Fraud in the Inducement: Fraud Before the Contract is Formed

You may already know that many times, we sign contracts, and we end up defrauded. That’s not just a breach of contract, but rather, a knowingly deceitful act by one party, made while knowing that the other party was going to rely on the (mis)representation.

But there are times when we are actually defrauded before the contract is even entered into. That is, there are lies that are told to us, that convince us to enter into a contract that we ordinarily would not have entered into.

Fraud in the Inducement

When this happens parties may have a cause of action or what is known as fraud in the inducement. Fraud in the inducement is fraud that is separate from a breach of contract, and separate from any fraudulent activity that may have occurred in connection with performance with the contract itself.

Showing Fraud in the Inducement

To show fraud in the inducement, the victim or party suing, must show that the other side knowingly said something false, that was important to the other side, and that the false statement was made for the purpose of convincing the other side to enter into the agreement.

The falsity can’t be mere bluffing or puffery. For example, if someone says “I guarantee you’ll be happy with this contract,” that isn’t fraud. If someone says “I’ll do a great job for you” that isn’t fraud.

On the other hand, if someone says “I’m a licensed electrician, sign this contract for electrical services” and they aren’t licensed, that could be fraud in the inducement.

The victim also needs to show that he or she relied on the false statement—that is, that the lies convinced, coerced, or induced him or her, to enter into the agreement, and that it was reasonable to rely on those mistruths.

As part of reliance, the victim must also demonstrate that he or she would not have entered into the contract, in the absence of the lies or misrepresentations.

A Powerful Claim

Fraud in the inducement essentially takes away a party’s ability to knowingly and rationally consider whether or not to enter into the agreement in the first place. Because of the reliance on the lies, the defrauded party never could fairly consider the pros or cons of the agreement.

Fraud in the inducement can be a powerful claim, because if it is proven, it actually assumes that the contract was never entered into in the first place.

Damages aren’t just breach of contract, but a total undoing or recission of the contract, putting the parties back in the position that they would have or should have been, had the lies (and thus the contract) never occurred. This can entail a complete return of money or property that were exchanged, in connection with the contract.

Call the West Palm Beach business lawyers at The Law Offices of Larry E. Bray today to help you in your business or commercial litigation lawsuit.

Sources:

floridabar.org/the-florida-bar-journal/the-elr-and-fraudulent-inducement-claims/

govinfo.gov/content/pkg/USCOURTS-flsd-9_19-cv-80278/pdf/USCOURTS-flsd-9_19-cv-80278-0.pdf