Fraud renders contracts voidable at the election of the injured party.
(Orig. Code 1863, § 2715; Code 1868, § 2709; Code 1873, § 2751; Code 1882, § 2751; Civil Code 1895, § 3669; Civil Code 1910, § 4254; Code 1933, § 20-502.)
Cross references.- General rules of pleading and requirement of setting forth fraud as an affirmative defense, § 9-11-8.
Pleading of special matters, § 9-11-9.
Fraud generally, § 23-2-50 et seq.
Law reviews.- For article discussing effect of contracts involving fraud or inadequate consideration, see 4 Ga. L. Rev. 469 (1970). For annual survey of law of business associations, see 56 Mercer L. Rev. 77 (2004). For note, "Incontestability Clauses in Georgia Insurance Contracts," see 13 Ga. L. Rev. 850 (1979). For comment criticizing Gignilliat v. Borg, 131 Ga. App. 182, 205 S.E.2d 479 (1974), holding vendor's misrepresentation as to status of property under zoning ordinance not fraudulent, see 26 Mercer L. Rev. 349 (1974).
JUDICIAL DECISIONSANALYSIS
Fraud renders contract voidable at election of injured party. Nalley & Co. v. Moore, 51 Ga. App. 718, 181 S.E. 429 (1935).
Fraud, by which consent of party is obtained to contract of sale, renders sale voidable at election of injured party. Neely v. Oliver Farm Equip. Sales Co., 52 Ga. App. 166, 182 S.E. 630 (1935).
If charge of fraud in procurement of contract is substantiated, written contract itself is voidable and subject to rescission at election of injured party. Cone Mills Corp. v. A.G. Estes, Inc., 399 F. Supp. 938 (N.D. Ga. 1975).
Fraudulent contract not void, but voidable only, at instance of person defrauded. East Tenn., V. & Ga. Ry. v. Hayes, 83 Ga. 558, 10 S.E. 350 (1889).
In an action for tortious interference with contract, defendants' contention that the contract was void because the contract was procured by fraud was not allowed since defendants were not injured parties to the contract and lacked the power to treat the contract as void. Phillips v. MacDougald, 219 Ga. App. 152, 464 S.E.2d 390 (1995).
Buyer's daughter and her husband were strangers to the vehicle purchase by the buyer from the car dealership, even though the buyer purchased the vehicle for his daughter's possession and use, so the daughter and her husband could not deem the transaction void despite the allegedly fraudulent circumstances surrounding the transaction. West v. Village Ford-Mercury, Inc., 256 Ga. App. 18, 567 S.E.2d 355 (2002).
Distinction between contract induced by fraud and breach of warranty.
- There is a distinction between contract induced by fraud and mere breach of warranty; in former case title does not pass, and contract may be rescinded, while in latter case title does pass, and purchaser is relegated to purchaser's claim for damages. Nalley & Co. v. Moore, 51 Ga. App. 718, 181 S.E. 429 (1935).
One induced by fraud to sign written contract may set up fraud in defense to action on the contract. Kimbrough v. Adams, 65 Ga. App. 536, 16 S.E.2d 96 (1941).
In action at law founded on breach of contract, defendant may attack contract in court of law on ground that it was procured by fraud. Hardware Mut. Cas. Co. v. Dooley, 193 Ga. 882, 20 S.E.2d 420 (1942).
Victim of fraud may rescind contract or affirm and claim damages.
- Fraud ordinarily gives injured party option either to rescind contract so induced, or, by affirming contract, to claim damages as compensation. Barfield v. Farkas, 40 Ga. App. 559, 150 S.E. 600 (1929); Nalley & Co. v. Moore, 51 Ga. App. 718, 181 S.E. 429 (1935); Brown v. Ragsdale Motor Co., 65 Ga. App. 727, 16 S.E.2d 176 (1941).
Options available to one fraudulently induced to enter contract.
- When one is fraudulently induced to enter into contract, one may rescind and recover back what one has paid, or, if one has not paid, one may resist any action brought against that one on the contract, or one may resist suit in equity by other side for specific performance, or one may personally sue in equity to have contract judicially canceled and rescinded. Equitable Bldg. & Loan Ass'n v. Brady, 171 Ga. 576, 156 S.E. 222 (1930), later appeal, 175 Ga. 43, 164 S.E. 674 (1932).
Mere payment of contractual obligation insufficient to constitute waiver of fraud as matter of law. SCM Corp. v. Thermo Structural Prods., Inc., 153 Ga. App. 372, 265 S.E.2d 598 (1980).
