May 18, 2022

Volume XII, Number 138

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Howsoever Denominated, This Was Not Promissory Fraud

Parties exchange drafts of a contract and before signing one party surreptitiously substitutes provisions in the copy to be executed.  Some might call this "promissory fraud", but as Justice William Dato explains in an opinion published yesterday, that would be a misnomer:

It goes by various names—fraud in the factum, fraud in the execution, fraud in the inception—but they all describe the same genre of deceit.  It occurs where, after parties have agreed upon certain contract terms, one of them surreptitiously substitutes a document for signature that looks the same as the earlier draft but contains materially different terms.  Fraud in the 2 execution is distinct from promissory fraud, which involves false representations that induce one to enter into a contract containing agreed upon terms.

Munoz v. PL Hotel Group, LLC, 2022 Cal. App. LEXIS 1.  

While it is easy to condemn this species of fraud, there are countervailing policy considerations.  If courts allow too much lenity, they invite parties to be negligent, or worse, perjurious.  According to Justice Dato, courts therefore require that the "plaintiff must not only have been ignorant of the surreptitiously inserted terms, but must also have had no reasonable opportunity to learn that the document contains them".

© 2010-2022 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XII, Number 4
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
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Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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