Know What the Courts Can (and Can't) Do in a Contract Fraud Case
For our final piece in our contract law blog series, it’s time to talk about what you can do if another party misrepresents their aims or ability to fulfill a contract. Fraud may be easy to identify, but various interpretations of Michigan law mean finding restitution is not always easy for those who have been wronged.
If you’ve been following our exploration of contract law, you already know:
- Why you should write out a contract
- What you must include to make your contract eligible
- How to identify and remedy a breach of contract
As we tackle contract fraud, we’ll refer back to the information you’ve already learned in this series. You’ll be able to see why knowing these fundamentals matters to anyone who plans to sign a contract. No one expects to find out they’ve been defrauded, but it’s much better to be prepared for something to go wrong than caught unawares and forced to cover all the losses on your own.
How Is Fraud Different from Breach of Contract?
Our blog on breach of contract didn’t go into the issue of fraud, but the two are inexorably linked. Fraudulent parties are most likely to commit a material breach, and an anticipatory breach is also possible. However, breach of contract is not always a sign of fraud. Black’s Law Dictionary (11th ed. 2019) defines fraud as “some deceitful practice or willful device, resorted to with intent to deprive another of his right, or in some manner to do him an injury. As distinguished from negligence, it is always positive [and] intentional.” Positive in this case does not mean good; it refers to the party’s precision and clarity in misleading someone else.
Therefore, fraud refers to any breach of contract that is intentional and meant to benefit one party at the expense of another. It also covers dishonesty that has been written into a contract. In either case, the wronged party may be able to find help through the courts—if their case meets certain standards.
What Plaintiffs Must Prove in a Fraud Case
If you’re claiming someone defrauded you, the burden is on you to prove it. You must be able to show:
- The other party made a “material representation,” i.e., a statement of fact. A claim like “we produce n number of units each week” is enforceable, but one such as “our company’s superior process allows us to produce units faster than everyone else” would be seen as an opinion.
- This representation was false; for example, once the contract has been put into action, they fail to produce the n units they promised.
- The other party knew or should have known their statement was false. This could mean knowing their production was much lower or they lacked the materials to keep producing at the rate.
- The statement was intended to influence your decision-making process. For example, perhaps you were considering a competitor that had a lower production rate, so the deception was made in service of landing the contract.
- The plaintiff (you) acted a certain way because of the falsehood and suffered damages. This could mean losing sales or not being able to complete services you had promised, which could damage your profits and reputation.
As if this wasn’t complex enough, fraud claims can’t cover promises of future conduct. If the other party had said they expected to produce n units weekly by the end of the next six months, the courts would not treat this statement as a material representation.
In situations where another party inadvertently makes a misstatement, you won’t be able to file a fraud claim, because you will not be able to show the deception was intentional. However, if you can prove all the other points in the list above, you may be able to bring a claim for negligent or innocent misrepresentation.
Enforcement Via the Statute of Frauds Requires a Written Contract
Not all contracts are equally enforceable, which is why we started this series with lessons on how to write a proper contract. Michigan’s Statute of Frauds only applies to most contracts when they have been written out. You must have a written record of:
- An agreement that will take longer than one year to complete;
- An agreement to pay the debt of a third party;
- An agreement or promise made in contemplation of or in connection with a marriage;
- An agreement for the sale of real estate;
- A contract for the sale of goods for the price of $1,000 or more.
Without a written document to prove the terms of the agreement, a court will consider it void and reject requests for enforcement.
What does the court need in these scenarios? Obviously, the best-case scenario is a written contract signed by both parties. The signatures can be anywhere on the document, and initials can also constitute a signature. However, you may be able to win enforcement for less formal agreements as well. A writing can constitute a notation on a check or a receipt, as long as it is signed by the party you are seeking to enforce the contract against. Even a confirmation or invoice can constitute a writing that satisfies the Statute of Frauds.
And this brings us back to the first lesson we covered in our series: You should always, always, always write out your contracts. The risk of relying on a verbal agreement isn’t worth it compared to the few minutes it takes to write everything down and get a signature.
Successfully petitioning for intervention in a case of contract fraud requires an in-depth understanding of the law and significant work to furnish evidence. We don’t recommend you try to go it alone if you’ve been cheated. Our attorneys have the experience and knowledge you need to try a contract fraud case.
While there is no way to prevent bad actors from harming others, you can take steps to make sure you’re protected. Any time you are considering entering a serious agreement, you can revisit our blog for a refresher on how to make an enforceable contract. Our attorneys are also here to answer your questions, no matter how complex.
Call Grewal Law PLLC at (888) 211-5798 for a free consultation with our contract lawyers. We’re here to support individuals and small businesses across Michigan.