Masonry Magazine January 2011 Page. 37
Fraud Claims: Promises Made, Promises Broken
Ultimately, avoidable claims. A contractor can keep broken promises and disappointed expectations from turning into fraud claims by recognizing some key traps for the unwary.
Fact, opinion and the "fraudulent promise"
Fraud depends on a misrepresentation of a fact, not opinion. For example, "The house is in good condition" and "My services are high quality" are opinions, while "The house was built in 1989" and "I have a Class A Virginia contractor's license" are expression of facts. An opinion is subject to interpretation, while a statement of fact is either correct or incorrect.
Performance issues pose other opportunities for confusion. While a party's simple failure to perform a contract is not fraud by itself, the equation changes where a party makes a promise with no intention to try to fulfill that promise in the future. While this type of claim is often difficult to prove, courts have looked to circumstantial evidence, such as failing to apply for a permit, lack of communication with the customer, and requesting advances for completion of work that the contractor never completes.
How to reduce risk
A contractor can do much to reduce the risk of fraud claims by preventing misunderstandings and disappointed expectations. A few key points:
* Avoid making unrealistic promises
* Maintain regular communication, and confirm any "fact" before relaying it to the customer
* Avoid opinions that may be misunderstood as "facts," such as, "I am the top contractor in my area." Even if such a phrase is an opinion about quality, a customer who understands it as an untrue representation about sales volume or years of experience can present a worrisome problem in a courtroom
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Misunderstandings happen, so remember to document key conversations with the customer, and confirm the customer's understanding and expectations in writing before the job moves forward.
While a failed contract is never a good thing, the right precautions can help prevent unfulfilled promises from morphing into something even worse. IMAS William Groh is an associate with Bean, Kinney & Korman and can be reached at wgroh@beankinney.com.
2 A party that misrepresents a fact "negligently" or "innocently" may be liable for "constructive fraud" or negligent misrepresentation instead "actual" fraud. This article does not address constructive fraud. Constructive fraud carries the same risk of personal liability as actual fraud, but courts generally do not award punitive damages for constructive fraud.
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