Fraudulent Inducement

A Fraudulent Inducement is a Legal Claim that arises when one contracting party is deceived into entering into a contract by another party's false statements or omissions, which are intended to mislead and induce the agreement.

• AKA: Fraud In The Inducement.
• Context:
  • It can (typically) occur when one contracting party knowingly makes false representations or conceals important facts to persuade the other party to enter into a contract that they would not have agreed to if they had known the truth.
  • It can lead to the contract being voidable, allowing the defrauded party to seek rescission of the contract and possibly recover damages for any losses suffered as a result of the deception.
  • It is distinguished from general fraud by the fact that the deceit occurs at the time of contract formation, specifically to induce the other party into the agreement.
  • ...
• Example(s):
  • A real estate agent falsely claims that a property has no structural issues to induce a buyer to purchase it, which the buyer later discovers to be untrue, leading to a claim of fraudulent inducement.
  • An employer misrepresents the scope of job duties and compensation to a prospective employee to get them to sign an employment contract, which is later found to be a case of fraudulent inducement​.
  • A Misrepresented Product,
  • A False Promise,
  • ...
• Counter-Example(s):
  • A Fraud-in-Factum,
  • A Honest Mistake,
  • A Contractual Obligation,
  • A Fair Bargaining.
• See: Deceptive Practices, Contract Law, Breach-of-Contract, Contract Agreement Rescission, Contract Agreement Misrepresentation, Fraud.

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References

2024

• (ChatGPT-OpenAI, 2024) ⇒ Prompt: Summarize the concept Fraudulent Inducement in 1- 2 paragraphs. ChatGPT (model:gpt-4o). Retrieved: 2024-08-18.
  • QUOTE: Fraudulent inducement refers to a situation where one party is deliberately misled or deceived by another party into entering a contract or agreement through false statements, misrepresentations, or deceptive practices. The misleading party may provide incorrect information or conceal crucial facts, with the intention of persuading the other party to act in a way they otherwise would not have. As a result, the deceived party makes a decision based on the fraudulent information, often leading to adverse consequences or financial loss.

    Legally, fraudulent inducement can serve as grounds for voiding the contract or seeking damages. When a party proves that they were fraudulently induced, they may be entitled to rescind the contract, effectively nullifying its terms and obligations, and potentially recovering damages to compensate for any losses incurred. This principle upholds the integrity of contract law by ensuring that agreements are entered into voluntarily and with full disclosure, protecting parties from deceitful practices.

2024b

• (Cornell Law School, 2024) ⇒ fraud in the inducement. In: Wex - Legal Information Institute (LII)], Cornell Law School. Retrieved: 2024-08-18.
  • QUOTE: Fraud in the inducement occurs when a person tricks another person into signing an agreement to one’s disadvantage by using fraudulent statements and representations. Because fraud negates the “meeting of the minds” required of a contract, the injured party can seek damages or terminate the contract. When fraud occurs after the agreement, the law usually requires the injured party to file only breach of contract claims, but the party may add fraudulent inducement claims because the two claims relate to two different actions by the defendant. A contract made by fraud is termed “voidable” rather than “void” and the injured party can choose to proceed with the contract even after learning about the defendant’s fraudulent inducement.

2024c

• (RUSSO Law LLC, 2024) ⇒ https://russolaw-llc.com/disputes_commercial_litigation/fraudulent-inducement/what-is-fraudulent-inducement_faq/ . Retrieved: 2024-08-18.
  • QUOTE: To prove a claim of fraud a party must establish the following elements:
    • a misrepresentation or a material omission of fact,
    • which was false and known to be false by defendant,
    • which was intentionally made for the purpose of inducing the other party to rely upon it,
    • and the other party reasonably relied upon the misrepresentation or omission (a.k.a. justifiable reliance), and

injury caused as a result of that reliance

2020

• (UpCounsel, 2020) ⇒ "Fraud In The Inducement: Everything You Need to Know". In: UpCounsel, updated on November 02, 2020.
  • QUOTE: Fraud in the inducement is a term used for contract fraud and occurs when one party involved in the contract uses deceit or trickery to get the other party or signer to act for their advantage. For fraud in the inducement to have occurred:
    • One of the parties had been misled by the facts
    • The wrong facts were used for the party to make their decision

An example would be a person telling another that they need to sign the property over to them to prevent their home from going into foreclosure. They are misleading the person into signing the deed of their home over to the other party using fear. For fraud in the inducement to occur, there have to have been circumstances that pushed the person to act. This is what separates it from the term fraud in factum, which refers to deceitful subject matter in a contract.

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