Can a Co-Signer Sue for Fraud?

07/10/2009 - Fraud - State: SC #17482

Full Question:

After taking out student loans with my father as co-signer, my mother informed me last night that she had taken out another loan. This loan was also to finance my education and my step-grandmother had agreed to be the co-signer. Apparently, my father refused to sign for any more loans after he and my mother divorced. I graduated three years ago from an Ivy League school in New York State. After graduation, I worked for a well known non-profit, but it did not pay well. Therefore, many of my loans are in forbearance. Apparently, when my step-grandmother agreed to co-sign the loan that my mother had applied for, she did not want to deal with any of the subsequent paperwork and therefore verbally gave my mother permission to use her name and personal and financial information to apply for the loan while having all of the paperwork sent to my mother's address. Recently, according to my mother, the loan company figured out that they were not communicating with my step-grandmother and therefore began sending my step-grandmother any loan-related paperwork and communicating exclusively with her. When we could not make payments on this loan because of my low salary and the cost of living in New York, we decided to put it into forbearance as well. When my mother informed my step-grandmother that she needed to sign a forbearance form in order to delay our payments, she said she didn't understand and refused. My mother says that my step-grandmother is beginning to show signs of paranoia and dementia. My mother tried to explain forbearance to her, and the loan company tried to explain it to her as well. My step-grandmother became increasingly upset and eventually refused to speak to, or communicate with, the loan company at all. The loan company advised my mother that since they were not allowed to communicate any loan information to her because of privacy issues that she should let the loan go to a collection agency that would then be willing to speak with her, rather than my step-grandmother. The collection agency would then be able to formulate a plan with my mother in order to arrange a repayment schedule. Of course, the fact that the loan has gone to a collection agency has now been noted on my step-grandmother's credit report and she is threatening to sue my mother and wants to send her to prison for fraud. Would we have any recourse should my step-grandmother attempt to sue my mother for fraud? What is a typical sentence for this type of crime? We are going to visit my step-grandmother this weekend to try and reason with her. Due to her deteriorating mental health and the fact that she may forget that she agreed not to pursue legal action against my mother (we hope), would there be any legal action we could take against her (in other words, did my step-grandmother also commit fraud by allowing us to use her name, financial and personal information, and to sign documents as such?)? Applicable information:My mother lives in South Carolina, my step-grandmother lives in Florida, and I attended school in New York, but now live in South Carolina.This is a private loan totaling between $67,544 - $79,698, depending on interest. My step-grandmother wants this default off of her credit report. The loan specialist at the collection agency says that this might be possible if we pay off the loan right away. We do not have $70,000 and do not know anyone (banks included) who could loan us this kind of money.My step-grandmother's mental health is deteriorating to the point where my mother wonders if she might be in the early stages of Alzheimer's disease and may potentially make threats and/or promises - hostile or friendly - that she will not remember the next day/week/month. She is increasingly unreasonable and erratic in her behavior.

Answer:

Courts have held that a party may rescind a contract for fraud, incapacity, duress, undue influence, material breach in performance of a promise, or mistake, among other grounds. In order to prove a fraud claim, it must be shown that the defendant had an intent to deceive. If deception was used to induce another to rely on a promise and such reliance caused harm, it is possible to recover damages. Fraud may be made by an omission or purposeful failure to state material facts, which nondisclosure makes other statements misleading. Please see the fraud statutes below to determine applicability. I am prohibited from giving a legal opinion, but if a person is aware of the fraudulent nature of another's act, he or she cannot be a victim of the fraud, as that person's awareness prevents him or her from being deceived. I suggest you contact a local attorney who can review all the facts and documents involved. If you wish to pursue a legal remedy in court, you may wish to review the following information regarding contracts.

A legal action for breach of contract arises when at least one party's performance does not live up to the terms of the contract and causes the other party to suffer economic damage or other types of measurable injury. A lawsuit for breach of contract is a civil action and the remedies awarded are designed to place the injured party in the position they would be in if not for the breach. Remedies for contractual breaches are not designed to punish the breaching party. The five basic remedies for breach of contract include the following: money damages, restitution, rescission, reformation, and specific performance. A money damage award includes a sum of money that is given as compensation for financial losses caused by a breach of contract. Parties injured by a breach are entitled to the benefit of the bargain they entered, or the net gain that would have accrued but for the breach. The type of breach governs the extent of damages that may be recovered. Restitution is a remedy designed to restore the injured party to the position occupied prior to the formation of the contract. Parties seeking restitution may not request to be compensated for lost profits or other earnings caused by a breach. Instead, restitution aims at returning to the plaintiff any money or property given to the defendant under the contract. Plaintiffs typically seek restitution when contracts they have entered are voided by courts due to a defendant's incompetence or incapacity.

