Key Takeaways

  • Fraud in the execution occurs when a person is deceived about the nature or contents of a document they are signing.
  • Unlike fraud in the inducement, fraud in the execution attacks the contract’s validity from the start.
  • Courts often void contracts affected by fraud in the execution, rendering them legally unenforceable.
  • A plaintiff must prove they lacked reasonable opportunity to understand the document due to deception or inability (e.g., illiteracy, blindness, language barriers).
  • Common examples include tricking a person into signing a different document than they believed or altering a contract after review without disclosure.

Fraud in the execution is an illegal act that can lead to serious consequences. Fraud is considered any action that is deliberately planned to deceive another person with a negative effect towards that person. Fraud can include misrepresenting an aspect of a transaction or leaving something out of a contract that could lead another party astray. Committing fraud can be a serious criminal act.

Understanding Types of Fraud

Actual fraud is committed when there is an intent to hurt someone else. Constructive fraud doesn't always involve an intent to deceive, but it is still considered fraud by law. Because it leads to the same result, constructive fraud is usually treated the same as actual fraud.

Extrinsic fraud occurs when someone is swindled or receives a false offer to not present a case in court. Also called collateral fraud, this action usually stops a full and fair hearing from taking place.

Fraud is considered fraud in law when it happens in light of the circumstances, regardless of an intent to deceive.

Fraud in the factum occurs when one party deceives another party so that they misunderstand the nature of the transaction they are entering into. This most commonly occurs with parties entering into a contract together and is also known as fraud in the execution. Fraud in the factum happens when a contract that is actually created is different from what was intended to be created, especially when the person being deceived into signing the fraudulent document doesn't have time to review what they are signing. 

This could happen if a blind person is told they are signing a letter when they are really signing a lease, or if an elderly person is told they are signing a permission slip when they are really signing a form to change their will and who receives their fortune. This can also happen if two people agree on a contract, but at the last minute one of the people makes changes to the contract and doesn't allow the other party to review the deceptive changes. In most cases, fraud in the factum voids a contract.

Legal Consequences of Fraud in the Execution

Fraud in the execution carries significant legal implications because it undermines the very existence of a contract. When a court finds that fraud in the execution occurred, the agreement is considered void—not merely voidable. This means that no valid contract was ever formed, and neither party can enforce its terms.

Key consequences include:

  • Automatic invalidity of the contract. Courts treat the contract as if it never existed.
  • Relief from contractual obligations. The deceived party is released from any duties imposed by the document.
  • Potential damages. The fraudulent party may be liable for damages resulting from their deception.
  • Possible criminal charges. If the fraud involves forgery or similar misconduct, criminal penalties may apply.

This distinction is critical because fraud in the execution challenges whether a true meeting of the minds ever occurred at the time of signing.

Fraud in the Inducement

One the other hand is fraud in the inducement, which happens when one party encourages the other party to sign a contract that they don't understand. This occurs when one person scams or uses deceptive tactics to get the other person to do what they want them to. According to law, for fraud in the inducement to have happened, two things need to occur:

  • One party has misled the other about the facts and
  • The other party used those facts to make a choice

An example of this would be if Joe told Susan that a bank was coming to foreclose her house unless she signs the house over to Joe. While the facts may be true, Joe is misleading Susan as to what will really happen if she signs over her house. It can also happen if someone knowingly finalizes a will but includes clauses that came about deceptively. 

Another example is if Sally tells Bob that she is a licensed real estate agent and can help him purchase property if he signs a contract. Sally is not actually a real estate agent but Bob signs the contract because he has been deceived. Fraud in the inducement happens because Bob signed the contract believing he was actually going to work with a real estate agent. Fraud in the inducement involves the circumstances that led a person to act.

Fraud in the inducement is always illegal. The contract can be voided if the court finds that it was entered using fraud. If this happens, any duties in the contract are considered fraudulent and don't have to be followed.

Common Examples of Fraud in the Execution

Understanding real-world examples can clarify how fraud in the execution differs from other fraud types. Some common scenarios include:

  • Signing under false pretenses. An elderly individual is told they are signing a permission slip, but the document is actually a deed transferring property ownership.
  • Language barriers exploited. A person who does not read English is presented with a document and told it’s a simple authorization form, but it’s a loan agreement.
  • Document swapping. One party switches the signature page of a contract after it’s been signed to attach it to a different agreement without the signer’s knowledge.

In all these cases, the signer did not knowingly agree to the contract’s true terms or nature, making the document unenforceable under fraud in the execution.

Additional Forms of Fraud

There are other types of fraud, including:

  • Fraud on the court, where the integrity of the judicial process is undermined, such as if a judge or jury is improperly influenced
  • Intrinsic fraud, when someone tries to convince a person of something that isn't true by using forged documents or false claims
  • Mail fraud, which involves fraud committed using the postal service and mail
  • Wire fraud, which is committed by using electronic communication like a telephone

Proving Fraud in the Execution in Court

Successfully claiming fraud in the execution requires proving specific elements:

  1. Lack of knowledge of the document’s nature. The signer was unaware of what they were signing due to misrepresentation.
  2. Deception or concealment by the other party. The fraudster actively misled or prevented the signer from understanding the document.
  3. No reasonable opportunity to discover the truth. Courts expect that a signer exercises reasonable care, unless circumstances (e.g., blindness, illiteracy, language barriers) limited their ability to verify the document.

Courts scrutinize claims carefully, emphasizing whether the plaintiff had a reasonable chance to read or have the document explained. Simply failing to read the contract is not enough; the deception must effectively prevent the signer from understanding what they signed.

Frequently Asked Questions

  1. What is the difference between fraud in the execution and fraud in the inducement?
    Fraud in the execution deceives a person about what they are signing; fraud in the inducement deceives them about reasons to sign a valid contract.
  2. Is a contract automatically void if fraud in the execution occurred?
    Yes, fraud in the execution makes a contract void from the beginning, meaning it was never legally valid.
  3. How can someone prove fraud in the execution?
    The plaintiff must show they didn’t know what they were signing and had no reasonable opportunity to learn due to deception or incapacity.
  4. Does failure to read a contract qualify as fraud in the execution?
    Not by itself. Courts expect reasonable diligence unless a disability or deliberate deception prevented understanding.
  5. Can fraud in the execution lead to criminal charges?
    Yes, depending on the circumstances, such as forgery or intentional falsification of documents.

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