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Fraudulent Inducement to Contract

Tort liability can arise out of pre-contractual negotiations and activities. Fraudulent inducement to contract is one such tort that can occur. To make a submissible case for fraudulent inducement to contract, one party to the contract must show that the other party (1) knew or should have known information, that the other party (2) failed to disclose said information, that the information was (3) material to the decision as to whether to enter into the contract, and there are (4) ascertainable damages.

To give an example, say I am a prospective purchaser of a home. The real estate agent brings me around the home and gives me a thorough tour of the home. The real estate agent knows that the home was the site of a double-homicide a few years ago. However, never at any time does the real estate agent disclose this fact to me. I, interested in the property, put an offer down and eventually consummate a real estate contract whereby I become the owner of the property in fee simple absolute. Soon thereafter I have my housed appraised and I discover that my new home was the site of the aforementioned crimes, and that because of this causal nexus, it is worth $10,000 less than it would be but for this fact.

In all likelihood, I would prevail on a case for fraudulent inducement to contract. The real estate agent knew of information of which I was unaware. Certainly, the decision to purchase a home will be affected by whether or not crimes have occurred there. And few would argue that a home being the site of two homicides would be material to the decision to purchase the home. Lastly, I have suffered ascertainable damages because the appraisal and value of the home was $10,000 less because of the non-disclosed fact.

Do note, though, that because any claim would allege fraud, a lot of evidence needs to be shown; to-wit: that the other party to the contract had specific knowledge of facts and intentionally failed to disclose them. Because it is sometimes arduous to discover evidence showing this state of mind, many petitions will also include negligent non-disclosure or misrepresentation. Negligent non-disclosure operates in the same way as fraudulent non-disclosure, except that you must show that the contracting party who failed to disclose the material fact was in a superior position going into the contract — in fact or by perception — , that the other party relied on this superior position, and that the non-disclosed facts was non-discoverable through ordinary due diligence (e.g., that there was severe termite damage to a home you had no way of finding).

If you are suspicious that you have been fraudulently induced to contract, or on the receiving end of negligent non-disclosure, it is imperative to consult with an attorney. Special procedural rules exist in Missouri that require heightened pleadings standards in all pleadings alleging fraud.

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