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Category: Business Law
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Experience:  20 years experience in business law - sole proprietor, partnership, and corporations
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Fraud in the Inducement or just a Breach of Contract - In Sept

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Fraud in the Inducement or just a Breach of Contract - In Sept of 2011 I was hired to be the manager of a new restaurant. The owner was a friend of my family, a multi-millionaire and had been my boss and mentor for the prior 4 years. I was hand picked by him to be the head guy due to my experience, trustworthiness and intense work ethic. I was promised $75,000 per year and an equity stake in the new restaurant. There were multiple big investors involved. There was a verbal agreement made relative to my pay and equity stake but my pay was to be deferred until the investors transferred the funds. The funds arrived in Jan of 2012 but he did not start paying me until April 2012, then it was only $42,000 instead of $75,000, he stated that I would have to wait until December to get the $75,000 pay rate but did not mention the equity stake.

The new restaurant began and was understaffed causing me to work some 80 hours per week. In December when my pay was not increased and the equity had not been given as promised, I started to question him about the promises. He then began a series of excuses as to why the equity could not be given and the pay increased. Then, he stated the company was having financial problems and he had to cut my pay 40%, and to get the promised equity I would have to work at the reduced pay or even lower for 3 years. I told him I could not live on that low of pay and that he had constructively terminated me. I sent a Demand letter and he refused to pay me anything. I plan to file suit against him but am concerned that the company has no attachable assets.

My position is that he never had any intention of keeping his promises to pay me the agreed salary or give me the equity in the restaurant and the reason why the promises were made was to induce me into providing services without having to pay for them. This was a fraudulent scheme that he was engaged in from the beginning. I have gone through the elements of fraud in the inducement and believe i can make a good faith argument that is legally valid. My concern is just that there is little in the way of written agreement but I do have numerous forms of evidence that show his hands to be unclean and that he has lied many times.

My question is about how difficult it is to pursue this fraud allegation when the agreements are mostly verbal and based upon trust?
Submitted: 1 year ago.
Category: Business Law
Expert:  Law Pro replied 1 year ago.

Welcome to JustAnswer! My goal is to do my very best to understand your situation and to provide a full and complete excellent answer for you.

My name is XXXXX XXXXX I'm going to assist you with your question.

Please bear with me if you believe my answer isn’t coming fast enough because I’m also working with other customers too. I apologize for any seemingly late response.


I think fraud certainly.

But you also have a claim for detrimental reliance too.

Detrimental reliance is a term commonly used to force another to perform their obligations under a contract, using the theory of promissory estoppel. Promissory estoppel may apply when the following elements are proven:

  • A promise was made
  • Relying on the promise was reasonable or foreseeable
  • There was actual and reasonable reliance on the promise
  • The reliance was detrimental
  • Injustice can only be prevented by enforcing the promise

Detrimental reliance must be shown to involve reliance that is reasonable, which is a determination made on an individual case-by-case basis, taking all factors into consideration. Detrimental means that some type of harm is suffered. [http://definitions.uslegal.com/d/detrimental-reliance]

 

 

Promissory estoppel is a contract law doctrine. It occurs when a party reasonably relies on the promise of another party, and because of the reliance is injured or damaged. For example, suppose a restaurant agrees to pay a bakery to make 50 pies. The bakery has only two employees. It takes them two days to make the pies, and they are unable to bake or sell anything else during that time. Then, the restaurant decides not to buy the pies, leaving the bakery with many more pies than it can sell and a loss of profit from the time spent baking them. A court will likely apply the Promissory Estoppel doctrine and require the restaurant to fulfill its promise and pay for the pies. [http://legal-dictionary.thefreedictionary.com/Detrimental+reliance]

 

 

Since there isn't an actual "written formal contract" and verbal contracts are binding and enforceable - if you have any evidence of the verbal agreement you have a good shot at this.

 

 

This promissory estoppel or detrimental reliance would be in the alternative pleading - you would plead fraud, breach of contract, and detrimental reliance - all alternative theories of recovery.

 

 

Because you could collect punative damages in addition to pain anguish, mental distress, etc. - fraud is your best claim against him in the way of prospective damages.

 

 

 

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Customer: replied 1 year ago.

Thank you, XXXXX XXXXX reason why I want to allege fraud is to go after him personally as well as his company. I am concerned that he has not put any assets into the company and even if I got a judgment i could not collect. It seems to me that a company cannot commit fraud, only the individuals committing the fraud under the guise of the company can. Is this true, can I claim he committed the fraud personally? What circumstances would preclude me from claiming personal liability for the alleged fraud?

Expert:  Law Pro replied 1 year ago.
What business form was the restaurant? LLC or C-Corp?
Customer: replied 1 year ago.

