Fraud in Contracts

Fraud.—Having discussed the various kinds of injustice that are committed in involuntary commutations, we now pass on to the study of those injustices that are done in voluntary transactions (see 1748). These vices can be reduced to the following:

(a) injustices perpetrated against a person who is entirely unwilling (viz., theft and robbery), as when one steals an object that had been entrusted to one as a pledge or loan, or compels another, by fear or violence, to sign a contract unfavorable to himself and which he does not wish to agree to. It is unnecessary to speak of theft and robbery in contracts, since the same principles apply to them as to theft and robbery outside of contracts (see 1890 sqq.);

(b) injustices perpetrated against a person who is partly willing, since he consents to a contract, but is also partly unwilling, since unfairness or fraud is used against him. These injuries are of two general kinds: fraud, a sin committed in buying and selling and other contracts in which payment is made for some valuable consideration; usury, a sin committed in the loan of money in which payment is made for something that is nonexistent.

Definition of Fraud.—By fraud (see 1677-1679) we here understand any unlawful conduct on the part of one party to a contract that puts the other party under a disadvantage in agreeing to the contract (e.g., misrepresentations about the excellence of merchandise), or that takes away the equality that should exist between the parties (e.g., an excessive price charged for merchandise; see 1750). The contract of sale is the type of all onerous contracts (see 1749), and to it all the others, whether certain or aleatory, can be reduced, for in every one of them there is a thing that is purchased (e.g., in aleatory contracts the hope of securing some prize), and a price that is paid for the object of purchase. Hence, it will suffice to speak of the frauds that are committed in sales, and the same principles that govern these can be applied to other kinds of contract.