Common Law Fraud in New Jersey

Common law fraud in New Jersey is the intentional misrepresentation of material facts presented to and relied upon by another party to his detriment. It is the version of fraud local courts have established through the traditional application of English common law for hundreds of years.

Various states have codified the tort of fraud. For instance, New Jersey has the Consumer Fraud Act (NJSA 56:8-1, et seq.), which was passed in 1960. The Consumer Fraud Act prohibits merchants, salespeople and contractors from using deceptive practices in the sales of goods or services to consumers. The deceptive practice need not be explicit – it can be an omission of information. 

Lawyers often allege common law fraud, besides the applicable statutory fraud, as an alternative position in case the elements of statutory fraud prove harder to establish.

To successfully sue someone for common law fraud in New Jersey, a plaintiff must show: (1) an important misrepresentation that is a fact; (2) a belief by the defendant that its claims were false; (3) defendant’s intention that a buyer would rely on the factual misrepresentation; (4) a reasonable reliance of the buyer on the misrepresentation; and (5) damages that result. SeeGennari v.Weichert Co. Realtors, 148 N.J. 582, 610  (1997).

The separate tort of negligent misrepresentation “requires proof that an ‘incorrect statement was negligently made and justifiably relied upon’ and that the injury was sustained as a consequence of that reliance.” Carroll v. Cellco Partnership, 713 A.2d 509, 516-517 (N.J. Sup. Ct. 1998) (citations omitted).

Damages in a New Jersey Common Law Fraud Case

If the plaintiff can prove fraud, the plaintiff is entitled to a remedy of either money damages or an equitable remedy.  

Money damages are called “compensatory damages” in a common law fraud case. The purpose of compensatory damages is to reimburse the plaintiff for her actual economic loss.

These damages contrast to restitution damages or “benefit of the bargain” damages. In cases involving those damages, the plaintiff is suing to recover her investment or the purchase price paid to the defendant.

An equitable remedy in New Jersey also allows the court to rescind or reform the transaction to undo the economic advantage and other benefits obtained by the defendant. In this manner, a court can restore the parties to the position they were in prior to the fraudulent act.

Thus, in a contract case, if someone is fraudulently induced into a contract, the plaintiff may seek the equitable remedy of rescinding the transaction and recover his/her provable damage(s).

Alternatively, the plaintiff may seek to affirm the transaction and sue for damages resulting from the fraud.

Fraud in the Inducement

Fraud by inducement is when a person misrepresents important facts leading another person to sign a contract.  
Likewise, fraud in the execution is when a person misrepresents the nature, purpose or subject-matter of the contract leading another to think it’s something else.

A fraudulent inducement claim comprises five elements: (1) a material representation of a presently existing or past fact; (2) made with knowledge of its falsity; and (3) with the intention that the other party rely thereon; (4) resulting in reliance by that party; (5) to his detriment. SeeJewish Ctr. of Sussex County v. Whale, 86 N.J. 619, 624, 432 A.2d 521 (1981).

If a deal or business relationship goes south or a transaction fails to close, at least one party will usually allege a breach of contract and some type of fraud.

Specifically, it is very common for one party to claim that the other party either actively misrepresented or withheld material information that might have led it to not execute the agreement. 

These claims should be taken seriously as they could lead to a business owner being personally liable for the debts of the business should a court decide to pierce the corporate veil.

Fraud in the Factum 

Fraud in the factum is a legal defense. It is raised by a defendant when the plaintiff is suing the defendant to enforce a contract. The defendant contends that when he signed the agreement, he did not realize that it was supposed to be a contract or did not understand the nature/content of the agreement, because of false information the plaintiff gave the defendant.

A contract based on fraud, misrepresentation and illegal inducement is voidable as there was never a true meeting of the minds.

In other words, the courts can dismiss certain obligations of the contract or void the entire contract when a person illegally induces or deceives someone into signing a contract.

New Jersey Common Law Fraud Lawyers

The civil litigation attorneys at Schiller, Pittenger and Gaffney, P.C., are well-versed in the law of common law fraud in New Jersey. If you have been victimized by fraudulent conduct in a business deal, or if you are unjustly being accused of common law fraud, we can help.

You can call are New Jersey common law fraud attorneys at 908-490-0444 at our Scotch Plains office or email us here.