Fraud in the factum voids the instrument under state law and is a real defense against even an holder in due course.

Fraud in the factum

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Fraud in the Factum is a type of fraud where misrepresentation causes one to enter a transaction without accurately realizing the risks, duties, or obligations incurred. Black’s Law Dictionary (2nd Pocket ed. 2001 pg. 293). This can be when the maker or drawer of a negotiable instrument, such as a promissory note or check, is induced to sign the instrument without a reasonable opportunity to learn of its fraudulent character or essential terms. Determination of whether an act constitutes fraud in the factum depends upon consideration of “all relevant factors.” Fraud in the factum usually voids the instrument under state law and is a real defense against even an holder in due course.

Contrast this with the situation where a trusted employee signs a check without permission. The employer must still honor the check despite the fact that the check was a fraudulent negotiable instrument. Here, the employer had a reasonable opportunity to avoid the obligation by restricting access to the checks.

Fraud in the inducement n. the use of deceit or trick to cause someone to act to his/her disadvantage, such as signing an agreement or deeding away real property. The heart of this type of fraud is misleading the other party as to the facts upon which he/she will base his/her decision to act. Example: “there will be tax advantages to you if you let me take title to your property,” or “you don’t have to read the rest of the contract–it is just routine legal language” but actually includes a balloon payment. (See: fraud, extrinsic fraud)

4 Responses

  1. NEIL, TIM, MARIO,
    I’ve been following your sites for over 2 years now, and I sincerily believe you guys should’ve received humanitarian awards for your actions. Through which you guys have provided more than mere infomation, you’ve also provided people Hope (I only wish more Goverment officials, Leaders, & Judges “would get it”

    While every Goverment official, Leader, and Judge,
    has thus far failed in their duty to preserve & protect The United States of America. While they serve,
    The People (natural) v. Those PEOPLE (legal fiction) i.e. citizens v. corporations..

    More needs to be done for the People. & less done for
    special interest for the People.

    P.S.
    last Jan our house was sold a day early.
    Tuesday 11-30 I lost in a hearing for UD (bad judge)
    Furthermore, the judge only give us a 14 day stay.

    SO WE URGENTLY NEED HELP, TO PREVENT THE EVICTION. ANYBODY THAT CAN HELP MY FAMILY AND I, HAVE A HOME FOR CHRISTMAS.

    PLEASE CONTACT ME A.S.A.P.

    WE CAN’T SEEM TO FIND ANYBODY WHO GETS IT IN VEGAS.
    (someone please tell me what happens after the 14 day stay, and the time frame things will take place in)

    Thank you, to any/all that help us.

    KEV IN LV

  2. Fraud is so obvious. Why not include a debt collector in the mix?

    MSoliman

  3. I would like to know if this would apply in my case.
    In Feb 2004 we refinanced our 1st mortgage, at which time the only thing that we wanted to do was to lower our payments, and we believed that was all that had been done when we signed the loan papers. I have always known that my wife (now ex) and myself are on both the deed and on the DOT, as we intended and were before the refi. Just recently I was informed of a very serious problem, that will cause me to lose the house. Because although our mortgage payment was the only thing we wanted to be changed in our loan, something else had changed. When we signed the loan docs, I gave up of my rights and my ability to speak with any lender in the future. Since the refi was done with only my now ex-wife’s name on the loan, without our knowledge. We didn’t know and we had not been informed that while we would both be on the DOT, only she would be on the NOTE.
    What can be done, since she has abandoned the has after she defaulted, and the bank wants to take the house.

    KH
    LV,NV

  4. Thank you, Neil. This is timely.

    Lest we forget, FRAUD must be pled with particularity.

    About Holder in Due Course’s prerogatives, this article reminds us (see the hyperlink): “Most states in the USA have codified into law Uniform Commercial Code Article § 3-302 defining an HDC and § 3-305 protecting the HDC from most claims by other parties.”

    RSVP
    Allan
    BeMoved@AOL.com

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