As explained in my previous post:  “The courts do not have much patience for parties who enter into contracts and then claim that they should not be bound by the agreement they admittedly signed but allegedly did not read or understand.  If you sign the contract, you are bound by it, because you have a duty to read and understand the contract before you sign it.  This is essential to preserve the integrity of agreements and the law of contracts.”

A new decision of New York Appellate Division Second Department reinforces this unquestioned principle.  In Prompt Mtge. Providers of N. Am., LLC v Zarour, 2017 NY Slip Op 08028 (2d Dep’t Decided on November 15, 2017), plaintiff sought to foreclose on a mortgage.  Plaintiff was granted summary judgment approving the foreclosure and sale. Defendant appealed, claiming the lower court erred in rejection his defense of fraud, alleging plaintiffs tricked him into signing the mortgage and underlying note.  More on this below, after a bit of background on the law.

Limited Availability of “Fraud in the Factum”

Claiming that you did not know what you were signing involves the doctrine known as “fraud in the factum,” which is distinguished from fraud in the inducement.  While fraud in the inducement involves some form of misrepresentation that causes one to enter into a contract, while fully knowing what the contract is and says, fraud in the factum involves parties seeking to avoid the effect of documents they signed by claiming they were “misled by the defendants to sign certain documents which turned out to be of an entirely different nature and character from what they thought they were signing … .”  Cash v. Titan Financial Services, Inc., 58 A.D.3d 785 (2d Dep’t 2009).

The doctrine of fraud in the factum and its limitations was further explained by the court in Ackerman v. Ackerman, 120 A.D.3d 1279 (2d Dep’t 2014):  “The gravamen of the plaintiff’s complaint is fraud in the factum, that the plaintiff was induced to sign something entirely different than what she thought she was signing (see First Natl. Bank of Odessa v. Fazzari, 10 N.Y.2d 394, 397, 223 N.Y.S.2d 483, 179 N.E.2d 493). However, a party is under an obligation to read a document before signing it, and generally such a cause of action only arises if the signor is illiterate, blind, or not a speaker of the language in which the document is written … .”

New Decision in Prompt

In Prompt, the plaintiffs sought to foreclose a construction mortgage against property owned by the defendant. The defendant executed the construction mortgage, the note it secured, and other related documents. The Second Department recognized that the “plaintiffs established their prima facie entitlement to judgment as a matter of law on the complaint by producing the construction mortgage, the unpaid note, and proof of the defendant’s default.”

The Second Department further noted that in opposition to the motion, the defendant alleged “that the plaintiffs tricked him into unwittingly signing the construction mortgage, the note it secured, and the related documents” because “at the closing, which he attended with an attorney, he was handed three sets of documents, and neither he nor his attorney was given the opportunity to review those documents. He alleged that he signed the documents without reviewing them, at the insistence of [plaintiff and his attorney], because he regarded [plaintiff] ‘almost like a father figure,’ and, in his mind, the closing ‘was more like a family transaction than a closing.’”

Unsurprisingly, both the lower court and Second Department had little trouble flatly rejecting that claimed defense.  The Second Department did not directly refer to fraud in the factum in rejecting the defense of fraud and affirming summary judgment for the mortgagee.  Since there was no allegation of illiteracy, blindness or lack of understanding of the language of the documents, the Second Department applied the general rules applicable to fraud in the inducement claims:

“A party who executes a contract is presumed to know its contents and to assent to them” (Nerey v Greenpoint Mtge. Funding, Inc.,144 AD3d 646, 648 [internal quotation marks omitted]; see Golden Stone Trading, Inc. v Wayne Electro Sys., Inc., 67 AD3d 731, 732; Holcomb v TWR Express, Inc., 11 AD3d 513, 514; Moon Choung v Allstate Ins. Co., 283 AD2d 468, 468). Thus, “[a] party who signs a document without any valid excuse for having failed to read it is conclusively bound by its terms” (Shklovskiy v Khan, 273 AD2d 371, 372), “unless there is a showing of fraud, duress, or some other wrongful act on the part of any party to the contract” (Renee Knitwear Corp. v ADT Sec. Sys., Northeast, 277 AD2d 215, 216; see Barclays Bank of N.Y. v Sokol, 128 AD2d 492, 493). “The elements of a cause of action sounding in fraud are a material misrepresentation of an existing fact, made with knowledge of the falsity, an intent to induce reliance thereon, justifiable reliance upon the misrepresentation, and damages” (JP Morgan Chase Bank, N.A. v Hall, 122 AD3d 576, 579 [internal quotation marks omitted]; see Eurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3d 553, 559; House of Spices [India], Inc. v SMJ Servs., Inc., 103 AD3d 848, 850; Introna v Huntington Learning Ctrs., Inc., 78 AD3d 896, 898). Here, the defendant failed to establish the element of justifiable reliance on alleged misrepresentations of [plaintiff] and [plaintiff ]’s attorney, since the documents were provided to him, and he and his attorney could have read them. Nor has the defendant established any other valid excuse for his purported failure to read the construction mortgage and related documents before signing them.


It is quite rare for a court to accept a fraud claim based upon an allegation that the party seeking to avoid the legal effect of a document it signed did not know what the document actually said or what it was.  Frankly, even if the party is illiterate or blind or does not understand the language of the document, ordinary prudence would dictate that such person should take reasonable steps to make sure he or she understands the document, with assistance of others if necessary, before signing it.  Fraud in the factum would appear to be a doctrine that has little if any viability in the modern era and certainly no applicability to transactions involving sophisticated parties.