Business Law

Fraud, Misconception, Good Faith and Fair Dealing

Contract law requires the parties to an agreement to do more than just fulfill the contract terms. The law also sets standards for the way you and the other party conduct yourselves throughout the transaction. The legal system punishes those who engage in trickery and act in bad faith during negotiation and contract performance. If you can prove that a party to the contract violated a basic standard of contract performance, you may have grounds to ask the court to cancel the agreement.

Fraud Makes a Contract Voidable

If you can prove the other party tricked you into signing a contract by lying about information you relied on to make your decision, you can ask the court to cancel the agreement based on fraud. If you become aware of the misrepresentations in the contract but don't act immediately to set the contract aside, a court may decide you waited too long to fix the problem and effectively made the contract enforceable by benefiting from it.

Misconceptions Can Invalidate a Contract

You are not legally responsible for ensuring that the other party to a contract fully understands the nature of the agreement. If the other party doesn't understand part of the contract, and you know nothing about it, it's the other party's risk of doing business. However, if you know of the misunderstanding, the law requires that you correct the mistake. Failing to correct an important misconception that you know about can be considered fraud.

Parties to a Contract Must Act in Good Faith

Basic contract law principles require parties to a contract to act in good faith. This requirement makes you responsible for more than just fulfilling the terms of the agreement. You can't do anything that prevents the other party from receiving the full benefit of the contract. For example, you can't sign an agreement with a neighborhood organization to allow kids to use the pool in your building, and then turn off the water so they can't use it in the way that was intended. The law considers actions that undermine the basic value of the contract to be in bad faith. The organization could sue you for breaking the "implied covenant of good faith and fair dealing." An implied covenant is a basic, unwritten responsibility that underlies the transaction.

A Business Lawyer Can Help

The law surrounding fraud and business contracts is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a business lawyer.

Get Professional Help

Find a Business Law lawyer
Practice Area:
Zip Code:
How It Works
  1. Briefly tell us about your case
  2. Provide your contact information
  3. Connect with local attorneys

Talk to an attorney

How It Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you