6.4 Policing the Bargain

• Library: Virginia Law and Practice: A Handbook for Attorneys (Virginia CLE) (2020 Ed.)

6.4 POLICING THE BARGAIN

6.401 Mental Competence. The parties to a contract must be mentally competent for their agreement to be enforceable. ³⁶¹ Each party must be mentally capable of handling his or her own affairs and understanding the nature and effect of the transaction. This rule is rooted in common sense. If a party to a contract is so affected by mental illness, disease, alcohol, or drugs that he or she cannot form an intent or understand the meaning of the contract, there can be no basis for legal enforcement of such a contract. All

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parties to a contract are presumed to have sufficient mental capacity to enter into a legally binding agreement.

6.402 Contracts of Minors. Under Virginia law, a minor is a person under 18 years of age. ³⁶² As a general rule, a minor can choose to affirm or disaffirm any contract to which he or she is a party. ³⁶³ Even though a minor can enforce an otherwise valid contract against an adult, an adult who contracts with a minor does so at his or her own risk because no contract can be legally enforced against a minor.

The most notable exception to this rule involves contracts dealing with food, shelter, clothing, and other life necessities. A minor is legally liable for "necessaries" provided by another person at the minor's request. Nonetheless, the minor can only be held liable to pay for the reasonable value of the goods sold or services rendered, not to the express terms of the contract. ³⁶⁴ Whether the subject of a contract constitutes a necessity of life is determined by the court as a matter of law.

6.403 Mistake. A mistake is a "belief that is not in accord with the facts." ³⁶⁵ The effect of a mistake on a contract will vary depending on a number of factors, including the following: (i) whether only one or both parties to a bilateral contract were mistaken; (ii) whether the mistaken party was negligent; (iii) whether the nonmistaken party knew or should have known of the other party's mistake; (iv) how soon the mistake was discovered; and (v) whether one party assumed the risk of the mistake.

Cases involving issues of mistake are difficult to categorize because of the number and variety of factors involved. Further complicating matters is the relatively low number of reported Virginia decisions analyzing mistake issues.

6.404 Fraud and Misrepresentation. There are two basic types of fraud: actual and constructive. The essential elements of a cause of action for actual fraud are as follows: (i) an intentional and knowing misrepresentation, (ii) of a material fact, (iii) which is intended to mislead a party,

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(iv) who relied on the misrepresentation, and (v) suffered damage as a result of the misrepresentation. ³⁶⁶ As described below, constructive fraud differs from actual fraud in that the misrepresentation of material fact need not be made with the intent to mislead. ³⁶⁷

Mere failure to perform an antecedent promise is not fraud; however, when a party makes a promise intending not to perform, that party's promise is a misrepresentation of present fact and, if made to induce another party to act to his or her detriment, is actionable as actual (not constructive) fraud.

6.405 Duress and Undue Influence. One of the basic goals of contract law is to promote and protect the freedom of individuals to bargain with one another to achieve mutually beneficial goals. To maximize social welfare and efficiency, the contracting process must be voluntary. Accordingly, courts will refuse to enforce any contract that a party did not enter into willingly.

Undue influence exists when a party to a contract is prevented, by the wrongful act of another, from exercising free will. A presumption of undue influence may arise, for example, in a will contest where the contestant proves by clear and convincing evidence that (i) the testator was enfeebled in mind when the will was executed, (ii) the requisite confidential or fiduciary relationship was accompanied by activity in procuring or preparing a favorable will, and (iii) the testator previously had expressed a contrary intention to dispose of his or her property. ³⁶⁸ In the context of leases, deeds, and other contracts, the presumption arises when weakness of mind and grossly inadequate consideration or suspicious circumstances are shown, or when a confidential relationship is established. ³⁶⁹

Duress includes "any wrongful acts that compel a person . . . to manifest apparent assent to a transaction without volition, or cause such fear as to preclude him from exercising free will and judgment in entering into a

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transaction." ³⁷⁰ The duress must have been sufficient to destroy or overcome the free will of the person threatened. Conduct that could constitute duress or undue influence includes verbal or written misrepresentations, threats of physical violence, or emotional or psychological abuse. The undue influence or duress must exist at the time of contracting, even if such condition stems from a prior course of conduct. For example, a long period of mental intimidation may constitute duress if sufficient to destroy the free will of a contracting party if the party continued to be disabled at the time of contracting. ³⁷¹

The burden of proof rests with the party alleging duress or undue influence. The allegation cannot be based upon mere suggestion, innuendo, or suspicion but must be proved by "clear, cogent, and convincing" evidence. ³⁷²

6.406 Modification of Contracts. After the negotiation and execution of a contract, circumstances sometimes arise that require a change to the parties' original agreement. A party to a contract has the right to propose a modification without forfeiting or waiving any rights under the existing contract. ³⁷³ A modification cannot occur, however, without the express mutual agreement of the parties. ³⁷⁴ Because a modification is a...