Something must be done by party defrauded before contract can cease to bind. East Tenn., V. & Ga. Ry. v. Hayes, 83 Ga. 558, 10 S.E. 350 (1889).
Plaintiff, as far as it is in plaintiff's power, shall put defendant in status quo, by restoring and revesting defendant's former property in defendant, without putting defendant to an action to recover the property, before defendant can exercise defendant's own right to take back property sold, or bring action for the property. East Tenn., V. & Ga. Ry. v. Hayes, 83 Ga. 558, 10 S.E. 350 (1889).
Georgia courts require precise allegations and particular proof of all necessary elements of fraud. Cone Mills Corp. v. A.G. Estes, Inc., 399 F. Supp. 938 (N.D. Ga. 1975).
Parol statements offered to show fraud in procurement do not contradict terms of written instrument.
- Statements and representations in parol made by agent of party to contract, offered for purpose of showing that the statements and representations were falsely and fraudulently made for purpose of procuring execution of contract, and that therefore no valid contract is in existence, are not subject to objection that the statements and representations are matters in parol in contradiction of terms of written instrument. Edge v. Alertox, Inc., 47 Ga. App. 598, 171 S.E. 181 (1933).
Jury charge as to punitive damages.- In an action for breach of contract, when there are matters of record relating to fraud, punitive damages can be awarded. Thus, the evidence of participation in a fraudulent scheme justifies a district court in putting the question of punitive damages to the jury. Gower v. Cohn, 643 F.2d 1146 (5th Cir. 1981).
Waiver of fraud.
- Even if the indorsers and makers of notes were induced to purchase a business and to execute notes by a bank officer's fraud, the indorsers and makers waived any fraud and ratified the notes by silence after the indorsers and makers learned of the officer's action and by payment on the notes. Jernigan Auto Parts, Inc. v. Commercial State Bank, 186 Ga. App. 267, 367 S.E.2d 250 (1988).
Validity of release.
- A release is binding on the party signing the release whether based on adequate consideration or not, absent evidence of fraud and absent a fiduciary relationship between the parties. Shoffner v. Fleet Fin., Inc., 212 Ga. App. 142, 441 S.E.2d 455 (1994).
Release should bar action because plaintiffs could not justify their blind reliance on representations regarding the validity of the prior foreclosure proceeding in executing the general release. Shoffner v. Fleet Fin., Inc., 212 Ga. App. 142, 441 S.E.2d 455 (1994).
Cited in Langston v. Roby, 68 Ga. 406 (1882); Stewart v. Rutherford, 74 Ga. 435 (1885); Hoffer v. Gladden, 75 Ga. 532 (1885); Massengill v. First Nat'l Bank, 76 Ga. 341 (1886); Chicago Bldg. & Mfg. Co. v. Summerour, 101 Ga. 820, 29 S.E. 291 (1897); Williams v. Moore-Gaunt Co., 3 Ga. App. 756, 60 S.E. 372 (1908); Burgess v. Torrence, 23 Ga. App. 193, 98 S.E. 170 (1919); Snellgrove v. Dingelhoef, 25 Ga. App. 334, 103 S.E. 418 (1920); Owens v. Jones-Kennedy Furn. Co., 28 Ga. App. 317, 111 S.E. 86 (1922); Hinkle v. Hixon, 154 Ga. 193, 113 S.E. 805 (1922); Nipper v. Griffin Mercantile Co., 31 Ga. App. 211, 120 S.E. 439 (1923); Coral Gables Corp. v. Hamilton, 168 Ga. 182, 147 S.E. 494 (1929); C.J. Howard, Inc. v. C.V. Nalley & Co., 44 Ga. App. 311, 161 S.E. 380 (1931); Floyd v. Boss, 174 Ga. 544, 163 S.E. 606 (1932); Edge v. Alertox, Inc., 47 Ga. App. 598, 171 S.E. 181 (1933); Schofield v. Burns, 178 Ga. 186, 172 S.E. 569 (1934); Daniel v. Dalton News Co., 48 Ga. App. 772, 173 S.E. 727 (1934); Elliott v. Marshall, 179 Ga. 639, 176 S.E. 770 (1934); Haynes v. Elberton Motors, Inc., 57 Ga. App. 247, 194 S.E. 884 (1938); Johnson v. Sherrer, 197 Ga. 392, 29 S.E.2d 581 (1944); Clark v. White, 185 F.2d 528 (5th Cir. 1950); Johnson v. Dollar, 83 Ga. App. 219, 63 S.E.2d 408 (1951); McBurney v. Woodward, 84 Ga. App. 807, 67 S.E.2d 398 (1951); Walker v. General Ins. Co., 214 Ga. 758, 107 S.E.2d 836 (1959); Daugert v. Holland Furnace Co., 107 Ga. App. 566, 130 S.E.2d 763 (1963); Elsner v. Cathcart Cartage Co., 124 Ga. App. 615, 184 S.E.2d 685 (1971); Nelson Realty Co. v. Joiner, 230 Ga. 36, 195 S.E.2d 441 (1973); Lewis v. Citizens & S. Nat'l Bank, 139 Ga. App. 855, 229 S.E.2d 765 (1976); Williams v. Southland Corp., 143 Ga. App. 111, 237 S.E.2d 639 (1977); Thompson v. Wilkins, 143 Ga. App. 739, 240 S.E.2d 183 (1977); Thornton & Co. v. Gwinnett Bank & Trust Co., 151 Ga. App. 641, 260 S.E.2d 765 (1979); Morgan v. Hawkins, 155 Ga. App. 836, 273 S.E.2d 221 (1980); DOT v. Brooks, 254 Ga. 303, 328 S.E.2d 705 (1985); Gibbs v. Jefferson-Pilot Fire & Cas. Ins. Co., 178 Ga. App. 544, 343 S.E.2d 758 (1986); Douglas v. Standard, 191 Ga. App. 640, 382 S.E.2d 419 (1989); Borden v. Pope Jeep-Eagle, Inc., 200 Ga. App. 176, 407 S.E.2d 128 (1991); American Demolition, Inc. v. Hapeville Hotel Ltd. Partnership, 202 Ga. App. 107, 413 S.E.2d 749 (1991); Leventhal v. Seiter, 208 Ga. App. 158, 430 S.E.2d 378 (1993); Phillips v. Leisure Automotive Corp., 223 Ga. App. 225, 477 S.E.2d 380 (1996); Lively v. S. Heritage Ins. Co., 256 Ga. App. 195, 568 S.E.2d 98 (2002); Stoudemire v. HSBC Bank USA, N.A., 333 Ga. App. 374, 776 S.E.2d 483 (2015).
Effect of Disclaimers
No warranty can prevent rescission for actual fraud in inducement.
- No form of or limitation in warranty will protect party from rescission of contract on ground that the contract was induced by actual fraud. Nalley & Co. v. Moore, 51 Ga. App. 718, 181 S.E. 429 (1935).
Those who commit actual fraud which induces another to contract cannot protect themselves against answering for such fraud by any form of limitation which they may introduce in terms of such fraudulent contract if contract is rescinded by injured party. Brown v. Ragsdale Motor Co., 65 Ga. App. 727, 16 S.E.2d 176 (1941).
Integration clause in contract has no bearing when fraud in procurement is in issue. Williams v. Toomey, 173 Ga. 199, 159 S.E. 866 (1931).
Stipulations in contract not upheld when fraud in inducement.
- Stipulation in contract that seller will not be bound by any representations other than those printed thereon can have no bearing in case when fraud in procuring signing of instrument is issue. Barrie v. Miller, 104 Ga. 312, 30 S.E. 840 (1898).
A stipulation in a contract that the provisions thereof constitute the sole and entire agreement between the parties and that no modification thereof shall be binding on either party unless in writing and signed by the seller had no bearing in a case since fraud to induce the contract was the issue. Potomac Leasing Co. v. Thrasher, 181 Ga. App. 883, 354 S.E.2d 210 (1987).
What Constitutes Fraud
Elements of tort claim for fraud and deceit.
- Defendant seeking damages by way of counterclaim in nature of tort claim for fraud and deceit must show: (1) that plaintiff (or someone acting for plaintiff) made representations; (2) that at time were known to be false (or what law regards as the equivalent of knowledge); (3) were for intention and purpose of deceiving defendant; (4) that defendant relied on the representations; and (5) that defendant sustained loss or damage as proximate result of representations. American Food Servs., Inc. v. Goldsmith, 121 Ga. App. 686, 175 S.E.2d 57 (1970); Cone Mills Corp. v. A.G. Estes, Inc., 399 F. Supp. 938 (N.D. Ga. 1975).
Essential elements of action for fraud and deceit are: (1) that defendant made representations; (2) that at time defendant knew were false (or had what law regards as equivalent of knowledge); (3) that defendant made the representations with intention and purpose of deceiving plaintiff; (4) that plaintiff relied upon such representations; and (5) that plaintiff sustained alleged loss and damage as proximate result of the representations having been made. McBurney v. Woodward, 84 Ga. App. 807, 67 S.E.2d 398 (1951).
