One of the most significant elements of a valid and legally binding contract is that all parties must accept the specific terms of the arrangement. Any contract may be invalidated if the expressed contractual terms are inaccurate or false. Fraudulent misrepresentation occurs when one party to a contract knowingly makes inaccurate or deliberately misleading statements, whether the party committing fraud does so in writing or verbally. Speak with one of the knowledgeable contract law attorneys with Harrison Law, PLLC, at (480) 320-2310 to learn more about fraudulent misrepresentation.
What Is Fraudulent Misrepresentation in Business?
Fraudulent misrepresentation in business occurs when one party entering into a commercial contract makes false statements or promises. The presumption of good faith for businesses entering into agreements is essential to the ordinary flow of commerce, and fraudulent misrepresentation can have catastrophic consequences for everyone involved.
What Is the False Claims Act?
The False Claims Act is a federal statute enacted in 1863 to protect parties from defense contractor fraud during the Civil War. Recognizing that the everyday conduct of business depends on the ability of all involved to act on the presumption that the parties with whom they are negotiating are acting in good faith, this federal law provides a pathway to relief for parties who suffer damages after entering into fraudulent contracts and agreements.
What Are the Six Elements of Fraudulent Misrepresentation?
Fraud requires that an individual or entity purposefully or recklessly misrepresents a fact to convince another party, or more than one, to enter into the contract. The factors that must be present to establish fraudulent misrepresentation include the following:
- A party to the contract made a representation
- A condition or claim of the agreement was false
- The party making the claim was aware that it was false
- Another party to the contract relied on the false claim
- The defrauding party made the false claim to persuade another party to agree to the contract terms
- The deceived party suffered damages because of the contact’s false claim
The misrepresentation can happen in various ways, including written text, nods or other gestures or motions, or spoken words. Regardless, when one party negotiating with other people or entities to enter into a contract makes false and misleading statements, they open the door to a charge of fraudulent misrepresentation. If other parties enter into the contract because of such deliberate inaccuracies and later discover the deception, they may bring legal action against the deceiving party if they have suffered damages as a result of their involvement in the contract.
What You Should Know About Breach of Contract With Fraud Claims
Under normal circumstances, a breach of contract occurs when one party to an agreement fails to uphold their end of the deal. However, when a person or business makes misleading or deceitful statements or claims for the purpose of inducing another party to enter into a contractual agreement with them, and that party suffers damages or losses, the deceptive party is committing contract fraud.
Contracts are an essential part of business and create legally binding agreements between parties entering the contract. A violation of the terms or conditions is called a breach of contract, and while that is typically based on underperformance or misunderstandings, sometimes it is intentional. When the contract breach involves deliberate actions and fraud, the person who misled the other parties could face civil action from those parties. In some cases, they may even be subject to criminal penalties; according to Arizona Revised Statutes § 13-2310, any person or business that benefits by purposefully or knowingly making false statements is guilty of a scheme or artifice to defraud, a Class Two felony.
What Makes a Contract Valid?
A valid contract between two or more people or entities must include specific elements to create a legally binding contractual agreement. The essential components of a valid contract are an offer of services or payment, acceptance of the terms, consideration, mutual obligation, and competency.
- A contract offer is an agreement from one party to provide something in exchange for the other party’s services or goods.
- The acceptance element involves the second party agreeing to the terms provided by the other party to form a legally binding contract.
- Consideration is the gain or benefit that both parties to the contract expect to receive by entering into the agreement.
- The contract’s mutual obligation is the agreement that both people or companies must fulfill the duties and obligations they agree to complete.
- Finally, everyone entering into a contract must be of legal age and have the mental competency to understand and sign the agreement.
The primary components of a legally binding contract are an agreement between parties in exchange for something of value. A qualified lawyer at Harrison Law, PLLC could review agreements and protect you from issues involving fraudulent misrepresentation.
What Makes a Contract Null and Void?
A legal misrepresentation consists of false statements of information for which the information involved is critical to the contract and the verbal or non-verbal indications influence another person or business to enter into the agreement. The court may declare the contract invalid if a case goes into litigation and the plaintiff establishes misrepresentation. Further, the court will likely award damages if the plaintiff is able to prove that they have suffered verifiable losses.
Void Contracts Are Not Legally Enforceable
Void contracts are not legally enforceable. Although the parties have in many cases been operating as if the contract were in force, once a court finds a contract to be null and void the law treats it as if it never existed.
The three causes of a void contract include the following:
- The incompetence of one of the parties that entered into the contract
- The inclusion, in the contract, of provisions or promises of an illegal act or consideration
- Impossibility of performance, for one of the parties to the contract, to carry out their portion of the agreement
Void contracts are those that are defective or unlawful, and as a result legally unenforceable from the time of their creation. In some cases, however, contracts not dependent on any party’s fraud may still be voided after all parties, operating in good faith, have treated them as valid, if future actions or changes to the legal code nullify some or all of the contract’s provisions and make the fulfillment of the agreement impossible.
Speak With an Experienced Attorney To Learn More About Fraudulent Misrepresentation Today
Fraudulent misrepresentation is a term used in civil litigation falling within contract law. Tort claims arise when a party to a contract makes false statements or misleading statements of facts that cause others to enter into the contract agreement. The parties that file the legal action, or plaintiffs, must also have sustained damages because of the fraudulent statements in order to have an actionable claim. When a person or business lies, deceives or distorts essential facts to mislead others that an agreement is beneficial for everyone involved, the court may hold them accountable for damages. Schedule a consultation with one of the seasoned business and contract law attorneys at Harrison Law, PLLC, at (480) 320-2310 if you have questions about fraudulent misrepresentation.
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This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.
