Contract Law Fraud in the “factum”(fraud in the “essence”) and fraud in the “inducement.”
Distinguish fraud in the “factum” (fraud in the “essence”) from fraud in the “inducement.” Citations must be provided for the answers to the essay questions, and these citations must be given in Bluebook format. Include as one of the citations: Brian Blum, Contracts: Examples & Explanations ( 6th ed. 2013
In contract law, there are two main types: fraud in the “factum” (also known as fraud in the “essence”) and fraud in the “inducement.” These are distinct forms of misrepresentation that can invalidate a contract.
Fraud in the Factum (Fraud in the Essence):
Definition: this occurs when one party is deceived or misled about the very nature of the contract itself. In other words, the deceived party is not aware that they are entering into a contract, or they are mistaken about the fundamental nature of the contract.
Example: A person is asked to sign what they believe is a lease agreement for a residential apartment, but in reality, it is a contract to purchase a commercial property. If the person signed the document without knowing its true nature, this would be an example of fraud in the factum.
Effect on the Contract: In cases of fraud in the factum, the contract is typically void from the outset because there was no genuine meeting of the minds. The deceived party did not understand the essence of the agreement they were entering into.
Fraud in the Inducement:
Definition: Fraud in the inducement, also known as misrepresentation, occurs when one party makes false statements or conceals material facts to induce the other party to enter into a contract. In this case, the deceived party is aware of the contract’s nature but has been misled regarding specific details or circumstances that influenced their decision to enter the contract.
Example: A car salesperson falsely represents that a used car has never been in an accident to induce a buyer to purchase it. If the buyer relies on this false statement and buys the car, this would be an example of fraud in the inducement.
Effect on the Contract: In cases of fraud in the inducement, the contract may be voidable at the option of the deceived party. The deceived party can choose to affirm the contract or seek its rescission (cancellation) due to the misrepresentation.