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What makes a business contract fraudulent?

On Behalf of | Aug 22, 2022 | Contract Law

Contracts are the foundation upon which businesses, size notwithstanding, are created and operated. In fact, most businesses are founded by contracts. Still, businesses hire employees using contracts. But what happens when you learn that the contract you signed while forming the business is fraudulent?

Basically, contract fraud happens when a party knowingly falsifies or misrepresents certain facts to get the other party to sign the contract. The goal is to trick or deceive the other party into signing a contract that they would otherwise not agree to sign.

Fraud in a contract is usually intentional and meant to deliberately benefit the perpetrator at the expense of the wronged party. 

How do you prove contract fraud?

If you are a victim of contract fraud, you may seek legal redress. However, to have your way, you will need to demonstrate the following:

  • There was material representation such as a statement of fact. An example of this would be “our annual profit is $300,000.”
  • The material representation in question was untrue. For instance, once you sign the contract, you discover that the $300,000 annual profit is false
  • The other party knew the claim was untrue. This could mean the other company knew that their annual profit was actually $100,000.
  • The claim was intended to influence you into signing the contract. For example, you had clearly stated you weren’t interested in doing business unless they made at least a quarter million in annual profits.
  • You took certain action (signed the contract, in this case) on the basis of the false claim and suffered damages.

A business contract sets out how the parties will relate during the partnership period. Knowing your rights and responsibilities can help you protect your interests when you are a victim of contract fraud.