fraud

Fraud in the Performance of a Contract

Posted by David Adelstein on May 14, 2017
Trial Perspectives / Comments Off on Fraud in the Performance of a Contract

Claims for fraudulent inducement and fraudulent misrepresentation are claims that are oftentimes pled despite there being a contract being the parties. Besides these claims being fact-based and challenging to prove in certain instances, they are harder when there is a contract between the parties. Fraud is only actionable if it is separate and distinct from the contract. In other words, fraud needs to give rise to a tort claim independent of the contract; a breach of contract is not fraud because the fraud is not independent of the contractual breach. See Peebles v. Puig, 42 Fla.L.Weekly D1080a (Fla. 3d DCA 2017).

The Peebles case illustrates this situation.   Here, a real estate agent was under contract with a developer to sell high-end condominium units; in exchange she would get a commission. Her employment contract was later assigned to an exclusive brokerage firm for the developer. Purchasers of these high-end units wanted to re-sell their units to other buyers. The real estate agent understood and was told by the principal of the brokerage firm (who was also a principal of the developer) that she would get commission on the re-sale of such units. As such, she helped re-sell more than 20 of these units. The brokerage firm later argued she was not entitled to such commission on the re-sale of units, which resulted in this lawsuit for unpaid commissions. One of the claims asserted was a fraudulent representation claim against the principal of the brokerage firm / developer based on what he represented to the agent that induced her to re-sell units. (Notably, the brokerage firm filed for bankruptcy at some point making the fraud claim against the principal the likely only avenue of actual monetary recovery.)

A jury returned a verdict in favor of the real estate agent on her fraud claim against the principal. However, this was reversed on appeal because the agent’s damages (lost commission) were not independent of the breach of her employment contract.   The Third District explained: “As reprehensible as the jury may have found Peebles’s [principal] actions to be, those actions neither converted Puig’s [real estate agent] claim for contract damages into a claim for tort damages, nor imposed on Peebles personal liability for PADC’s [brokerage firm] contractual obligations.” See Peebles, supra.  Stated differently, the real estate agent’s claim was based on alleged fraud during the performance of her contractual duties. However, her damages were not independent of the contract; her damages were predicated on lost commission. Thus, her damages were based on a contractual breach and not separate and distinct conduct giving rise to independent damages.

This appears to be a case of lawyers doing a good job trying to maximize the collection of payment for their client through the pursuit of a fraud claim.  While the facts where there to support the terrible conduct of the principal, the facts simply bolstered a contractual breach, but not an avenue to pursue independent personal liability.   

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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