What is Contract Fraud?

Contract fraud is when one of the parties involved in a contractual agreement presents information to the other party that is false, misleading or deceitful in order to gain a favorable advantage.

What Makes a Contract a Fraudulent One?

Six conditions need to be met for a court to decide a contract is fraudulent:

  • There must be a contract that exists with a material effect on an agreement. Both parties must have agreed to clear terms and conditions binding them to the agreement. There also needs to be some representation of facts as well.
  • There has to be a clear misrepresentation of the facts by the defendant upon which the other party signed the contract.
  • The defendant has to be aware they were misrepresenting facts when they said what they said or at some point in the course of their transaction with the other party.
  • There must be proof to show that a defendant did misrepresent facts with the intent to push the other party into signing the contract.
  • The plaintiff may have relied on false information which could have led to damages on the part of the plaintiff.

Types of Contract Fraud

Fraud in the Inducement: This type of contract fraud occurs when both parties are aware that a contract binds them, but the plaintiff had been misled by false facts with the intent to gain certain unfair advantages when they signed the contract. The plaintiff can use fraud in the inducement as a defense against a breach of contract claim. Whoever files a breach of contract claim has to show proof that the other party freely signed the contract. Misinforming one party in the bid to deceive them would render the contract terms invalid, and the other party free of any contractual obligations stated in the agreement.

Fraud in the Factum: When it comes to this type of contract fraud, the victim tends not to know that they are in contract with the fraudster. Another feature is the misrepresentation of the subject matter of the contract. In this case, the victim may know that they’re bound by a deal, but they have been led to misinterpret the terms and conditions of the contract. Many times, this is a result of the victim’s inability to comprehend the consequences and obligations of the contract they have signed. Fraud in the factum can also be a defense against a breach of contract claim. One party can show proof that they were made to misinterpret the terms and conditions of the contract. If they’re successful, they may be awarded money as compensation for known injury such as emotional pain, money paid to the fraudster or property relinquished.

How to Prepare for Contract Fraud Lawsuit

In case you are facing a contract fraud lawsuit; the first step is to quickly research the allegedly fraudulent statements made by the plaintiff. You should then seek legal advice from your attorney.