Fraud In the Factum: Everything You Need to Know
Fraud in the factum is a misrepresentation that causes one party to enter into a transaction without clearly understanding the duties, obligations, or risks incurred. 3 min read
2. Elements of Fraud
3. Types of Recovery
Fraud in the factum is a misrepresentation that causes one party to enter into a transaction without clearly understanding the duties, obligations, or risks incurred.
Fraud in the Factum
The word "fraud" brings to mind that someone is being induced into signing a contract, but there is more to it than that. There is fraud in the factum, and there is non-contractual fraud.
Either can be in the form of actual or constructive fraud; the "intent" is what makes the difference. The literal meaning of factum is "done" or "doing." It is a deliberate concealment or non-disclosure of existing facts that result in the other party entering into an agreement where they assume they have all the facts available. All relevant facts must be considered when determining whether an act constitutes fraud in the factum.
There is often a comparison of fraud in the factum to fraud in the inducement. The difference between the two is fraud in the factum is a legal defense and fraud in the inducement can be described as an equitable defense.
Fraud in the factum is used as a legal defense when one party makes or signs an agreement not realizing it is supposed to be a contract. They also may not understand the content or purpose of the contract due to false information they've been given.
Fraud in the inducement occurs when a party enters into an agreement knowing it is a contract as well as understanding its purpose but signs or makes the agreement based on false information given to them. Fraud in the inducement is illegal. Contracts found to be fraud in the inducement are voided, which results in dismissal of contractual duties.
An example of fraud in the factum may be found when a signature is forged on a contract previously agreed to. It may also involve an alteration of the terms of a contract without the knowledge of the other party.
Fraud may relate to the performance of a contract, and, as noted in some cases, it can be non-contractual.
Elements of Fraud
There are five elements of a fraud claim.
- Misrepresentation is usually in the form of a false statement. It may also be in the form of concealing or not disclosing the facts. A question surrounding fraud claims based on non-disclosure or concealment is whether or not there must first be a reason or duty to disclose. An example of this situation was in Van Deusen v. Snead in 1994 in Virginia. The court determined there was a duty to disclose, which cited non-disclosure would be on the same equal basis of a knowing act of concealment with the end result being the intent to deceive.
- The misrepresentation must be of a material existing or a past fact. The materiality must be what influenced the other party to enter into the contract. In other words, to be material the misrepresentation must center on the heart of the deal. The fact portion of the misrepresentation is described as "exact knowledge when the statement is made." A fact must be something that may be true or false.
- The representation made to a party must be with the intention of procuring a contract. The element of intent is the distinguishable factor between an actual fraud claim and a constructive fraud claim. The misrepresentation in a constructive clause may be innocent or negligent. It may also be based upon an omission, concealment of facts, or an overt misstatement where a duty to disclose is expected.
- Justifiable reliance asks the question if the damage was the result of misrepresentation or did the plaintiff rely upon other facts such as their prior experience or other motives that encouraged them to take part in the transaction.
- Detriment or damage must be looked at as to whether or not to compensate the plaintiff based on certain laws involving property and personal safety.
Types of Recovery
When a claim of fraud has been proven by convincing evidence, the following types of recovery are allowed.
- Damages because of delay
- Damages for embarrassment, humiliation, and mental anguish
- Loss of potential future earnings
- Attorney's fees
- Punitive damages
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