A contract is a legal document that makes mutual obligations between the parties entering the contract. There are many different kinds of contracts.

Further, the regulations regarding contracts differ by state. It is always essential for an individual to have an attorney review any agreement before signing.

What Is Necessary to Form a Contract?

Several elements are required to form a proper and legally enforceable contract. These include:

  • An offer;
  • An acceptance of the offer;
  • Mutual assent, or an agreement by both parties as to what the subject matter of the contract is and what the terms mean;
  • Both parties freely consent to enter into the contract; and
  • Mutual contract consideration, or the exchange of something of value in return for the other party’s promise or service.

What Is Contract Fraud?

In some circumstances, a party may enter into a contract due to intentional misrepresentation or deceit of the other party. In these circumstances, a court will usually find no proper agreement between the two due to fraud.

An individual may also perpetrate contract fraud when, through misrepresentation, they mislead another person into signing a contract when they do not recognize they are entering into one.

What Are Types of Contract Fraud?

There are two major types of contract fraud: fraud in the inducement and fraud in the factum (also known as a fraud in fact). Fraud in the inducement transpires when a party is misled or tricked into signing a contract because of another person’s knowingly inaccurate statement that they reasonably relied upon. In these circumstances, the deceptive statement is created to cause an individual to enter into a contract that they otherwise would not have.

The elements of fraud in the inducement claims include:

  • Misrepresentation or omission of a material fact made by the defendant;
  • The defendant knew at the time the statement was made that it was incorrect;
  • The defendant making the statement to cause the plaintiff to rely on it, or inducement;
  • The plaintiff reasonably relied on the defendant’s misrepresentation;
  • Reasonable reliance that which a prudent individual, or a person with average intelligence and common sense, would believe and how they would act in response to the misrepresentation;
  • The reasonable reliance caused legal injury to the plaintiff

Legal injury may include the plaintiff losing money or parting with a valuable possession they would not have given up but for the misrepresentation. A valid injury may also include emotional distress.

An individual may sue a deceiving party for fraud in the inducement. This can also be used as a legal defense to a breach of contract claim. Breach of contract happens when a party fails to fulfill its legal obligations under an agreement.

To establish a breach of contract claim, a party must demonstrate, among other things, that the contract was willingly entered into. A contract entered into through a fraudulent enticement was not willingly entered into.

Fraud in the factum happens when individuals enter into an agreement based on a fraudulent misrepresentation to their disadvantage. In these circumstances, the misrepresentation causes the victim not to understand the nature, substance, or results of that which they agree to. A typical example of this type of fraud happens when an individual makes a misrepresentation about the nature of a legal document and causes the other party to sign the document and be bound by it.

Fraud in the factum typically happens when an individual thinks the agreement is not legally binding when, in fact, it is a contract. This kind of fraud also happens when the person feels they are signing a contract that pertains to a distinct subject matter when, in fact, the other party has misrepresented the subject matter.

Fraud in the factum may also be used as a defense to a breach of contract claim. A contract entered into based on fraud in the factum will normally be set aside by a court because the consent acquired from the person is legally inadequate. In these circumstances, inadequate consent may be due to the party’s mental incapacity or physical impairment, which caused them not to understand the risks, rights, and responsibilities created by signing the contract.

The disgruntled party may receive damages for their injury. Damages may include monetary damages intended to compensate the party for money they gave to the person who perpetrated fraud. Further, an individual who was a victim of fraud in the factum may also be able to recover the property they gave to the person who perpetrated the fraud.

Can I Claim Fraud If I Did Not Suffer Any Injury from the Misrepresentation?

No, an individual cannot claim fraud if they did not suffer any injury from the misrepresentation. An individual must have suffered some injury to recover damages and bring a fraudulent contract claim, such as monetary damage.

What Is “Silent Fraud” in a Contract Claim?

In a contract setting, silent fraud happens when one party fails to disclose material facts of the contract. Generally speaking, fraud of any kind is forbidden during contract transactions.
Silent fraud can be somewhat common in contract claims.

An example of silent fraud is where a car salesman intentionally fails to reveal that the odometer in a car has been tampered with. If the failure to disclose such information causes losses to the other party, they may have a claim for silent fraud.

How Is Silent Fraud Proven?

To establish silent fraud in a contract claim, the plaintiff must show that:

  • The defendant failed to reveal or disclose material facts involving the subject matter of the contract;
  • The defendant knew the material fact or facts;
  • The plaintiff had a false impression due to the defendant’s failure to disclose the facts;
  • At the time of the failure, the defendant knew that the failure to disclose would cause a false impression;
  • At the time of the failure to disclose the facts, the defendant intended that the plaintiff would rely on the false impression;
  • The plaintiff relied on the false impression; AND
  • The plaintiff suffered losses as a result of relying on the false impression.

Therefore, many different steps need to be addressed to establish silent fraud. If any of the elements listed above are not satisfied, the defendant may be able to defend against the claim.

What Are the Remedies for Silent Fraud in a Contracts Claim?

If silent fraud happens, the non-liable party can usually:

Rescind (cancel) the contract and be compensated for any consideration (usually money); OR
Affirm the contract agreement and sue to receive a damages award (for example, if the contract property has decreased value).

In some circumstances involving malicious or criminal intent, criminal charges can be brought against the defendant. These can result in consequences like criminal fines or even a jail sentence for the defendant.

Do I Need a Lawyer for Silent Fraud in a Contract Claim?

Contract laws can be very complicated and differ from state to state. If you have any inquiries or legal problems involving silent fraud, you may wish to submit your claim to an experienced contracts lawyer.

It is essential to have the help of an experienced contract attorney for any problems involving contract fraud. Contract fraud can be a complex issue. An attorney can examine the contract, decide if fraud occurred, and represent you during any court proceedings. Your lawyer will be able to examine your options and can represent you in a court of law during the trial. Many silent fraud claims can get overlooked because the plaintiff wasn’t aware of an omission, so be sure to present your lawyer with as many facts as possible.