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The Counterintuitive and Fraud

The following hypothetical separates the leaders from the followers: (From United States ex rel. O’Donnell v. Countrywide Home Loans, Inc.)

“A simple hypothetical presents the central issue in this case. Imagine that two parties — A and B —execute a contract, in which A agrees to provide widgets periodically to B during the five-year term of the agreement. A represents that each delivery of widgets, “as of” the date of delivery, complies with a set of standards identified as “widget specifications” in the contract. At the time of contracting, A intends to fulfill the bargain and provide conforming widgets. Later, after several successful and conforming deliveries to B, A’s production process experiences difficulties, and the quality of A’s widgets falls below the specified standards. Despite knowing the widgets are subpar, A decides to ship these nonconforming widgets to B without saying anything about their quality. When these widgets begin to break down, B complains, alleging that A has not only breached its agreement but also has committed a fraud. B’s fraud theory is that A knowingly and intentionally provided substandard widgets in violation of the contractual promise —a promise A made at the time of contract execution about the quality of widgets at the time of future delivery. Is A’s willful but silent noncompliance a fraud —a knowingly false statement, made with intent to defraud —or is it simply an intentional breach of contract?”
If you determined that this is not fraud (i.e., apparent good faith at the beginning of an economic relationship nullifies actual bad faith later in the relationship for the purpose of proving fraud, notwithstanding the manipulation and exploitation of the buyer’s contractual and reasonable expectations), you may consider becoming judge, scholar, or a crackerjack white-collar defense attorney. If you determined that this is fraud, you may consider, among other things, becoming an author (e.g., Lewis Carroll). If I have to explain this limitation of the application of the legal theory of fraud to you, then appellate law clearly is not your natural field 🙂