LLC

Expert:  Law Pro replied 1 year ago.
Fraud in any stated - including Nevada makes a member (owner) of an LLC personally liable for the debts and obligations of the LLC if the LLC doesn't have the monies to pay the debt obligation.

That is very clear. Fraud will allow the piercing of the corporate veil and make the owners personally liable.


The elements of fraud have to all be proven or you would be stuck with contractual damages.

A false representation of a matter of fact—whether by words or by conduct, by false or misleading allegations, or by concealment of what should have been disclosed—that deceives and is intended to deceive another so that the individual will act upon it to her or his legal injury.

Fraud is commonly understood as dishonesty calculated for advantage. A person who is dishonest may be called a fraud. In the U.S. legal system, fraud is a specific offense with certain features.

Fraud is most common in the buying or selling of property, including real estate, Personal Property, and intangible property, such as stocks, bonds, and copyrights. State and federal statutes criminalize fraud, but not all cases rise to the level of criminality. Prosecutors have discretion in determining which cases to pursue. Victims may also seek redress in civil court.

Fraud must be proved by showing that the defendant's actions involved five separate elements: (1) a false statement of a material fact,(2) knowledge on the part of the defendant that the statement is untrue, (3) intent on the part of the defendant to deceive the alleged victim, (4) justifiable reliance by the alleged victim on the statement, and (5) injury to the alleged victim as a result.

These elements contain nuances that are not all easily proved. First, not all false statements are fraudulent. To be fraudulent, a false statement must relate to a material fact. It should also substantially affect a person's decision to enter into a contract or pursue a certain course of action. A false statement of fact that does not bear on the disputed transaction will not be considered fraudulent.

Second, the defendant must know that the statement is untrue. A statement of fact that is simply mistaken is not fraudulent. To be fraudulent, a false statement must be made with intent to deceive the victim. This is perhaps the easiest element to prove, once falsity and materiality are proved, because most material false statements are designed to mislead.

Third, the false statement must be made with the intent to deprive the victim of some legal right.

Fourth, the victim's reliance on the false statement must be reasonable. Reliance on a patently absurd false statement generally will not give rise to fraud; however, people who are especially gullible, superstitious, or ignorant or who are illiterate may recover damages for fraud if the defendant knew and took advantage of their condition.

Finally, the false statement must cause the victim some injury that leaves her or him in a worse position than she or he was in before the fraud.

A statement of belief is not a statement of fact and thus is not fraudulent. Puffing, or the expression of a glowing opinion by a seller, is likewise not fraudulent. For example, a car dealer may represent that a particular vehicle is "the finest in the lot." Although the statement may not be true, it is not a statement of fact, and a reasonable buyer would not be justified in relying on it.

The relationship between parties can make a difference in determining whether a statement is fraudulent. A misleading statement is more likely to be fraudulent when one party has superior knowledge in a transaction, and knows that the other is relying on that knowledge, than when the two parties possess equal knowledge. For example, if the seller of a car with a bad engine tells the buyer the car is in excellent running condition, a court is more likely to find fraud if the seller is an auto mechanic as opposed to a sales trainee. Misleading statements are most likely to be fraudulent where one party exploits a position of trust and confidence, or a fiduciary relationship. Fiduciary relationships include those between attorneys and clients, physicians and patients, stockbrokers and clients, and the officers and partners of a corporation and its stockholders.

A statement need not be affirmative to be fraudulent. When a person has a duty to speak, silence may be treated as a false statement. This can arise if a party who has knowledge of a fact fails to disclose it to another party who is justified in assuming its nonexistence. For example, if a real estate agent fails to disclose that a home is built on a toxic waste dump, the omission may be regarded as a fraudulent statement. Even if the agent does not know of the dump, the omission may be considered fraudulent. This is constructive fraud, and it is usually inferred when a party is a fiduciary and has a duty to know of, and disclose, particular facts.

 

[http://legal-dictionary.thefreedictionary.com/fraud]

 

 

Thank you so much for allowing me to help you with your questions. I have done my best to provide information which will be helpful to you. If I have not fully addressed your questions or if you have any follow up questions, or if I have misinterpreted your questions in any way, please do not rate me yet, but simply ask a follow up question without rating so I can provide you with a fully satisfactory answer. If I have fully answered your question(s) to your satisfaction, I would appreciate you rating my service with 3, 4, or 5 faces so I can receive credit for helping you today. I thank you in advance for taking the time to provide me a positive rating!

If you have any questions, about this or anything else, please ask for me, Law Pro, directly in the question and I will try to assist you as best I can.

For example, you would state, "This question is for Law Pro . . . (then on with your question).

 

 

 


Law Pro, Attorney
Category: Business Law
Satisfied Customers: 24021
Experience: 20 years experience in business law - sole proprietor, partnership, and corporations
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