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California Business Contracts: What Is Fraudulent Inducement?

business-fraud.jpgIn California, it is unlawful to engage in deception in the effort to induce another party into entering into a contract. Deceptive acts during the negotiation of a contract could lead to a legal claim known as 'fraudulent inducement'. Put simply, if your company was intentionally misled into signing a contract, you have legal options. To learn more about fraudulent inducement, please contact an experienced California fraud litigation attorney for immediate legal assistance.

Proving Fraudulent Inducement

As with other business litigation issues, a successful fraudulent inducement claim requires proving each of the legal elements. The elements of fraudulent inducement are well articulated in the 1999 case of Charpentier v. Los Angeles Rams Football Co, which was heard by California's Fourth District Court of Appeal. In that case, the court set the following standard for fraudulent inducement:

  • A material representation was made by the defendant;
  • The representation was false;
  • At the time the representation was made, the defendant knew it to be false, or should have known it to be false;
  • The defendant made the false representation with the express intention of inducing action by the plaintiff;
  • The plaintiff acted on reliance of the false information; and
  • The plaintiff suffered damage.

Entering into a contract based on false pretenses can cause tremendous damage to a business. Contracts are supposed to voluntary, mutually bargained for and ultimately mutually beneficial. Certainly, sometimes misjudgments are made and companies enter into contracts that they regret. However, when that misjudgment occurs as a result of intentional misrepresentation, legal action should be taken.

Fraudulent Inducement: Remedies

In general, remedies are divided into two categories: equitable and legal. The purpose of a legal remedy is to allow the affected party to recover financial compensation. On the other hand, equitable remedies involve a court order to get a defendant to do, or to refrain from doing, a certain action.In fraudulent inducement cases, plaintiffs are typically entitled to equitable relief.

The most common specific remedy for fraudulent inducement is that the court will declare the contract, or a part of the contract, to be voidable. If this occurs, the innocent party will have the option of voiding the contract. However, financial compensation can still be available in fraudulent inducement cases as well. It will typically require evidence that the plaintiff has been financially damaged by their reliance on the fraudulently induced contract. Ultimately, if you find yourself considering this type of claim, you should hire an experienced business fraud attorney who can comprehensively review your individual case and help you determine the best path forward.

Contact Our Office Today

At Diemer, Whitman & Cardosi, LLP, our passionate San Jose business litigation attorneys have extensive experience helping our clients through fraud litigation. If your company has been affected by business fraud, please contact our team today at 408-971-6270 to schedule a free initial consultation. We proudly serve business clients throughout Silicon Valley, including in Mountain View and Sunnyvale.

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