Fraud in the Inducement Lawyers

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What is Fraud in the Inducement?

Fraud in the inducement is a specific type of contract fraud.  In a fraud in the inducement claim, the defendant uses deceit or trickery in order to cause the other party to act to their advantage, such as signing an agreement, or accepting an offer.  The basic characteristic of fraud in the inducement is that the plaintiff was misled as to the facts on which they base their decision to act.

Fraud in the inducement is often contrasted with another type of contract fraud called “fraud in the factum”.  Fraud in the factum is where the defendant deceives the plaintiff as to the subject matter of the contract. 

In contrast, fraud in the inducement has more to do with the surrounding circumstances that cause the plaintiff to act.  Fraud in the inducement is sometimes called “Fraud in the procurement” or “Fraudulent inducement”. 

What is an Example of Fraud in the Inducement Compared with Fraud in the Factum?

Suppose that the defendant had stated, “I am a licensed real estate agent, please sign this contract”.  In reality, the defendant is not a licensed agent, but the plaintiff signs the contract because they believe that the defendant is a professional.  This would be considered fraud in the inducement, since the plaintiff was “induced” to sign the contract based on the facts surrounding the contract.

Now suppose that the defendant had stated, “Please sign this contract for the sale of 30 toys”.  In reality, the contract is for the sale of 50 toys, but the plaintiff proceeds to sign it because they believe they will only be paying for 30 items.  This would likely be considered fraud in the factum, because the fraud has to do with the material subject matter of the contract (i.e., the “facts”). 

What are the Effects of a Fraud in the Inducement?

Fraud in the inducement is considered a very serious violation and can have far-reaching effects on the contract agreement.  A contract that is tainted by fraud in the inducement will be declared voidable by the court.  “Voidable” means that the innocent party can have the contract voided by the court (it is not immediately void, but can be declared void at the non-breaching party’s choice).

Thus, the plaintiff will not need to perform their contract duties if the court voids the contract.  This is true even if the plaintiff signed the contract, since they were caused to do so in a fraudulent manner.  Monetary damage awards may not be available as a remedy for fraud in the inducement.  

Are There Any Defenses to Claims of Fraud in the Inducement?

A common defense to fraud in the inducement is “unreasonable reliance on an oral agreement”.  That is, if the plaintiff was unreasonable in relying upon the defendant’s representations, it could serve as a defense. 

For example, if the defendant made an oral promise that was clearly in contradiction to a written agreement, a court might find it unreasonable for the plaintiff to rely on the oral promise.  This of course may vary in each situation and in each jurisdiction.

Another defense to fraud in the inducement is where the misleading statement was not made intentionally.  In most cases, the defendant must have intended to mislead the plaintiff in order for a violation to be found.

Do I Need a Lawyer for Assistance With a Fraud in the Inducement Claim?

Claims involving fraud in the inducement can often be quite complex.  Proving fraud in the inducement requires a strict analysis of all the facts surrounding the contract agreement.  If you believe that you have legal issues involving fraud in the inducement, you may need to hire a lawyer for advice.  A qualified attorney can represent your interests according to the laws in your area.

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Last Modified: 02-23-2012 11:00 AM PST

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