MIAMI BUSINESS LITIGATION: FRAUDULENT INDUCEMENT CLAIMS IN FLORIDA

Claims for fraudulent inducement are common in business litigation. In an action for fraudulent inducement, the “plaintiff must show that the fraudulent act induced the formation of contract between the parties.” GlobeTec Const., LLC v. Custom Screening & Crushing, Inc., 77 So. 3d 802 (Fla. 3d DCA 2011). The elements of fraud in inducement include representation of material fact that is knowingly false and intentionally made to induce the other party to do an act from which he suffers damage. Lou Bachrodt Chevrolet, Inc. v. Savage, 570 So. 2d 306 (Fla. 4th DCA 1990). Under Florida law, “[i]t is a fundamental proposition that a contract induced by fraud is voidable.” Lance Holding Co. v. Ashe, 533 So. 2d 929 (Fla. 5th DCA 1988). Peter Mavrick is a Miami business litigation attorney, and represents clients in business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

In Florida, in an action for fraudulent inducement, the party must . . . show (1) a false statement of a material fact; (2) that the defendant knew or should have known was false; (3) that was made to induce the plaintiff to enter into a contract; and (4) that proximately caused injury to the plaintiff when acting in reliance on the misrepresentation. Bradley Factor, Inc. v. United States, 86 F. Supp. 2d 1140 S.D. Fla. 2000). Florida law provides for an election of remedies in fraudulent inducement cases: rescission, whereby the party repudiates the transaction, or damages, whereby the party ratifies the contract. A prerequisite to rescission is placing the other party in status quo. “Generally, a contract will not be rescinded even for fraud when it is not possible for the opposing party to be put back into his pre-agreement status.” Florida Evergreen Foliage v. E.I. Dupont De Nemours & Co., 336 F. Supp. 2d 1239 (S.D. Fla. 2004).

A contract that was procured by a materially false statement, while still legally considered valid, is ultimately voidable and does not automatically trigger the performance of the defrauded party. Where misrepresentation of the character or essential terms of a proposed contract occurs, assent to the contract is impossible. Cancanon v. Smith Barney, Harris, Upham & Co., 805 F.2d 998 (11th Cir. 1986). Indeed, the Eleventh Circuit Court of Appeals has expressly held that a contract induced by fraud is voidable by the defrauded party. Nat’l Union Fire Ins. Co. of Penn. v. Carib Aviation, Inc., 759 F.2d 873 (11th Cir. 1985). In Oceanic Villas, Inc. v. Godson, Florida’s Supreme Court recognized “the rule to be that fraud in the procurement of a contract is ground for rescission and cancellation of a contract.” 148 Fla. 454 (1941).

Stated simply, a “contract entered as a result of fraudulent inducement results in a voidable contract.” Bank of Am., N.A. v. Grec Homes IX, LLC, et al., 2014 WL 351962 (S.D. Fla. 2014). Under Florida law, the available remedies in a fraudulent inducement case are: “rescission, whereby the party repudiates the transaction, or damages, whereby the party ratifies the contract.” Mazzoni Farms, Inc. v. E.I. DuPont De Nemours and Co., 761 So. 2d 306 (Fla. 2000). Even though court’s considered rescission to be a “drastic and extraordinary measure . . . [rescission] is appropriate in situations where one party has fraudulently induced another party to contract . . . .” Mazzoni Farms, Inc. v. E.I. DuPont De Nemours and Co., 761 So. 2d 306 (Fla. 2000).

Even though a party’s ratification of a contract may waive its rights to rescind the same contract, there is nothing in Florida law that “suggests that by seeking damages – a permitted remedy for fraudulent inducement – a party waives its fraud claim.” Democratic Republic of the Congo v. Air Cap. Grp., LLC, 2013 WL 3223688 (S.D. Fla. June 24, 2013). To rescind a contract on the grounds that it was procured by fraud, Florida courts require proof that the fraudulent act induced the formation of the contract.

Peter Mavrick is a Miami business litigation lawyer, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.