To prove a material breach of contract that relieves a party of the obligation to perform their end of the bargain, it must be shown that the breach was significant enough to cause the transaction that was bargained for to no longer have value. It will be a matter of subjective determination for the court based on all the facts and circumstances involved, to determine if there has been a material breach of the contract or fraud. If a breach or fraud is found, it is possible that the contract may be rescinded and/or damages may be recovered.

Rescission is the name for the remedy that terminates the contractual duties of both parties, while reformation is the name for the remedy that allows courts to change the substance of a contract to correct inequities that were suffered. In order to have a rescission, both parties to the contract must be placed in the position they occupied before the contract was made. Courts have held that a party may rescind a contract for fraud, incapacity, duress, undue influence, material breach in performance of a promise, or mistake, among other grounds. Specific performance is an equitable remedy that compels one party to perform, as nearly as practicable, his or her duties specified by the contract. Specific performance is available only when money damages are inadequate to compensate the plaintiff for the breach.

Promissory estoppel is a term used in contract law that applies where, although there may not otherwise be an enforceable contract, because one party has relied on the promise of the other, it would be unfair not to enforce the agreement. Promissory estoppel arises from a promise which the promisor should reasonably expect to induce action or forebearance of a definite and substantial character on the part of the promisee and which does induce such action or forebearance in binding if injustice can be avoided only by enforcement of the promise.

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 a promise was made; reliance on the promise was reasonable or foreseeable; there was actual and reasonable reliance on the promise; the reliance was detrimental; and 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. Reasonable reliance is usually referred to as a theory of recovery in contract law. It was what a prudent person might believe and act upon based on something told by another. Sometimes a person acts in reliance on the promise of a profit or other benefit, only to learn that the statements or promises were either incorrect or were exaggerated. The one who acted to their detriment in reasonable reliance may recover damages for the costs of his/her actions or demand performance. Reasonable reliance connotes the use of the standard of ordinary and average person.

The following are SC statutes:

§ 16-13-240. Obtaining signature or property by false pretenses.

A person who by false pretense or representation obtains the signature of a person to a written instrument or obtains from another person any chattel, money, valuable security, or other property, real or personal, with intent to cheat and defraud a person of that property is guilty of a:

(1) felony and, upon conviction, must be fined not more than five hundred dollars and imprisoned not more than ten years if the value of the property is five thousand dollars or more;
(2) felony and, upon conviction, must be fined in the discretion of the court or imprisoned not more than five years if the value of the property is more than one thousand dollars but less than five thousand dollars;
(3) misdemeanor triable in magistrate's court if the value of the property is one thousand dollars or less. Upon conviction, the person must be fined or imprisoned not more than is permitted by law without presentment or indictment of the grand jury.

§ 16-13-250. Effect when obtaining signature or property by false pretenses amounts to larceny.

If upon the trial of any person indicted for a misdemeanor under the provisions of § 16-13-240 it shall be proved that he obtained the property in such a manner as to amount in law to larceny he shall not, by reason thereof, be entitled to be acquitted of such misdemeanor. No person tried for such misdemeanor shall be liable to be afterwards prosecuted for larceny upon the same facts.

§ 16-13-260. Obtaining property under false tokens or letters.

A person who falsely and deceitfully obtains or gets into his hands or possession any money, goods, chattels, jewels, or other things of another person by color and means of any false token or counterfeit letter made in another person's name is guilty of a:

(1) felony and, upon conviction, must be fined in the discretion of the court or imprisoned not more than ten years, or both, if the value of the property is five thousand dollars or more;
(2) felony and, upon conviction, must be fined in the discretion of the court or imprisoned not more than five years, or both, if the value of the property is more than one thousand dollars but less than five thousand dollars;
(3) misdemeanor triable in magistrate's court if the value of the property is one thousand dollars or less. Upon conviction, the person must be fined or imprisoned not more than is permitted by law without presentment or indictment by the grand jury.


Please see the information at the following links:

http://definitions.uslegal.com/f/fraud
http://definitions.uslegal.com/c/civil-procedure-counterclaims/
http://definitions.uslegal.com/s/scheme-or-artifice-to-defraud/
http://definitions.uslegal.com/m/misrepresentation/
http://definitions.uslegal.com/c/contracts-recission/
http://definitions.uslegal.com/c/contracts-anticipatory-repudiation/ http://definitions.uslegal.com/c/contract-law/
http://definitions.uslegal.com/c/contracts-breach-of-contract/
http://definitions.uslegal.com/p/promissory-estoppel/
http://definitions.uslegal.com/d/detrimental-reliance/

Please see the forms at the following links:

http://www.uslegalforms.com/us/US-00758BG.htm
http://www.uslegalforms.com/us/US-01135BG.htm
http://www.uslegalforms.com/us/US-01598.htm
http://www.uslegalforms.com/us/US-M6792.htm
http://www.uslegalforms.com/us/US-00782.htm

07/10/2009 - Category: Fraud - State: SC #17482

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