Fraud and Misrepresentation

In the business world where deals are struck and broken daily it is important to understand what the requirements are from start to finish, however beyond the fundamental scope to the creation of the original terms contracts agreements there are other underlying principles that must be explored that makes a contract voidable or invalid. This paper will explore the those principles that go beyond the scope of the formation, now you can start getting into the meats and potatoes of a contract agreements and find out what makes a contract invalid, what is involved fraudulent misrepresentation that persuades a person or party to false enter into a contract, what the types of damages there are and the equitable remedies for those damages and lastly the common law doctrines used to dissolve contract claims involving fraud and/or misrepresentation.

What constitutes an invalid contract?

When there is a situation involving fraud and the facts do not match or are not in accordance with the declaration of the contract, then it is good chance misrepresentation or fraud is involved to trick the person into entering into a contract which by law makes the contract voidable to the innocent party.  If this happens the innocent party has the right to cancel the contract, ask for compensation or accept the contract and sue for contract damages.  The Business Law states there are four elements of that must be used to prove misrepresentation or fraud has occurred. Those four elements are:

1. The wrongdoer made a false representation of material fact.
2. The wrongdoer intended to deceive the innocent party.
3. The innocent party justifiably relied on the misrepresentation.
4. The innocent party was injured.

These four elements are what makes a contract invalid and voidable, whether orally or written and for these assertions to be enforceable as misrepresentation a preexisting or contemporary material fact played an important role in provoking the innocent person or party into a contract. There are several types of fraud that an innocent party could claim if the facts presented in the contract indicate a breach has occurred. The most common types of frauds in which a person or business may encounter involving fraud are the following:

1. Fraud in the inception
2. Fraud in the inducement
3. Fraud by Concealment
4. Silence as Misrepresentation and
5. Innocent misrepresentation

Undue influence and duress that can arise in the business context

When there is situation when a person or business is incoherent to contractual terms of a contract agreement, but the other party knows about the terms of the contract agreement than according the Business Law defines this as undue influence in “…which one person takes advantage of another person’s mental, emotional, or physical weakness and unduly persuades that person to enter into a contract…” In order for a contract agreement to legit, both parties must be mentally, emotionally, and physically coherent and competent to the terms of the contract agreement for it to valid, if not then makes the contract void.  In order for undue influence to be proven as stated in the Business Law literature the two underlying factors must exists

1. “A fiduciary or confidential relationship must have existed between the parties” 
2. “The dominant party must have unduly used his or her influence to persuade the servient party to enter into a contract.” 

If a person or party is under duress, or put under pressure to perform or act because they were threatened or coerced into signing a contract, than the courts stipulate the there was no genuine assent to form the contract, as result this interpreted as fraud or misrepresentation, making the contract void, voidable or unenforceable. 

Types of damages and equitable remedies in contract cases

In the case where there is breach of contract, the duty of care in which one party owes a duty to the other for performing an act is categorized into three levels complete, substantial, and inferior. 

1. Complete performance, also known as strict performance, occurs when the contracting parties fully execute the terms of contract as expected and required. 
2. Contract can be discharged
3. Substantial performance, also known as a minor breach, occurs when the performance by a contracting party slightly deviates from complete performance of the contract.
4. The non - breaching party can recover damages
5. Inferior performance, also known as material performance, occurs when a party fails to meet an and uphold to contractual obligations which hinders or destroys the very essence of the contract. 
6. Non-breaching party may either rescind the contract or recover restitution
7. Non-breaching party may either affirm the contract or recover damages.

Remedies for breach of contract are organized into two categories, monetary and equitable. Monetary damages include - compensatory, consequential, liquidated, and nominal

1. Compensatory Damages that compensate a non-breaching party for the loss of a bargain. It places the nonbreaching party in the same position as if the contract had been fully performed. 
2. Consequential Damages that compensate a non-breaching party for foreseeable special damages that arise from circumstances outside a contract. The breaching party must have known or should have known that these damages would result from the breach. (Cheeseman, 2013)
3. Nominal Damages awarded against the breaching party even though the non-breaching party has suffered no financial loss because of the breach. A small amount  is usually awarded. 
4. Liquidated An agreement by the parties in advance that sets the amount of damages recoverable in case of breach. These damages are lawful if they do not cause a penalty. 

Types of damages

In the case where a person commits fraud, the innocent party can file a motion for tort liability which they could ask the court for compensatory damages the failure to perform , punitive damages. Some states requires stipulates that an innocent party must choose either between rescinded the contract or sue for the damage. However, some states stipulated that the innocent party can pursues both rescission and damage remedies. An innocent party injured by fraud in a contract for the sale of goods a can choose both rescind and sue for liable damages.

Equitable Remedies

Equitable remedies are remedies available to the innocent party when there is breach in a contract where legal remedies are not satisfactory to compensation to prevent or dissolve unfair enrichment. Sale contracts’ requiring an owed duty to perform a certain act obligates the parties to conform to the specified terms of the agreement under the Uniform Commercial Code UCC-2-301 and 2A-301. Generally equitable damages include - specific performance, reformation, and injunction. (Cheeseman, 2013)

1. Specific performance - A court orders the breaching party to perform the acts promised in the contract. The subject matter of the contract must be unique. (Cheeseman, 2013)
2. Reformation - A court rewrites a contract to express the parties’ true intentions. This remedy is usually used to correct clerical errors.
3. Injunction - A court prohibits a party from doing a certain act. Injunctions are available in contract actions only in limited circumstances. 

When those terms are breached the following remedies were instituted for sellor and lessor performance Right to Withhold Delivery Right to Stop Delivery of Goods In Transit Right to Reclaim Goods Right to Dispose Goods Unfinished Goods Right to Recover the Purchase Price or Rent Right to Recover Damages for Breach of Contract Right to Cancel a Contract When those terms are breached the following remedies were instituted for buyer and lessor performance Right to Reject Nonconforming Goods Or Improperly Tendered Goods Right to Recover Goods From And Insolvent Sellor Or Lessor Right to Obtain Specific Performance Right to Replevy Goods Right to Cancel a Contract Right to Recover Damages for No Delivery or Repudiation Right to Recover Damages for Accepted Nonconforming Goods Common Law Doctrine The “common law doctrine is a contract law used by everyday people in which a contract or agreement was made that legally binds two parties to the agreement.

Summary

As stated in the Business Law literature, there are three requirements for a contract to exist, an offer, an acceptance of the offer, and consideration, which in this case all three are present. However for the contract to valid and enforceable, it must include an agreement between the two parties, reasonable consideration must given to perform and complete the contract terms, both parties must be mentally aware, knowledgeable capable of the terms of the contract or agreement they are entering from the beginning to the end, and last by law the contract must be legal to do according to federal and state statutes. (Cheeseman, 2013)

Bibliography

1. Cheeseman, H. (2013). Business Law (8 ed.). Pearson. Retrieved July 2014

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