Contract fraud occurs when one or more of the parties involved in the contractual agreement present any information to the other party that is misleading, false, or in any way deceitful. For example, providing misleading information on an employment contract you recently signed.
Another example could be signing a real estate property agreement, but the actual property itself does not exist. This would be considered fraud because you were deceived into signing an agreement based on nonfactual information.
There are many forms of fraudulent activities. Below are some examples of them:
- Falsifying information on contract proposals;
- Charging for unrelated services not part of the contract;
- Falsifying information and other data;
- Misrepresenting a project’s status to continue receiving Government funds;
- Improperly influencing government employees to award a grant or contract to a specific company, family member, or friend.
If you notice any fraudulent activity at your workplace or in any other setting, you should notify the Human Resources Department. There is a procedure for reporting fraud for each organization; you can follow those protocols.
What Are the Different Types of Fraud?
There are generally two categories of contract fraud. First, there is fraud in the inducement, meaning the deception happens in the entirety of the contract. For instance, if you hired a professional photographer for your wedding, but they have no experience taking photos or are not a professional photographer. The second type is fraud in the factum, which is when the fraud only happens about a particular fact.
How Can You Prove Fraud?
To prove contract fraud, you need to identify the following statements:
- One party was knowingly misrepresenting material facts;
- One party was intentionally attempting to defraud or deceive the other party.
Moreover, the fraud must be definite and related to the facts, not the opinion. For instance, if you hired an interior designer but did not approve of their work, this would not be considered fraud. Fraud would be if they lied to you regarding their qualifications. Therefore, it is crucial to detect when exactly the fraud occurred and how it was used to deceive someone in a contract.
In regard to issues of performance, the court can still find you liable for contract fraud if you intend to not fulfill the contract. If you fail to meet the terms of the contract, it will not constitute fraud unless you did commit deception to induce the agreement. However, the plaintiff needs to prove certain elements for a fraud case.
Below are the elements that need to be considered for a contract fraud case. If you claim that a person has defrauded you, the burden is on you to prove it. You need to demonstrate the following elements for your case:
- The party made a material representation, not an opinion. The judge will examine the facts of the case to determine whether it is enforceable as a fact or an opinion;
- The material representation claimed the party is false and the party failed to meet their end of the contract;
- The other party knew or should have known their statement was false. Meaning, concealing the actual truth and misleading the truth;
- The false statement induced your decision-making process. It influenced the outcome of the contract and played a significant role in obtaining the agreement; and
- Following these false claims and statements, the plaintiff acted in a certain way due to the deception and, as a result, suffered damages. This would mean losing profits or losing reputation in the industry because you decided on that contract based on the false claims made.
Furthermore, it is critical to understand that fraud claims cannot cover promises of future conduct. For instance, if the other party stated that they expected to produce units weekly by the end of the next couple of months, the courts would not treat this statement as a material representation. Each case is unique, and pinpointing the fraud is a challenge.
How to Avoid Contracting Fraud?
There are several preventative measures available to avoid contract fraud. Being diligent and assessing the contracts before signing is key in any deal. Seeking legal counsel before signing a contract is also another option to ensure no fraud is involved. Below is a brief breakdown of some essentials before diving into a contract agreement.
The initial research is critical in gathering necessary information about the contractor’s business. You can search online, collect information, and look at reviews to determine their authenticity. For businesses, you can check other websites to confirm they are reputable. LegalMatch.com can assist in checking some of these through their legal resources.
Another way to prevent fraud is to check around for references to determine how the contractor performs the work versus how they are portrayed to perform. To negotiate the best price, you can ask for multiple quotes and create a list of what is a priority for your business to thrive.
Before agreeing to anything, it is important to have it in writing through a contract. This will solidify the business relationship and avoid any miscommunication. Starting any work without a contract is risky. In general, contracts should include contact information, timelines, detailed descriptions of the work to be completed, material costs, payment arrangements, warranty information, and all verbal promises made by the contractor.
Another major component is the validation of various licenses and insurance. The contract should have accurate date licenses and insurance to operate in your area. You can make a call to ensure they have the right coverage; never assume that they will have everything. Specifically, you can inquire about the coverage for workers’ compensation, property damage, and personal liability in the event of an accident.
Additionally, checking for building permits is necessary to operate anywhere. The contractor needs to obtain the correct permits before initiating a project. You can have a section in the contract to ensure this is completed. Also, you should create a payment schedule and plan for future service issues. Managing any issues that may arise due to services is critical. It is recommended not to make the full payment upfront but to stagger the payments so that the final installment is not due until the work is complete and has been fully inspected.
Obtain a receipt for all the materials used and labor costs so there are no last-minute expense surprises. Having an itemized receipt will make it easier to detect fraud. Lastly, maintaining a copy of the contract for your records is a smart move.
What Are the Remedies for Contract Fraud?
There are remedies available for contract fraud. The court can award monetary damages as a remedy for fraudulent contracts and reimburse the non-breaching party for the losses caused by fraud. However, courts can also grant injunctions in some situations.
Other remedies can include revocation of the contract and damages. Contract revocation is considered one of the common remedies to fraud since it deems the contract voidable. However, the parties can choose to revert to their pre-contract positions.
When Do I Need to Contact a Lawyer?
Contract fraud lawyers can help you determine if fraud occurred at any point in your agreement. There are several remedies available for contract fraud and deception. Fraud can be subtle and detecting it can be challenging.
If you suspect fraud, reach out to a qualified contract attorney to help you figure out what your steps are to file a claim. LegalMatch can help connect you with the ideal lawyer for your contract case.
