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Business Litigation: Fraud in the Formation of Contracts

Buffington Law Firm's business litigation attorneys have successfully tried many lawsuits involving business fraud.  In this brief Blog article we will discuss some of the basics of business fraud in the formation of business contracts.  It is important to know the difference between a breach of contract lawsuit, and a lawsuit which is properly characterized as actual fraud.

In a straightforward breach of contract lawsuit, often one side breaches the contract despite the best of intentions.  Perhaps, for example, the price for one of the materials involved in fulfilling the contract suddenly rises to the point where it is more economical to breach the contract and pay damages than it is to carry out the contract. (This type of situation is termed an "efficient breach").  Or possibly one side in a contract is simply unable, despite the best of intentions, to carry out the contract.  This is breach of contract, not fraud.

Fraud involves certain situations beyond a simple breach of contract.  For example, Cal. Civil Code Sec. 1710(4) defines fraud as (among other things) a situation in which a party enters into a contract without the intent of honoring it.  This is one of the most frequently confused definitions of fraud.  For this situation to constitute fraud the Plaintiff must show that the Defendant did not intend to keep the promise (the contract) at the time he or she entered into it.  This is very different than a situation in which a party enters into a contract and then later decides to or is forced to breach it.  In such a situation this is normally breach of contract, not fraud. It is the fraudulent intent at the time that determines whether fraud existed in the formation of the contract under Civil Code Sec. 1710(4).  Unfortunately, Plaintiffs often assume that if there was a breach of contract the lawsuit should also be framed as a fraud cause of action. 

Proving fraudulent intent at the time of contract formation is difficult, but not always impossible.  If you believe that you have a breach of contract lawsuit that may also involve business fraud, we invite you to speak directly to one of our experienced business litigation trial attorneys in a free legal consultation to determine the best way to initiate your case.

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Fountain Valley, CA 92708

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