If one party enters into a contract because of the intentional misrepresentation or deceit of the other party, there is usually no valid contract between the two because of fraud.
What Are the Elements of Contract Fraud?
To establish contract fraud, one usually must show all of the following:
1. Misrepresentation of a material fact
2. Made knowingly
3. With intent to defraud
4. Justifiably relied upon
5. Causing injury to the other party
What Is Misrepresentation of a Material Fact?
Usually, it means lying about a fact that is essential to your decision to enter into a contract. For example, the other party might lie to you that the painting he is selling you was painted by Picasso, and the only reason you would buy it is because the painting was painted by Picasso.
Statements about the value of an item and opinions are usually not facts and therefore cannot constitute fraud even if they are misrepresented. One exception to this is that the opinion made by an expert (for example: an appraiser, a lawyer, an engineer, a physician, & a financial advisor) may sometimes be taken as facts.
What Is Justifiably Relied Upon?
This simply means that it would be reasonable for you to have relied upon the statements made by the other party. If there are obvious reasons for you to doubt the validity of the other party’s statements and/or you know for a fact that the other party is lying and you still enter into a contract anyway, then there is no justifiable reliance.
For example: A car salesman tells you that the car is painted with real gold on the surface, but you see that the car is blue colored. It will probably not justifiable for you to rely on the salesman’s statement.
Can I Claim Fraud If I Did Not Suffer Any Injury from the Misrepresentation?
No. In order to recover damages and to bring a fraudulent claim, you must have suffered some injury such as monetary damage.
What Are the Remedies to Contract Fraud?
If you have been defrauded in a contract, you generally have two options:
1. Rescind the contract and get back any consideration (usually $) you paid; or
2. Affirm the contract but sue for damages (such as decrease in the value of the item).
In addition, the other party may be liable for criminal fraud as well.
Should I Contact a Lawyer Regarding Contract Fraud?
The question of contract fraud is a complicated matter. If you don’t want to be bound to a contract you have signed because you believe you have been defrauded, you should contact a good contract lawyer to help you get out of the contract.