Fraud in the Inducement Hurdle

Parole Evidence Rule

When a contracting party has been painted a “false picture” of how a contract will operate, that party may have a fraud in the inducement claim. One instance of this is when an individual signs a materially different contract after the parties had agreed to language in earlier drafts. Under Pennsylvania law, plaintiffs are required to prove the following elements in a claim for fraud in the inducement: (1) a representation; (2) material to the transaction at hand; (3) made falsely with knowledge of its falsity or recklessness as to its truth; (4) with intent of misleading another into relying on it; (5) justifiable reliance on the misrepresentation; and (6) resulting injury. Broederdorf v. Bachelor, 129 F.Supp.3d 182, 198 (E.D. Pa. 2015). Successfully pled, such contracts are voidable. Giannone v. Ayne Institute, 290 F.Supp.2d 553, 564 (E.D. Pa. 2003).

However, in Pennsylvania, such claims are subject to the parole evidence rule. If the court finds that the agreement at issue constitutes “a writing that represents the ‘entire contract between the parties,’ then the court may not consider ‘preliminary negotiations, conversations[,] verbal agreements,’ or any other extrinsic evidence of representations made by the parties prior to the execution of the written contract.” Batoff v. Charbonneau, 130 F.Supp.3d 957, 970 (E.D. Pa. 2015). And so, the parole evidence rule will bar the admission of statements necessary to establish a fraud in the inducement claim, resulting in its dismissal. For instance, in Batoff, the court dismissed the fraud in the inducement claim because the settlement agreement clearly represented the entire contract between the parties through its integration clause. In a similar case, the District Court dismissed a fraud in the inducement claim because the contract expressly stated, “This Agreement contains the whole agreement between Seller and Buyer, and there are no other terms,” which triggered the parole evidence rule. Charlton v. Gallo, 2010 WL 653155, at *4 (E.D. Pa. 2010).

For more information, call our business lawyers in Philadelphia at Sidkoff, Pincus & Green at 215-574-0600 or contact us online.