What is the effect of fraud in the inducement on a contract?

• A. The contract is voidable by the adversely affected party if she justifiably relied on the misrepresentation in entering into the agreement.
• B. The contract is void.
• C. The misrepresentation makes payment impossible.
• D. The contract can be rescinded only if the misrepresentation is intentional.

Answer: (A)

Fraud in the inducement makes consent to a contract invalid because it was obtained through a false statement about a material fact. The remedy is that the contract is voidable at the option of the adversely affected party, provided she justifiably relied on the misrepresentation when entering into the agreement and that the misrepresentation helped induce the contract. If those conditions are met, she can rescind the contract and revert to the pre-contract positions; damages may also be available in some cases. This explains why the contract isn’t automatically void from the start, and why the remedy isn’t limited to intentional misrepresentations or to making payments impossible.