Third party fraud as a vice of consent : a comparative analysis

Abstract

Third party fraud involves situations where a contracting party is fraudulently induced by an extraneous third party to sign a contract with another party. Different jurisdictions have adopted different approaches to this concept. While some jurisdictions such as the French and the Maltese, refrain from mentioning it in their civil codes, recognising only the fraud of a contracting party, other jurisdictions such as the Italian and the German, expressly include third party fraud in their codes. Either way, a distinction is made between the fraud of a contracting party and that of a third party. The origins of the concept of third party fraud are examined, focusing particularly on Roman law where although a party could obtain damages on this basis, third party fraud did not affect the validity of a contract. The Code Napoléon and the 1865 Italian Civil Code only recognised the fraud of a contracting party as a vice of consent. However, both early French and Italian doctrine recognised a contracting party’s participation in a third party’s fraud as sufficient to annul a contract. The current approaches which the French, German and Italian systems have adopted are also examined. French jurists recognise a contracting party’s passive participation in a third party’s fraud as sufficient to be considered as the fraud of the party himself. Both German and Italian law recognise third party fraud as a vice of consent but they impose different conditions. The Italian provision has been amended to include it but only provided that the party who benefits from the fraud was aware of the fraudulent conduct. The German provision goes a step further providing for the annulment of the contract even if the party should have known of the fraud. The English Common law approach to a third party’s fraudulent misrepresentation is also investigated to show that such misrepresentation does not affect the validity of a contract unless exercised by a party’s representative or employee or if committed with the party’s actual or constructive notice. Finally the approach of Maltese jurisprudence to third party fraud is analysed and it is shown how the courts refrain from annulling a contract on the exclusive basis of the fraudulent conduct of an extraneous third party. Similar to foreign jurisdictions, local courts annul a contract if a contracting party is aware of or has passively or actively participated in the fraud of a third party.