Fraudulent Inducement Law and Legal Definition

A successful fraudulent inducement claim requires a claimant to establish that it “reasonably relied” upon promises of future conduct made by another party. However, a court may find it unreasonable for a party to rely on statements or promises, for instance, when not contained within a written agreement, when that agreement contains a merger clause. In such cases, reliance on the oral promises may be found to be unreasonable, and it will not be held that there was reasonable reliance on such representations.

Fraud in the factum occurs by deception causes the other party to misunderstand the nature of the transaction in which he or she is engaging, especially with regard to the contents of a legal document, such as a contract or promissory note. It is the type of fraud that obtains a party's signature to an instrument without knowledge of its true nature or contents.