Fraud in the inducement refers to contract fraud. It occurs when one party involved in a contract participates in deceitful practices in order to persuade the other party to act against their best interests. This would cause the other party to then act to the advantage of the party committing fraud. For fraud in the inducement to have occurred, one party must have been misled about the facts. Additionally, those “facts” must have been used to make a decision.

The fraud in the inducement legal definition could also include the following example. One of the parties involved in a specific contract is a company. The other party is a potential job candidate, interviewing for a position within the company. The company convinces the candidate to sign an employment contract; however, the company was deceitful about the terms of employment, for the purpose of getting the now-employee to sign the contract and thus take the job.

If the employee later discovers that the job’s terms are not as promised, and they relied on what the company told them when making their decision to accept the job, they may wish to rescind or cancel the contract. They may also wish to leave the job. However, doing so would lead to a loss of income and potentially expose them to a lawsuit filed by the company for breach of contract. They may have a case for fraud in the inducement and could potentially recover for these losses.

How is Fraudulent Inducement Different From “Fraud in the Factum”?

It is important to remember that fraud in the inducement involves the circumstances that caused a person to act. This differs from “fraud in the factum,” which is defined as deceit in the subject matter of the contract. In instances of fraudulent inducement, deceit is used to get the innocent party to sign the contract. Fraud in the factum consists of the deceitful party actually conducting the fraud themselves, often by forging a signature.

An example of fraud in the factum would be a person’s grandchild telling them to sign a letter. The letter is actually a document that would change their will, and leave all of their assets to the grandchild. Contracts which are found to be “fraudulent in factum” will be void automatically, whereas contracts where fraudulent inducement is proven will not.

Fraud in the execution occurs when one person is deceived by another regarding the character or contents of the document they are signing. It includes a situation in which the contents of a will are intentionally and falsely represented to the testator, by another party who has something to gain from the misrepresentation.

What Are the Effects of a Fraud in the Inducement?

Fraud in the inducement is a crime. This is because the plaintiff may not have agreed to the terms of the contract, had the defendant been truthful to begin with. As previously mentioned, if the court finds that a contract was entered under fraud in the inducement, it will make the contract voidable

What this means is that the plaintiff can have the contract voided by the court, which would thereby dismiss any contractual duties they entered into as the premises were fraudulent.

How Do You Prove Fraudulent Inducement?

Fraud in the inducement elements generally consist of the following:

  • The deceiving party committed an act, or failed to commit an act, which resulted in deception of the innocent party. This often presents as a lack of information, or deliberate misinformation, to the innocent party;
  • The information, or lack thereof, was of material importance to the innocent party’s decision to enter into the contract;
  • It was reasonable for the innocent party to rely on the deceiving party’s information, as they had no reason to believe otherwise; and
  • The result is that the innocent party has suffered harm, usually financial in nature.

It does not matter if the innocent party would have entered the contract even without the deception. Additionally, it must not be their primary reason for entering the contract. So long as the elements are met, fraudulent inducement is typically proven.

In terms of contracts, there may be an assumption that the contract is written. Generally speaking, contracts are written. However, oral contracts also exist and arise by the parties exchanging words in conversation. Such contracts can be difficult to enforce, and difficult to prove fraudulent inducement. The obvious reason is that without anything in writing, there may be little evidence for a court to go on.

What Are the Remedies for Fraudulent Inducement?

Damages for fraudulent inducement generally do not include monetary damages. Whereas monetary damages are intended to reimburse the plaintiff for harm incurred by the defendant, fraudulent inducement is generally considered to be an equitable cause of action. This is a type of legal action in which other legal remedies are used to resolve the issue in order to make the wronged party whole again.

In terms of a contract, the court could provide the plaintiff with the option that the deceptive party considers the contract void. Doing so would prevent them from forcing the innocent party to complete their performance as dictated by the now breached contract.

It is important to note that in such cases, the contract would not be automatically voided. Additionally, it is possible that if other related legal claims arise over the course of the fraudulent inducement case, the innocent party could then sue for monetary damages. A trusted attorney could prove to be beneficial when attempting to recover any sort of damages.

Whether or not you can go to jail for fraudulent inducement could depend on the state in which you are being prosecuted. The crime could be considered a white collar crime, which does carry a jail sentence in certain instances. Once again, an attorney would be best suited to handle such a case and work to reduce any jail sentence that may be levied against the defendant.

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

There are some commonly utilized defenses to claims of fraud in the inducement. Such defenses could include the “unreasonable reliance on an oral agreementdefense. This defense asserts that the plaintiff unreasonably relied on what the defendant said. 

An example of this defense would be if a defendant told their significant other, “my home is your home,” but the prenuptial agreement on property distribution says otherwise. The plaintiff is unreasonably relying on what the defendant said, as the statement could be seen as a figure of speech, instead of a definitive statement that the defendant changed their will to include the plaintiff.

Another common 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 their significant other into thinking that they had changed their will to include them.

Any defense used against a claim of fraud in the inducement will likely set out to disprove the aforementioned elements of proof. If the defendant can show that one or more elements cannot be proven, it is unlikely that their accuser can make a case for fraudulent inducement.

Should I Get a Lawyer to Help Me with a Fraud in the Inducement Claim?

Fraud claims, specifically fraud in the inducement claims, can quickly become very complicated due to the fact that they involve various areas of law. Because of this, you should consult with a skilled and knowledgeable business attorney when becoming involved in any sort of contract. 

An experienced and local business attorney can review the contract’s terms before you agree to them, and help you collect evidence should any issues arise. Additionally, a skilled attorney can also represent you in court as needed.