Fraudulent inducement may be described as the deceitful practices used by one party to convince another party to agree to a situation that will be harmful to them in some way. Typically, fraudulent inducement occurs in the context of a contract between the two parties.
The deceitful party will use false information to persuade the other party that the contract is beneficial to them, when, in fact, it is quite the opposite. Deceit is used to get the innocent party to sign the contract. This differs from fraud in factum, in which the deceitful party actually conducts the fraud themselves, often by forging a signature.
An example of fraudulent inducement is as follows: one party, a company, convinces the other party, who is interviewing for a job with the company, to sign an employment contract. However, the company lies about the terms of employment in order to get the now-employee to take the job and sign the employment contract.
The employee later discovers that the job terms are not what was promised. They relied on what the company told them. Now, they wish to rescind or cancel the contract, and leave their job, which will lead to loss of income. The deceived party likely has a case for fraudulent inducement.
There are elements that must be proven in order to show that fraudulent inducement did occur. The elements are:
- The deceiving party committed an act, or failed to commit an act, which resulted in deception of the innocent party. Often this occurs as lack of information or 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, because they had no reason to believe otherwise; and
- As a result, the innocent party has suffered harm, usually of the financial variety.
It doesn’t matter if the innocent party would have entered the contract even without the deception, and it does not have to be their primary reason for entering the contract. As long as the elements are met, fraudulent inducement is proven.
In speaking of contracts, there may be an assumption that the contract is written, and, usually, they are. However, there are also oral contracts, which arise by the parties exchanging words in conversation.
These types of contracts can be both difficult to enforce and to prove fraudulent inducement regarding, for the obvious reason that without anything in writing, there may be little evidence for a court to go on.
Fraudulent inducement is what is known as an equitable cause of action, which is a type of legal action where monetary damages are not usually granted. Instead, other legal remedies are used to resolve the legal dispute, and make the wronged party whole.
In the case of a contract, for instance, a court might provide the option that the deceiving party consider the contract void, which would keep them from forcing the innocent party to perform their part of the contract.
The contract won’t be voided automatically, but the innocent party may well choose this option to get out of the contract. It is also possible that, if other related legal claims come up in the course of the fraudulent inducement case, the innocent party may be able to sue for money damages.
It is important to remember that fraud in the inducement is not the same thing as fraud in factum. Fraudulent inducement involves a misrepresentation which gets an innocent party to sign a contract. In contrast, fraud in factum occurs when the deceitful party get the innocent party to sign, and then, for example alters the terms of the contract to which the signature was applied. It may also involve the forgery of a signature.
The issue with fraudulent inducement concerns the circumstances under which the innocent party signed the contract, on the basis of a misrepresentation. Fraud in the factum, on the other hand, concerns the actual contents of the contract. Contracts which are held to be “fraudulent in factum” will be void automatically, unlike contracts where fraudulent inducement is proven.
If a claim of fraudulent inducement is made, the party being accused may raise several defenses. These defenses will usually be related to disproving any of the elements which are required to be proven in order to establish fraudulent inducement. If they can show that one or more elements are not proven, their accuser will not be able to make a case for fraudulent inducement.
Cases for fraudulent inducement can be serious, depending on the subject matter of the contract. The fraud experienced by the innocent party often involves serious consequences for them, particularly those of a financial nature. An experienced business attorney can help someone who has been fraudulently induced into signing a contract which has harmed them.