Voiding Contracts for Fraudulent Misrepresentation

Misrepresenting a good or service, in order to sell that good or service, is fraud.  In the case of Clay v. Brand, the Arkansas Supreme Court said that “misrepresentation of a material fact is actionable fraud.”  You cannot promise to sell someone a box of hammers, and sign a contract with them for “tools,” then send them a box of wrenches, and say “sorry, you signed a contract.”  If you promised hammers as the foundation for the contract, you must provide hammers.

Usually, in contract disputes, parties are not allowed to bring in external evidence (called “parol evidence” in legalese) of the terms of the contract.  That is, you usually cannot say, “yeah, I know the contract say x, but we really agreed to y, and here’s some evidence to show we really agreed to y.”  The primary rule is – if the contract states the terms of the agreement clearly, in black and white, then those are the terms of the agreement.

Fraudulent misrepresentation is something of an exception.  In the case of Sellers v. West-Ark Contruction Co., the Arkansas Supreme Court noted that parol evidence is usually off limits in contract cases, but said, “Parol evidence, however, is admissible to show fraudulent inducement to contract.”  That is, if the contract was based on fraud, you can prove the fraud to void the contract.

The party that wants to void a contract on the grounds of fraudulent misrepresentation has to prove the fraud to the satisfaction of the Court by a three-part test.  In the case of Croley v Baker, the Arkansas Supreme Court said, “In order to establish fraudulent misrepresentation, it must be shown by the party seeking rescission that the person making the representations knew them to be false, or else, not knowing, asserted them to be true;  that it was the first party’s intent to have the other party rely on them to its injury;  and that the representations were, in fact, relied on.”  That is, the party seeking to void a contract for fraudulent misrepresentation has to show: 1. the other party made material representations that he knew or should have known were false; 2. the party that made those representations intended for the other party to rely on them – that his purpose in making them was to induce the other party to sign a contract;  and 3. that the other party did in fact rely on those representations when they signed a contract.

If you think that this situation might have happened to you, and you want to determine whether or not you can void a contract that you signed on the basis of it, call the Law Offices of Watson & Watson for a consultation today.  Our firm has successfully litigated lawsuits in this specific field of law, we know what to look for, and how to handle them.  Our attorneys at one of our three offices would be happy to discuss your case with you.