do not affect the enforceability of a contract. Objects ordinarily fluctuate in value. The risk that an object will increase or decrease in value is placed on the parties, and the courts will not consider such disputes. A painting purchased at a garage sale may prove to be Picasso — the change in the value of the painting does not make the contract unenforceable.
Mistakes of fact are verifiable and concern the subject matter of the contract. The description of an object is verifiable — I can tell whether the car I am buying is red or blue. Only mistakes of fact can make a contract unenforceable. It is not a mistake of fact to sell a painting that turns out to be a Picasso because the subject of the contract is the painting, not who painted it.
If the purchaser of a painting at a garage sale knows the painting is a Picasso, is it fraud to fail to disclose this information to the seller?
It is not fraud — the law of contracts does not require either party to disclose everything they know about the subject matter of the contract, except in limited circumstances.
A mistake by only one party is not enough to make a contract unenforceable — each party to a contract has the obligation to verify important facts. If both parties make the same mistake, the contract is unenforceable. If the purchaser of the garage sale painting knows the painting is a Picasso, but the seller does not, there is a unilateral mistake of fact
A contract is unenforceable if one party has misrepresented facts about the subject matter of the contract. When the misrepresentation is made with the intention of deceiving the other party about the subject matter of the contract and that party relies on the misrepresentation, the agreement is not a meeting of the minds. Some types of fraudulent misrepresentation are prohibited by statute; others require the complaining party to show falsity, materiality, reliance, and damages.
Duress and Undue Influence
Another issue of meeting of the minds is the question of whether the agreement is the result of duress or undue influence. Both must occur at the time the contract is formed and both address the voluntariness of the agreement.
Duress involves the use of physical threats or intimidation to secure an agreement to enter into a contract. Undue influence is the improper use of position or authority over a person to secure agreement. A person claiming duress or undue influence must show that the pressure prevented the exercise of free will. The lack of actual assent prevents the formation of a legally enforceable contract.
Absence of a Written Document
Certain types of contracts must be in writing to be enforceable.
These contracts are ones where enforceability depends on an accurate record of the agreement. Because disputes often arise concerning specific kinds of contracts and because recollections based on self-interest seldom assist in resolving these disputes, most states require five kinds of contracts to be in writing to be enforceable:
Contracts for the sale of land or fixtures attached to the land
Contracts where the performance of one or both parties cannot be completed within one year of the time the contract is formed
Contracts that obligate a party to perform a duty owed by another or to pay a debt owed by another
Contracts made in consideration of marriage
Contracts for the sale of goods priced at $500 or more
Under these statutes, an otherwise valid contract may be unenforceable if there is no written evidence of the agreement.