How Do You Prove a Claim for Contract Fraud?

Contract fraud can be costly, and unfortunately, it is far more common than it should be. If you believe (or have concerns) that a vendor, joint venture partner, shareholder or other party may have defrauded your company, you should consult with a Miami fraud lawyer promptly. In many cases, taking appropriate legal action as soon as possible can both mitigate the costs of pursuing dispute resolution and maximize the chances of securing a favorable resolution without going to an arbitration hearing or trial.

Within the context of a contractual relationship, fraud can take two main forms—it can involve either (i) fraud in the inducement or (ii) fraud following contract execution. While each scenario presents its own unique challenges, there are various ways to prove fraud in both scenarios.

Proving Fraud In the Inducement (Fraud Prior to Contract Execution)

Fraud committed prior to contract execution is referred to as “fraud in the inducement.” In many cases, contracting parties will try to protect themselves against these types of claims by including “integration” causes in their commercial agreements. These clauses typically state that neither party is relying on any representations made prior to the execution of their contract and that their contract reflects their entire understanding of the terms of the deal.

But, even with an integration clause in place, it will still be possible to pursue a fraudulent inducement claim in many cases. Some examples of the types of evidence that can be used to prove fraudulent inducement include:

1. Pre-Contract Communications Between the Parties

If a company’s representatives made false or misleading statements prior to the execution of your contract, these pre-contract communications will serve as key evidence in support of a claim for fraud. Intentionally misleading a company in order to secure a contract is a textbook case of fraud in the inducement, and companies generally cannot avoid liability for these fraudulent representations under their contracts’ integration clauses.

2. Internal Communications Obtained Through Discovery

To prove that a company’s external communications were misleading at the time they were made, it will often be necessary to obtain access to the company’s internal communications. This is typically done through the discovery process. If emails, text messages or direct messages in corporate communication applications (i.e. Basecamp and Slack) show that company representatives were intentionally misrepresenting information during the contract negotiation process, these communications can also serve as strong evidence of fraud.

3. Other Internal Documents Obtained Through Discovery

Other internal documents obtained through discovery may assist with proving a claim for fraud in the inducement as well. For example, if a company inflated its financials, misrepresented the current status of a product in development, or told you that it could meet a deadline when it already had too many projects in the pipeline, the company’s internal records may clearly show that it provided you with false information.

Proving Post-Execution Fraud (Fraud During the Contractual Relationship)

Along with fraudulent inducement claims, companies can pursue post-execution fraud claims in various circumstances as well. In these cases, fraud can take the form of affirmative misrepresentations, omissions or fraudulent performance (i.e., substituting inferior materials under a construction contract). Some examples of the types of evidence that can be used to prove fraud during the contractual relationship include:

1. Inter-Party Communications

Here, too, communications between your company and the other party will serve as key evidence of fraud. While many post-execution fraud cases will involve a substantial volume of false and misleading communications, even a single false statement can be enough to support a fraud claim in many cases. When you hire a Miami fraud lawyer to advise you, your lawyer will review all relevant communications in your company’s custody and determine whether they warrant further investigation for potential legal action.

2. Examining Performance, Products and Deliverables

While post-execution fraud can involve false and misleading statements, it can also relate to a party’s performance. As noted above, a common example (among many) involves substituting inferior materials under a real estate construction contract. If a contractor agrees to use materials of a certain quality and then substitutes inferior materials without approval, this can give rise to a claim for fraud. As a result, examining a party’s performance, products or deliverables can assist with determining if your company has a claim for fraud, and if so, your company’s lawyer can use the evidence collected during this examination going forward.

3. Internal Documents Obtained Through Discovery

Just like fraudulent inducement claims, companies can obtain evidence in support of post-execution fraud claims through the discovery process. If it appears that your company has a contract fraud claim, your company’s lawyer can institute arbitration or litigation and secure additional evidence through discovery. This includes internal communications and other documents demonstrating that the company’s representatives were aware of the fraudulent conduct at issue. But notably, even if a company’s fraud was inadvertent, the company can still be held liable for damages, and, in many cases, specific performance will be an appropriate remedy as well.

Next Steps for Pursuing a Claim for Contract Fraud in South Florida

If you have reason to believe that your company has been defrauded, your next step is to consult with a Miami fraud lawyer. As discussed above, your company’s lawyer will be able to examine the evidence that is currently in your company’s custody and provide a preliminary assessment of all potential claims. Based on this assessment, you can decide how to move forward, and if you decide to pursue a fraud claim, your company’s lawyer can get to work pursuing an appropriate resolution as efficiently as possible.

Discuss Your Company’s Options with a Miami Fraud Lawyer in Confidence

Do you have questions about pursuing a claim for contract fraud in South Florida? If so, we encourage you to speak with a Miami fraud lawyer at Edelboim Lieberman. To schedule a complimentary initial consultation at your convenience, please call 305-768-9909 or tell us how we can reach you online today.