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.
Under Texas law, a claim for fraudulent inducement must show that the defendant made a material misrepresentation, which one knew was false or without knowledge of its truth, and intended the inducement to cause reliance by the injured party.
In California, a plaintiff can make the contract voidable by showing that one knew that one was consenting by agreement and there was mutual assent, but the defendant induced the consent by fraud. The law distinguishes fraudulent inducement claims from fraud in the “execution” of the contract where the plaintiff entered into an agreement without actually knowing what one was signing and therefore lacked mutual assent.
See also Fraud.
[Last updated in June of 2020 by the Wex Definitions Team]