Opinion ID: 1656431
Heading Depth: 2
Heading Rank: 1

Heading: Fraud in the Factum

Text: Hudson argues that Outlet committed fraud in the factum in that he was deceived as to the true nature of what he signed: he actually signed a lease contract when he thought he was signing a purchase contract. See Harold Allen's Mobile Home Factory Outlet, Inc. v. Early, 776 So.2d 777, 783 n. 6 (Ala.2000) (discussing the difference between fraud in the inducement and fraud in the factum and noting that to constitute fraud in the factum... the misrepresentation must go to the essential nature or existence of the contract itself, for example, a misrepresentation that an instrument is a promissory note when in fact it is a mortgage). Outlet appears to admit that Hudson's fraud claim alleges fraud in the factum; [4] however, Outlet contends that all of Hudson's claims, including his fraud-in-the-factum claim, should be resolved by an arbitrator. We disagree. There is no question that Hudson's claim alleging fraud in the factum is directed at the entire contract rather than to just the arbitration agreement. Typically, challenges directed at a contract that contains an arbitration agreement, and not at the arbitration agreement itself, are for an arbitrator to resolve. Mason v. Acceptance Loan Co., 850 So.2d 289, 294 (Ala.2002); Investment Mgmt. & Research, Inc. v. Hamilton, 727 So.2d 71, 78 (Ala.1999) (relying on Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967)). However, a challenge to the very existence of the contract ... is an issue for a court, not an arbitrator, to decide. Mason, 850 So.2d at 295; J.C. Bradford & Co. v. Vick, 837 So.2d 271, 273 (Ala.2002) (When a party is seeking to enforce an arbitration clause, the question whether a valid contract exists between the parties is to be decided by the trial court, not an arbitrator.). In J.C. Bradford & Co. we explained this distinction: In Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), the United States Supreme Court held that a fraud-in-the-inducement challenge to a contract that contained an arbitration clause should be decided by an arbitrator, and not by a court. However, we follow the reasoning of other courts that limit the holding in Prima Paint Corp. to `voidable' contracts (e.g., a contract where a party is induced through fraud or a contract where a party is an infant). However, where a party challenges the very existence of a contract, that dispute must be decided by a court. See Shearson Lehman Bros. v. Crisp, 646 So.2d 613 (Ala.1994). 837 So.2d at 237 n. 2. Under these principles, it is clear that Hudson's fraud-in-the-factum claim is to be resolved by the trial court. Indeed, we have recently recognized that fraud-in-the-factum claims test the very existence of a contract and are not subject to arbitration. See Anderson v. Ashby, 873 So.2d 168 (Ala.2003)(discussing Harold Allen's Mobile Home Factory Outlet, Inc. v. Early, supra, and Oakwood Mobile Homes, Inc. v. Barger, 773 So.2d 454 (Ala.2000)). Therefore, the trial court erred in submitting Hudson's fraud-in-the-factum claim to arbitration. In order to determine whether the lease contract exists as between the parties, the trial court must resolve this claim. If, upon consideration of this claim, the trial court resolves the fraud-in-the-factum claim against Hudson and finds that the lease contract did in fact exist between the parties, then the court may submit the remaining claims to arbitration if such action is appropriate.