Misrepresentation designed to deceive renders sale voidable by injured party.
- Fraud may exist from misrepresentation by either party, made with design to deceive, or which does actually deceive the other party, and in latter case renders sale voidable at the election of party injured. McBurney v. Woodward, 84 Ga. App. 807, 67 S.E.2d 398 (1951).
Fraud cannot consist of mere broken promises, unfulfilled predictions, or erroneous conjecture as to future events. Charter Medical Mgt. Co. v. Ware Manor, Inc., 159 Ga. App. 378, 283 S.E.2d 330 (1981).
A claim of fraud cannot be predicated on statements which are promissory in their nature as to future acts. Beard v. McDowell, 174 Ga. App. 793, 331 S.E.2d 104 (1985).
Representations to support claim of fraud must relate to existing fact and not future event. American Food Servs., Inc. v. Goldsmith, 121 Ga. App. 686, 175 S.E.2d 57 (1970).
Actual fraud can arise only when representations made relate to then existing or past facts, and cannot be predicated upon statements which are merely promissory in nature, referring to future acts or events. Cone Mills Corp. v. A.G. Estes, Inc., 399 F. Supp. 938 (N.D. Ga. 1975).
As a matter of law, fraud cannot be predicated on statements which are promissory in their nature as to future acts. Cosby v. A.M. Smyre Mfg. Co., 158 Ga. App. 587, 281 S.E.2d 332 (1981).
Misrepresentation about future event by one who knows it will never occur constitutes fraud.
- Fraud can be predicated on misrepresentation as to a future event when defendant knows future event will not take place. American Std., Inc. v. Jessee, 150 Ga. App. 663, 258 S.E.2d 240 (1979).
Representation by party about future event which party knows will never occur supports claim of fraud. Mere broken promises, unfulfilled predictions, and erroneous conjectures do not meet this test. American Food Servs., Inc. v. Goldsmith, 121 Ga. App. 686, 175 S.E.2d 57 (1970).
Fraud cannot be predicated on promise which is unenforceable at time made. American Std., Inc. v. Jessee, 150 Ga. App. 663, 258 S.E.2d 240 (1979).
Misrepresentation as to status of the law, or as to a matter of law, or as to its effect upon the subject matter of a contract is a statement of opinion only and cannot afford a basis for a charge of fraud or deceit. Charter Medical Mgt. Co. v. Ware Manor, Inc., 159 Ga. App. 378, 283 S.E.2d 330 (1981).
Reliance on general commendations or expressions of opinion, hope, and the like.
- Misrepresentations are not actionable unless the complaining party was justified in relying thereon in the exercise of common prudence and diligence. If the representation consists of general commendations or mere expressions of opinion, hope, expectation, and the like the party to whom it is made is not justified in relying upon it and assuming it to be true, the party is bound to make inquiry and examination personally so as to ascertain the truth. Charter Medical Mgt. Co. v. Ware Manor, Inc., 159 Ga. App. 378, 283 S.E.2d 330 (1981).
Fraud, to avoid contract, must induce party to enter contract.
- Fraud which constitutes ground for voiding contract must be fraud which induced parties to enter contract. Gilreath v. Argo, 135 Ga. App. 849, 219 S.E.2d 461 (1975); Allen v. Sanders, 176 Ga. App. 647, 337 S.E.2d 428 (1985); Turner Outdoor Adv., Ltd. v. Fidelity E. Fin., Inc., 185 Ga. App. 815, 366 S.E.2d 201 (1988); Castellana v. Conyers Toyota, Inc., 200 Ga. App. 161, 407 S.E.2d 64 (1991).
Concealment of material facts may in itself amount to fraud when direct inquiry is made and truth evaded. Neely v. Oliver Farm Equip. Sales Co., 52 Ga. App. 166, 182 S.E. 630 (1935).
Inceptive fraud may support action for cancellation of instrument.- When failure to perform promised act is coupled with present intention not to perform, fraud is present. This is inceptive fraud, and is sufficient to support action for cancellation of written instrument. Cone Mills Corp. v. A.G. Estes, Inc., 399 F. Supp. 938 (N.D. Ga. 1975).
Constructive fraud may support action in equity.
