Fraud in the inducement is contract fraud, occurring when one party uses trickery or deceit to persuade the other party to act to their own advantage.
When fraud in the inducement occurs, two things have happened:
- One party was misled about the facts; AND
- Those “facts” were used to make a decision.
For instance, if person “A” tells person “B” that the bank will foreclose on person “B’s” home unless they sign the property over to person “A” they are misleading the individual as to the true facts of the situation if person “B” signs over the deed to “A”.
It is important to note that fraud in the inducement involves the circumstances that caused a person to act. This is in contrast with “fraud in the factum,” which is deceit in the subject matter of the contract.
Another example of fraud in the inducement would be an individual telling another that they are a licensed stock broker, and to sign a contract. In truth, this person is not a licensed broker. If the plaintiff signs the contract, because they believe they are working with a licensed broker, they are relying on what the defendant has said, hence fraud in the inducement.
An example of fraud in the factum, would be a gentleman’s grandson telling him to sign a letter, when in fact, it is a document that would change his will and leave all his assets to the grandson.
Fraud in the inducement is illegal. If the court finds that a contract was entered under fraud in the inducement, it will make the contract voidable. This means that the plaintiff can have the contract voided by the court, thereby dismissing any contractual duties they entered into since the premises were fraudulent. Monetary damages may not be available as a remedy in these cases.
A defendant may use the “unreasonable reliance on an oral agreement” defense to fraud in the inducement. This says the plaintiff unreasonably relied on what the defendant said. For instance, a defendant told her boyfriend, "my home is your home," but the prenuptial agreement on property distribution says otherwise. He is unreasonably relying on what she said, which could be seen as a figure of speech, rather than what is in her will.
Another defense to fraud in the inducement is that the misleading statement was not intentional. In the above example, it is unlikely that the defendant intended to mislead her boyfriend into thinking that she had changed her will to include him.
Consulting a business attorney with experience in contract is highly recommended in cases involving fraud in the inducement. Fraud claims can be complicated, and a lawyer will be able to advise you of your rights, your best course of action, and will also be able to represent your best interests in court.