Generally a fraud cause of action cannot be filed simultaneously with a breach of contract cause of action, if both are based on the same basic facts and circumstances. The court will usually focus on the breach of contract claim and disregard the fraud claims as duplicative, especially when the fraud claim simply restates facts of the claim for breach.
The reasoning behind this is that a breach of contract lawsuit already implies that there has possibly been some amount of misrepresentation or some type of misunderstanding that has resulted in one or more parties not performing their part. Therefore, even if a plaintiff argues that the defendant knew of a false statement in the contract, or expressed their intention not to perform, it would not successfully convert the breach of contract claim into a fraud claim.
Yes. An exception to this general rule is when the fraud claim derives from a different set of facts from the contract claim. The fraud claim must be based on some form of fraudulent representation or conduct that is “collateral,” or unrelated to, the agreement itself.
One common example of this is known as fraud in the inducement, or simply fraudulent inducement. This occurs when the plaintiff enters into a contract because the defendant made misrepresentations that led the plaintiff to agree to the contract. The remedy for fraudulent inducement is usually that the plaintiff has the option of voiding the resulting contract.
An example of this is when a defendant tells the plaintiff that they must sign a car sale contract or else their house will be foreclosed, when in fact it will not be foreclosed at all. In this example you can see that the fraud has nothing to do with the actual car sale contract but rather with circumstances that force or trick the plaintiff into signing.
The key to a successfully pleaded fraudulent inducement claim is that the plaintiff must do their best to prove that the fraud and the contract are two distinct, separate violations and therefore should both be heard. Essentially, to be successful, the plaintiff should show that the misrepresentation occurred before the agreement was entered into, and also that the misrepresentation actually induced or caused the plaintiff to enter the contract.
It helps to demonstrate that the plaintiff would not have entered into the contract had they been aware of the true nature of the circumstances. The best way to do this is to state very clearly the details of the fraudulent inducement using dates and documents.
If there has been a tort violation within the contract setting, these may be filed as well. Such examples include:
Again, the key is that the tort violation must arise from different facts other than those relating to the contract itself.
The interplay between torts and contracts means that remedies that normally would not apply to a contracts case may become available due to the simultaneous filings. For example, punitive damages, which are meant to punish the defendant, are not normally assigned in a contracts case. However, if fraud or another tort is involved, then punitive damages might become available to the plaintiff.
Another example of damages that might become available with the addition of a fraud claim is nominal damages. Nominal damages are awarded when the plaintiff has not actually incurred economic losses. This is less common with a contracts breach, because contracts almost always involve financial profits. However, the tort or fraud claim might make a nominal damages award necessary.
Again, a court will usually emphasize that the concurrent filings are actually distinct claims and thus the punitive or nominal damages are justified.
As you can probably tell, the overlap of two branches of law such as fraud and contracts is very complex. In such situations, it is important to work closely with business attorneys. They will be able to sort out the various distinctions between claims, as well as suggest the proper course of action.
Last Modified: 02-22-2018 11:06 PM PSTLaw Library Disclaimer
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