- Actual fraud is not essential to support action in equity to rescind a contract for fraud, or to plea of fraud to suit on contract; innocently made material misrepresentations which opposite party has right to act on, and does act on to that party's injury, and which amount only to constructive fraud, being sufficient in these last two instances. By a party of reasoning, actual fraud is not essential to setting aside of an accord and satisfaction. Jordan v. Belvin, 57 Ga. App. 719, 196 S.E. 132 (1938).
False statement is not fraudulent when there is no reason why it should be believed and acted upon. Branan v. Warfield & Lee, 3 Ga. App. 586, 60 S.E. 325 (1980); Harrison v. Lee, 13 Ga. App. 346, 79 S.E. 211 (1913); Charter Medical Mgt. Co. v. Ware Manor, Inc., 159 Ga. App. 378, 283 S.E.2d 330 (1981).
Dealer's talk, puffing or opinions, though false, will not avoid contract.
- Representations under general head of dealer's talk are regarded as mere commendations, puffing, or expressions of opinion, and do not, though untrue, constitute false representations which will avoid contract. American Food Servs., Inc. v. Goldsmith, 121 Ga. App. 686, 175 S.E.2d 57 (1970).
Representation of car as "new".
- The question of whether the condition of a car which had been used as a demonstrator and had significant mileage on the car, but represented to the buyer as "new", had been misrepresented, is one of fact for the jury. Bennett v. D.L. Claborn Buick, Inc., 202 Ga. App. 308, 414 S.E.2d 12 (1991).
When a customer sued a car dealer and the car salespeople for fraudulently inducing the customer to lease a new car that actually had been wrecked and repaired, the UCC, O.C.G.A. § 13-5-5, did not preclude the customer from pursuing a claim for fraud and rescinding the contract. Bickerstaff Auto., Inc. v. Tsepas, 258 Ga. App. 327, 574 S.E.2d 322 (2002).
No effort to rescind contract.
- Plaintiff could not claim fraud since plaintiff did not seek to rescind the contract, but retained the contract's benefits; plaintiff is deemed to have affirmed the contract and is bound by the contract's terms. Mintz v. Barlow, 241 Ga. App. 860, 528 S.E.2d 306 (2000).
RESEARCH REFERENCES
Am. Jur. 2d.
- 17 Am. Jur. 2d, Contracts, §§ 142, 143, 178 et seq., 394. 37 Am. Jur. 2d, Fraud and Deceit, §§ 17, 42, 46.
C.J.S.- 17 C.J.S., Contracts, §§ 166, 195 et seq.
ALR.
- Remedy of contractor, who has partially performed before discovering fraud, as to character or amount of work, 2 A.L.R. 1396.
Relief as regards outstanding money obligation in action for damages for fraud in inducing contract, 3 A.L.R. 74.
Action on implied contract arising out of fraud as within statutes of limitation applicable to fraud, 3 A.L.R. 1603.
Validity of separation agreement as affected by fraud, coercion, unfairness, or mistake, 5 A.L.R. 823.
Validity and effect of stipulation to the effect that vendee or purchaser does not rely upon representations of vendor or seller, or the latter's agent, 10 A.L.R. 1472.
Validity of agreement to pay an officer or employee of a bank or trust company to disclose the existence of, or to assist one to establish, a deposit, 18 A.L.R. 979.
Fraud inducing deposits or subscription to stock in building and loan association as ground of rescission or preference where association is insolvent, 100 A.L.R. 573.
Punitive or exemplary damages in action in tort based on fraudulent sale, 165 A.L.R. 614.
Enforceability, as between parties, of an executory agreement made in fraud of creditors, 172 A.L.R. 1121.
Proceeding under executory contract after discovering fraud as waiver of right to recover damages for the fraud, 13 A.L.R.2d 807.
Right of action for fraud, duress, or the like, causing instant plaintiff to release or compromise a cause of action against third person, 58 A.L.R.2d 500.
"Merger" clause in written contract as precluding conviction for false pretenses based on earlier oral false representations, 94 A.L.R.2d 570.
Waiver of right to widow's allowance by postnuptial agreement, 9 A.L.R.3d 955.
Seller's liability for fraud in connection with contract for the sale of long-term dancing lessons, 28 A.L.R.3d 1412.
Zoning or other public restrictions on the use of property as affecting rights and remedies of parties to contract for the sale thereof, 39 A.L.R.3d 362.
Public contracts: duty of public authority to disclose to contractor information, allegedly in its possession, affecting cost or feasibility of project, 86 A.L.R.3d 182.
Claim of fraud in inducement of contract as subject to compulsory arbitration clause contained in contract, 11 A.L.R.4th 774.