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What Is A Fraud In The Inducement Claim?


As a general rule, when there is a promise or representation made before a contract is entered into and that representation doesn’t make it into the written contract the representation is not enforceable. It is assumed that the parties knew about the representation, and opted to omit it from the subsequent written contract.

But there is one exception to this rule: Fraud in the Inducement. When representations are made before a written contract is entered into, and those representations were made intentionally, they are false, and they are made to induce a party to enter into the agreement, the other party may have what is called a fraud in the inducement claim.

What Constitutes Fraud in the Inducement?

Fraud in the inducement is both an affirmative claim—a party can sue for fraud in the inducement—and can also be used defensively, as a defense to a breach of contract claim.

Fraud in the inducement requires a showing that:

  1. The party made a false statement of fact, and the fact was material to the contract or agreement
  2. The Defendant knew that what it was saying was false
  3. The Defendant made the false statement in order to get the Plaintiff to rely on it—and specifically, did not enter into the contract in question, and
  4. The Plaintiff actually relied on the statement and the reliance was reasonable

Fraud in the inducement actually argues that there was never a valid contract formed—or that the contract is void. That means that if there is fraud in the inducement, there can be no breach of contract.

The Facts Must be Different

In fraud in the inducement claims, one party’s ability to freely enter into a contract, and negotiate the pros and cons of the contract, are undermined by the pre-contract false statements of the other party.

Because fraud in the inducement occurs before the contract was formed, it must involve different facts and allegations than a breach of contract claim. The misrepresentations that were made by one party, must not be representations that came from the contract itself. In other words, the wrong or misleading things that were said pre-contract must be different than anything that’s actually in the contract.

Material Facts

The misrepresentation must go to a material fact. That means that a reasonable person wouldn’t have entered into the contract, had the truth been told.

Predictions about things that may happen in the future (“this product will last forever”), will not be misrepresentations that constitute a fraud. The misrepresentations must relate to something that existed, or which could be known, at the time of contracting.

With fraud in the inducement claims, the party suing will usually allege rescission. Rescission is like “turning back the clock,” in that it seeks to undo the contract, and put both parties back in the position that they were before the contract was signed.

Have you been a victim of fraud of any kind? We can help. Call the West Palm Beach business litigation lawyers at Pike & Lustig today.



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