fraud

[kukeenun]

Why is fraud in the inducement treated as a personal defense and fraud in the inception treated as a real defense?Is this distinction justifiable? on what grounds?

Real Defenses


Real defenses can be raised against a holder in due course


Minority
Extreme duress
Mental incapacity
Illegality
Discharge in bankruptcy
Fraud in the inception
Forgery
Material alteration








Personal Defenses


Personal defenses cannot be raised against a holder in due course


Breach of contract
Fraud in the inducement
Mental illness that makes a contract voidable instead of void
Illegality of a contract that makes the contract voidable instead of void
Ordinary duress or undue influence
Discharge of an instrument by payment or cancellation

Fraud in the inducement occurs when a person knows what he or she is signing but consent is induced by the fraud of another. Fraud in the inception happens when a party is deceived concerning the nature of his or her acts and does not know what he or she has signed and does not intend to enter into a contract. It occurs when, through the fraud of another, a person is deceived as to the nature of the contents of the document itself. When a person who cannot read relies on the representation of the other party's agent that a document is merely a receipt and signs a release, it is "fraud in the inception." Similarly, if the grantor of a deed does not realize the nature of the instrument being signed and, because of the fraud of another, believes that it is not a deed, there is fraud in the inception, and the deed is void. In both cases, if the party signing the document knew what he or she was signing, but relied on misrepresentations when induced to sign it, there would be fraud in the inducement.