Inducement to a Contract – Fraud Q3

Zain is considering taking a 6-year lease of a property from a landlord named Salim. One of the lessee's covenants in the lease states that, "All external woodwork shall be painted every two years by the lessee". Qabil as an estate agent tells Zain that if he signs the lease, Salim will be satisfied if the external woodwork is painted at the end of the six years period. Zain is thus induced to sign the lease.

Discuss whether Zain is bounded by the covenant to have the external woodwork painted every two years.

(20 marks, 2013 Q3)

This is a case of fraud in the inducement. If Qabil truly thinks that painting every 2 years can be waived - it is misrepresentation. If Qabil does not think so, but make false promise that can waived, it is fraud.

Further readings on subject of fraud and misrepresentation can be found below:

What constitute a voidable contract?
Bad Contracts

(Correction - 13.07.2016)
Due to such misrepresentation, unless it is later ratified (s.149 CA50*) the contract is voidable on the choice of Zain.

{As the question centered on the issue of lease covenant - painting every 2 years, the approach to the question is best directed at contract law where there need to have free consent, or else contract is voidable on party who is disadvantaged. Thereafter, the option that when ratified, the contract can be accepted with 2 yearly painting changed to after 6 years.

Nevertheless, there is element of agency in this question. Hence, Qabil who is the agent for Salim, acted outside authority - by saying painting after 6 years was fine. Thus, this act is questionable and rendered the contract voidable. In supporting this part, s.191 CA50 may provide guidance.}

S.191 (the last section of CA50) has guidance on this matter.
Effect, on agreement, of misrepresentation or fraud by agent
191. Misrepresentations made, or frauds committed, by agents acting in the course of their business for their principals, have the same effect on agreements made by such agents as if such misrepresentations or frauds had been made or committed by the principals; but misrepresentations made, or frauds committed, by agents, in matters which do not fall within their authority, do not affect their principals.

In this case, the principal Salim had the lease covenants written as such, Qabil (agent) was not given the authority to change (unless he sought agreement with Salim prior to this). Qabil was merely supposed to get it signed without amendment. However, Qabil misrepresented to Zain. So, according to S.191, it did not fall into agent's authority, thus it does not affect the principal Salim.  The contract is questionable by both Zain and Salim. There was no meeting of the mind in the issue of painting the woodwork - every 2 years by Salim and after 6 years by Zain.
Zain can choose to rescind** the contract if he is forced to paint the external woodwork by every 2 years.

**rescind means nullify, revoke or repeal

Right of person as to acts done for him without his authority. Effect of ratification 

149. Where acts are done by one person on behalf of another but without his knowledge or authority, he may elect to ratify or to disown the acts. If he ratifies them, the same effects will follow as if they had been performed by his authority

S.149 and s.191 of CA50.
{X} Contribution of Nathan, Angie, Lennie and YukPeng. In appreciation.

*** original posting ***

Definition of 'fraud in the inducement' as provided by legal dictionary is:

"the use of deceit or trick to cause someone to act to his/her disadvantage, such as signing an agreement or deeding away real property. The heart of this type of fraud is misleading the other party as to the facts upon which he/she will base his/her decision to act. Example: "there will be tax advantages to you if you let me take title to your property," or "you don't have to read the rest of the contract--it is just routine legal language" but actually includes a balloon payment."

'Zain is thus induced to sign the lease' - very well indicated that he is induced or tricked to agree to sign the contract, thinking that the every two years of painting can be change to end of the 6 years period. This assumption is supported by Qabil, without any expressed agreement from Salim. Hence, Qabil acted out of his power, as he was appointed as Estate Agent by his principal, Salim.

There are two issues here.
1. One is the fiduciary duty of Qabil to Salim as agent-principal.
2. Another is the inducement or misrepresentation of Qabil to Zain.
On the first part - that Qabil exceeded authority vested by Salim, the contract can be ratified with the agreement of Salim to instead of 2 yearly painting, agrees to change to painting the external woodwork at the end of 6 years period.
On the second part - that Qabil has acted in fraudulent to induce Zain to sign the contract. The fact that the requirement of painting of woodwork is 2 yearly as spelled out in the contract was misrepresented to only painting at end of 6 years period. This part is criminal in nature, and the contract thus, voidable because of element of fraud.
However, is it a 'Fraud in the inducement' or 'Fraud in the Factum'?

