Fraud Isn’t Enough, You Need to Show Reliance on the Fraud
Fraud is a crime, and in the civil arena, if you are a victim of fraud, you would have a good reason to excuse your performance under a contract or an agreement that is obtained by fraud. But there is more to a fraud defense than you may think. Not only must you show that the other side actually committed fraud, or defrauded you in the formation of the agreement, but you must be ready to show reliance.
Reliance on Fraud
To show fraud, you must demonstrate that you actually relied on the false promises or inducements made by the other side. In addition to this, courts will require that your reliance was reasonable.
In some cases, parties make representations that nobody would think are true. If a contractor wants you to hire her to do a job, and she says that she is the “best in the world” at her job, you probably wouldn’t rely on that statement, nor would a court find such a reliance to be reasonable.
But there are other times, which are less obvious, where reliance can be an issue. Imagine, for example, that you are burying a business from someone else. In the course of due diligence before your purchase, you ask for books and records from the seller.
The seller doesn’t provide you with all the books and records, and the documents that are produced are substandard and haphazard. You also learn from public records that the owners have multiple lawsuits against them, and the business has liens against them.
If it turns out the seller hasn’t been truthful to you in its representations, a court may find your reliance on the sellers to be unreasonable. A court may find that you had reason to doubt the truth and veracity of the other side, but that you chose to ignore those doubts.
Previous History Between the Parties
A court will also look at course of dealing. If you have an established business relationship with someone else, and in the course of that relationship, they have in the past lied, or reneged on their promises, a court could find your continued reliance on that person to be unreasonable.
Fraud law does not allow you to remain blissfully ignorant. That means you can’t purposely fail to conduct background checks, and then claim that you innocently relied on the fraudulent representations of that party.
Does the other side have a criminal record? Has the business been the subject of a lawsuit by the Attorney general’s office? These are all things you should look at very carefully. If you ignore them, you could end up being the victim of fraud, with little or no recourse.
Call the West Palm Beach business litigation lawyers at Pike & Lustig can help you protect your business, and review your business agreements. Call us for legal guidance in your business decisions.