Skip to main content

Fraudulent Inducement of Contracts and a Party's Duty of Due Diligence

In a recent case, a restaurant (a business entity that owned/operated a restaurant) leased a building from the landowner. Sometime afterwards, the restaurant claimed it had been fraudulently induced into signing the lease (the decision refers to a "contract and lease") and sued the landowner for rescission (to undo) of the lease based on the fraudulent inducement.

A claim of fraudulent inducement means the offending party lied (made misrepresentations of fact) to you to get you to sign a contract; you did not find out the other party lied until after you signed the contract; you have been damaged by the fraudulent inducement; and now you want out of the contract. (The decision doesn't get into what the supposed misrepresentations were.)

However, part of a court's analysis is "buyer beware", you better have done your homework, your due diligence*, before signing the contract. In this case, the appeals court said the restaurant could have found out the landowner was making misrepresentations because the necessary information wasn't solely in the landowner's possession:
Here, the plaintiffs failed to establish that the alleged misrepresented facts were matters peculiarly within the defendants' knowledge, which they could not have discovered by the exercise of "ordinary intelligence". 
The restaurant also sought rescission of the contract on a theory of "mistake of fact." But for the same reasons, the court said no, you restaurant failed to show that you did your homework, which would have cleared up any supposed mistake of fact:
In addition, inasmuch as the plaintiffs seek to rescind the contract and lease on the ground of a unilateral mistake of fact, they failed to establish the exercise of ordinary care in relation thereto, and, thus, failed to establish their prima facie entitlement to judgment as a matter of law rescinding the contract and lease on that ground.
The restaurant may be able to prove all of its claims at a trial, but the lower court, and the appeals court, said it failed to prove its claims on summary judgment (a mini-trial, on paper). You can win on fraudulent inducement claims, but you have to show you did your homework before signing the contract.

*Using "due diligence" here in its broad/common meaning; "due diligence" and "ordinary intelligence" can mean different things
Labels:

Comments

Post a Comment

Popular posts from this blog

Respond to Demands for Evidence or Be Prepared to Have Your Case Thrown Out!

The evidence or fact-gathering phase of a lawsuit is called "discovery". Each party is entitled to demand various kinds of evidence from the other party or parties in preparation for a possible trial. Two common kinds of discovery demands are a "Demand for Discovery and Inspection" and "Interrogatories" (which are written questions, answered in writing, under oath). (Psst: Interrogatories are basically a waste of time, but that will be left for another day.) In a recent decision , a New York appeals court affirmed the ruling of a lower court, throwing out a case for plaintiff's failing to respond to defendants' discovery demands. In that case, an LLC sued an architecture firm for malpractice and breach of contract. During the discovery phase, defendants architects served plaintiff with a Demand for Discovery and Inspection and Interrogatories. You only have 20 days to respond or object to discovery demands, or you lose a lot of rights in how yo...
Post a Comment
Read more

Know Your Rights: Money/Remedy at Law vs. Equitable Relief

When you bring a lawsuit (or some other kind of action or proceeding) in court, you are asking the court to give you some kind of relief. Generally speaking, that relief is either money (called "damages" or "money damages" or a "remedy at law") or equitable relief. Everyone knows what money is. What is "equitable relief"? It is relief other than money. Some examples of equitable relief (or "relief at equity" or an "equitable remedy") are:  specific performance of a contract -- you entered into a contract with another party for them to do something; they failed to do it; you sue them to force them to perform as they agreed to in the contract an injunction -- you bring an action to make another party do something or stop doing something rescission of contract -- you entered into a contract; you believe there is a problem with the contract, or the other side committed fraud, or the other side can't perform its oblig...
Post a Comment
Read more

Consumer Law Update: FTC sues DIRECTV for Deceptive Business Practices

I'm sure most people think that "of course" big businesses are constantly, intentionally, ripping people off and are engaged in deceptive business practices. As a lawyer, my inclination is I can't believe a big business, with lots of executives and lots of lawyers looking things over, could possibly offer promos or services that are so misleading or deceptive that they are illegal. They can't possibly be that dumb. Sometimes I'm wrong. For instance, the Federal Trade Commission has sued DIRECTV in San Francisco federal court for engaging in deceptive and misleading business practices in violation of federal law. DIRECTV was telling consumers, hey, look at our low monthly rates and look at all the great stuff you get, come sign up with us! However, DIRECTV failed to adequately disclose that, oh, by the way, in order to get that great deal, you have to sign a two-year contract; those low rates are only good for the first year; your monthly bill could go ...
Post a Comment
Read more