Fraud in the inducement is a specific type of contract fraud. In a fraud in the inducement claim, the defendant uses deceit or trickery in order to cause the other party to act to their advantage, such as signing an agreement, or accepting an offer. The basic characteristic of fraud in the inducement is that the plaintiff was misled as to the facts on which they base their decision to act.

Fraud in the inducement is often contrasted with another type of contract fraud called “fraud in the factum”. Fraud in the factum is where the defendant deceives the plaintiff as to the subject matter of the contract.

In contrast, fraud in the inducement has more to do with the surrounding circumstances that cause the plaintiff to act. Fraud in the inducement is sometimes called “Fraud in the procurement” or “Fraudulent inducement”.

What is an Example of Fraud in the Inducement Compared with Fraud in the Factum?

Suppose that the defendant had stated, “I am a licensed real estate agent, please sign this contract”. In reality, the defendant is not a licensed agent, but the plaintiff signs the contract because they believe that the defendant is a professional. This would be considered fraud in the inducement, since the plaintiff was “induced” to sign the contract based on the facts surrounding the contract.

Now suppose that the defendant had stated, “Please sign this contract for the sale of 30 toys”. In reality, the contract is for the sale of 50 toys, but the plaintiff proceeds to sign it because they believe they will only be paying for 30 items. This would likely be considered fraud in the factum, because the fraud has to do with the material subject matter of the contract (i.e., the “facts”).

[In the above case, it looks like it is Fraud in Factum, as the painting is two yearly but tricked to be acceptable if painted end of the 6 years period. This is fraud in the material subject of the contract, which is painting the woodwork.]

What are the Effects of a Fraud in the Inducement?

Fraud in the inducement is considered a very serious violation and can have far-reaching effects on the contract agreement. A contract that is tainted by fraud in the inducement will be declared voidable by the court. “Voidable” means that the innocent party can have the contract voided by the court (it is not immediately void, but can be declared void at the non-breaching party’s choice).

Thus, the plaintiff will not need to perform their contract duties if the court voids the contract. This is true even if the plaintiff signed the contract, since they were caused to do so in a fraudulent manner. Monetary damage awards may not be available as a remedy for fraud in the inducement.

Are There Any Defenses to Claims of Fraud in the Inducement?

A common defense to fraud in the inducement is “unreasonable reliance on an oral agreement”. That is, if the plaintiff was unreasonable in relying upon the defendant’s representations, it could serve as a defense.

For example, if the defendant made an oral promise that was clearly in contradiction to a written agreement, a court might find it unreasonable for the plaintiff to rely on the oral promise. This of course may vary in each situation and in each jurisdiction.

Another defense to fraud in the inducement is where the misleading statement was not made intentionally. In most cases, the defendant must have intended to mislead the plaintiff in order for a violation to be found.

[In the context above, the plaintiff is Zain, the defendant is Qabil. Zain goes to court to sue Qabil for fraud in inducement. The court would take the oral misrepresentation of Qabil as a yardstick if it can be reasonable applied to Qabil being at fraud.

Say, if Qabil told Zain that woodwork can be torn down - which could very much be an impossible offer from Qabil as he has no motive for doing so. And, similarly it is an impossible act for Zain who would have no advantage of dismantling the woodwork.

In such manner, Zain cannot be misrepresented. On the other hand, painting end of 6 years period would be a reasonable saving for Zain instead of every 2 yearly is a possible inducenent, rather than dismantling the whole thing.

Another way to defend for Qabil would be to prove that what he offered is not an inducement or not possibly an act in cheating to a reasonable mind. For example, that he had offer to paint during the interim period (2 yearly) and Zain only need to do it after the 6 years period. But as in the above case, Qabil never mentioned that, and thus the impression was 'no need' to paint until end of 6 years period.]

Ref:Definition of 'fraud in the inducement' from Legal Dictionary, available at
Fraud in the inducement. Fraud in Factum. Available at,
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