Breach of contract occurs when one party or parties to a contract fail to adhere to some or all of the contract terms. A binding contract between parties can be either a written agreement or a verbal agreement.

For example, suppose an individual hires a contractor to construct a shed in their backyard. Suppose the parties agree to the terms, including a payment of $1,000 with half that amount to be paid at the onset of the job and the remainder to be paid upon completion of the project.

If the contractor receives the initial $500 payment and completes the shed in a timely manner but the contractor only receives $250 as the final payment, it would be considered a breach of the contract. In this example, the individual who hired the contractor is the party who breached the agreement.

Examples of breach of contract may include:

  • Failing to pay on time;
  • Failing to deliver goods or services;
  • Providing inferior goods or services; and
  • Failing to complete a job.

Pursuant to contract laws, the non-breaching party usually has the right to some type of remedy. The remedies for breach of contract claims may include:

The remedy which a court imposes will depend on the facts and circumstances of the particular case. The court will review the totality of the circumstances in breach of contract claims in order to determine a just outcome.

What is a Fraud in a Contract Claim?

A fraud in a contracts claim occurs when one party to the contract causes economic injury to another party to the contract through misrepresentation. The laws governing contracts are very strict regarding fraudulent conduct because the parties are expected to conduct business with one another in a fair and reasonable manner.

In order for a party to prove fraud in a contract claim, it is typically necessary to show that a defendant knowingly made a misrepresentation of an important material fact related to the contract. In addition, the defendant must have intended to defraud the other party.

The non-violating party must have reasonably relied on that misrepresentation, which resulted in economic loss to that party. An example of contract fraud occurs when a defendant knowingly lied about the price of an automobile in a vehicle sale in order to obtain a more favorable profit from the transaction.

Contract fraud claims usually involve one party engaging in dishonest conduct in order to make an economic gain. Usually, a court will void a fraudulent contract.

Can I File a Fraud Claim Simultaneously or Within a Breach of Contract Lawsuit?

In some cases, a lawsuit may involve a breach of contract claim as well as a fraud claim. Although these claims are not permitted to be filed simultaneously, the court will usually focus on the breach of contract claim and will dismiss the fraud claim.

The rationale behind this is that the claims are duplicitous and the allegations of fraudulent conduct are implied in the breach of contract claim. There may be an exception to this rule, however, if the fraud claim arises from a different set of facts than the breach of contract claim.

In these cases, the court may permit two separate cases to be filed.

Is it Possible to Use Fraud as a Defense in a Contracts Claim?

Yes, it is possible to use fraud as a defense in a contract claim. Fraud is a commonly cited defense to a breach of contract claim.

For example, suppose that a purchaser fails to render payment for goods which were already delivered to them by the seller according to the terms of the contract. If, however, it is later discovered that the purchaser used fraudulent documents to complete the contract, it may render the contract void.

In other words, a court may void the contract and the purchaser will not be held liable for breach of contract. It is important to note that fraud may result in rendering a contract either void automatically on its face or voidable, meaning it may be voided at the option of the non-violating party.

These issues involve the difference between fraud in the factum and fraud in the inducement. These legal distinctions are very complex which typically require the assistance of a contract lawyer.

In other words, asserting the defense of fraud allows the breaching party to a contract to avoid liability because the fraud of the other party negatively affected the contract duties.

What are the Different Types of Contract Fraud?

In general, there are two categories of contract fraud, fraud in the inducement and fraud in the factum. Fraud in the inducement, which is also known as fraudulent inducement of contract, occurs when one party knowingly provides misinformation to another party in order to make a deal.

The other party must presume the contractual information provided is accurate and enters into the contract. Fraudulent inducement if a contract is illegal and, in most situations, the court will typically rescind, or cancel, that contract.

Fraud in the factum involves deception by one of the parties. In these cases, the other party unknowingly enters into a contract based on that deception.

Fraud in the factum can be used as a legal defense by a party who unwittingly entered into a contractual obligation due to deception. The basis of fraud in the inducement and fraud in the factum is an intentional misrepresentation.

If on party argues that an intentional misrepresentation constituted a breach of contract, they are required to prove the elements of fraud in the inducement or fraud in the factum, which include:

  • A material misrepresentation of fact was made;
  • The individual making the misrepresentation knew it was untrue;
  • The individual making the misrepresentation did so to persuade another individual to enter into an agreement;
  • The misrepresentation was relied upon by the other party; and
  • The other party would not have agreed to the terms if they were aware of the truth.

What if Both Parties have Engaged in Fraudulent Behavior?

If both parties to the contract have engaged in fraudulent behavior, it typically means that neither of the parties will be able to recover damages from the other party. In other words, if one party to a contract claims fraud as a defense, they must not have been engaged in fraud themselves.

If this occurred, it would be considered unfair and, therefore, a court will typically cancel a contract in these types of situations.

Do I Need a Lawyer for Assistance with Fraud and Other Contract Defenses?

It is essential to have the assistance of a contract lawyer for any issues, questions, or concerns you may have related to fraud and other available contract defenses. A contract violation can be very difficult and challenging to navigate.

Your lawyer can review your case, advise you of the laws governing contracts in your state, as well as provide you with available defenses. Your lawyer will assist you with filing your claim as well as represent you during court proceedings. Your attorney will also be able to advise you regarding the possibility of filing two separate claims, one for breach of contract and one for fraud.