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What Does Fraudulent Inducement Mean?

Fraudulent inducement occurs when one person persuades another through misleading information. It is usually applicable in a contract setting, such as an employment contract. Usually one person induces the other to sign a contract through trickery or deceit.

 

For example, a bank tells people that they must sign a mortgage contract or else their car will be repossessed. This is fraudulent inducement if there are no consequences for not signing. Fraudulent inducement would be found if the person entering into the contract relied on the false statement.

What Are the Elements for Proving Fraudulent Inducement?

 The basic elements used to prove fraudulent inducement are:

  • The defendant made an intentional action, statement, or omission
  • The misrepresentation was material to the decision to enter into a contract
  • The plaintiff reasonably relied on such misrepresentation, and
  • The plaintiff suffered some degree of injury, usually economic harm

The misrepresentation need not be the predominant reason for entering into the contract. Further, it is irrelevant that the plaintiff would have entered into a contract even without a misrepresentation. Most courts do not need the plaintiff to verify the truth of the misleading act or statement.

 

Finally, for oral contracts, the “reasonable reliance” element is difficult to meet. Courts are less likely to find fraudulent inducement when the contract is based on an oral promise and there are no written documents to support it. This is because courts may deem it unreasonable to rely on statements that are not contained in writing.

What Are the Remedies for Fraudulent Inducement?

Fraudulent inducement is an equitable cause of action. This means that the remedies will not involve money damages. Courts usually order the offending party to take certain actions or refrain from doing something.

 

In this case, fraudulent inducement contracts are declared voidable at the innocent party’s election. This means that the contract is not automatically considered to be void. But, the innocent party can void the agreement if they want. Money damages may be available if there are crossover claims involving a tort cause of action.

How Is Fraudulent Inducement Different From "Fraud in the Factum"?

Often, people confused fraudulent inducement with fraud in the factum. Fraud in the factum is a legal cause of action based on a different type of contract issue. It occurs when one party deceives the other about the factual contents of the agreement.

 

For example, it is fraud in the factum if a person says that the contract deals with the sale of land, but it actually is about jewelry.

 

Fraudulent inducement is about circumstances surrounding the contract formation. The focus is about why the innocent party to entered into the agreement. In contrast, “fraud in the factum” is about the content of the contract itself. Unlike fraudulent inducement, “fraud in the factum” contracts are immediately void.

Are There Any Defenses to Fraudulent Inducement Claims?

Yes, there are several defenses. Most of them involve an element of proof that was not satisfied. For example, they may contend that the statement was:

  • Not misleading or
  • Was not intentionally made
  • That no person could have reasonably relied upon the statement or action

Should I Get a Lawyer for My Fraudulent Inducement Case?

Yes, fraudulent inducement is a serious matter and can lead to lost opportunities for both parties to the contract. It is important to work with an experienced contract lawyer who can represent your interests. Contract law can be somewhat complex, so it is best to rely on the expertise of an experienced lawyer.

 

Photo of page author Jessica Tran

, LegalMatch Legal Writer

Last Modified: 11-08-2017 11:26 PM PST

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