What You Should Know About Breach of Contract with Fraud Claims

Contracts are used in business to create legally binding agreements between parties. Violating any of the conditions or terms of the contract is referred to as a breach of contract. A contract breach can result in a civil cause of action that may result in a variety of damages, including monetary damages and specific performance. 

In some cases, a contract breach may also include allegations of fraud. Fraud damages and the remedies for fraud may be different from remedies for contract breach. Let’s examine contract fraud claims in greater detail.  

Is Fraud A Tort?

Fraud is typically defined as the intentional misrepresentation of an existing material fact to persuade a party to take certain actions. A party can also be guilty of fraud if the party intentionally omitted or failed to disclose material facts that result in other statements being false or misleading. 

Fraud is rooted in tort law, which governs claims for acts that resulted in harm to another party. A contract breach involving fraud is an intentional tort. 

Examples of Contract Fraud

Contract fraud occurs when one party to a contract uses information that is false, misleading, or deceitful. There are two basic types of contract fraud involving torts:

• Fraud in the inducement occurs when a party to a contract provides false information that persuades the other party to enter into the agreement. For example, falsely claiming that by signing a purchase agreement for a vehicle you receive free tires and oil changes for the time you own the vehicle.
• Fraud in the factum or fraud in the execution occurs when a party enters a contract without understanding the obligations, duties, and risks associated with the transaction. For instance, tricking someone into signing a deed to their home by telling them they are signing a tax waiver. Fraud in the execution typically voids a contract.

Is Breach Of Contract A Criminal Offense?

A breach of contract is a civil cause of action. However, there are cases in which a breach of contract could result in a criminal offense. Breach of contract actions based on non-performance or misunderstandings are typically civil actions handled in civil court. The party who sustained damages files a breach of contract complaint. 

However, when a breach of contract includes fraud, the party committing the fraud may be charged with a crime. The criminal court systems prosecute allegations of fraud. A federal, state or local prosecutor files criminal charges against the party committing the tort. A criminal fraud case does not require that the fraudulent act was successful or resulted in actual harm or damages. The fact that the person committed fraud is the basis for the case. A civil case for contract fraud requires fraud and harm or damages.

Is Fraudulent Misrepresentation A Breach Of Contract?

Fraudulent misrepresentation can be considered a contract breach. The party claiming breach of contract must prove all the legal elements of fraud in execution or fraud in the inducement. 

For the contract breach to involve fraud, you must typically prove:

• A party made a representation
• The representation was false
• The person making the representation knew that it was false when they made the representation
• The party making the false representation intended for the victim to rely upon the false statement
• The victim relied upon the fraudulent misrepresentation 
• The victim sustained harm or damages because of his reliance on the misrepresentation

Most civil actions regarding contract breach begin with a demand letter for breach of contract. If the breach of contract demand letter does not resolve the breach, the victim may file a lawsuit for breach of contract.

How Do I Sue For Fraudulent Misrepresentation?

You can sue for fraudulent misrepresentation; however, a breach of contract lawsuit and fraud claim are separate causes of action. The claims must rely on a different set of facts and circumstances to file a fraud claim and a breach of contract claim simultaneously. It can be difficult to determine which cause of action to pursue in civil court when a breach of contract involves fraud. It is important to consult an experienced attorney before filing a lawsuit to explore all options and potential remedies for a contract fraud claim. 

How Much Can You Sue For with Breach Of Contract?

The amount you might receive for a breach of contract claim depends on numerous factors, including whether your claim involves fraud. Damages for contract breach and damages for fraud may be slightly different. For example, because fraud actions necessarily involve wrongful conduct, courts may award punitive damages. Punitive damages are usually not applicable in most breach of contract cases. 

Punitive damages for fraud “punish” the wrongdoer for their intentional tortious acts. Other damages that might be awarded in a contract breach case include:

• Compensatory (monetary) damages
• Specific performance
• Nominal damages
• Liquidated damages
• Cancellation of the contract
• Voiding the contract
• Quantum Meruit (reasonable amount for work or services provided by non-breaching party)

Working with an experienced attorney who understands all remedies available for a breach of contract claim can increase your chance of winning and recovering the full value of your claim.