Updated November 6, 2020:

An inducement agreement refers to some kind of incentive or benefit that encourages a party to enter into an agreement with another.

What is Inducement?

If you are induced to do something, you are persuaded or influenced to do it. If someone offers an advantage to another to get them to perform an action, they are using inducement. In the realm of contract law, the inducement is a promise made to another party to make them agree to a contract.

Inducement to purchase is a popular use of the concept. This refers to anytime someone is encouraged to buy a product or service when a certain promise regarding the purchase is made, like a reduced price or other incentives.

All contracts have four essential parts:

  • Offer
  • Acceptance
  • Intent
  • Consideration

The consideration is what is exchanged in the contract, which is usually money. Consideration is the inducement of the agreement.

Other Forms of Inducement

Inducement in criminal law is the motive for the crime, which caused or encouraged the criminal to commit the crime. For example, the promise of cash is the inducement to most bank robberies.

Criminals can also be induced to confess to crime when they are offered certain benefits, like a lighter sentence, or they are warned of the negative consequences of lying under oath. Certain types of inducement in criminal confessions can actually be considered coercion and, therefore, are inadmissible in court. There's a fine line between proper and illegal use of inducement for confession.

In other types of law, inducement acts as an explanation in the introduction to a plea or declaration. The inducement in this context must be necessary, explaining something that actually benefits from clarification. Otherwise, the clarification is considered irrelevant.

For example, in an argument for property damages, an inducement might explain the possession of the property to the person arguing for rights to damages.

Inducement Letters

Inducement letters have been used in certain situations to try and recover damages from a party that has broken a contract. This practice is sometimes used in recording contracts.

For instance, if a record company wants to sign a particular artist, they'll ask the artist to sign a contract with them. Artists can sometimes be hard to track down or hold to contract terms, so the company might choose to include an inducement letter in their signing documents. This letter basically says that the artist agrees to fully understand the terms of the recording contract.

You would think that signing the contract itself would be enough, but some companies believe that inducement letters add another layer of binding to the agreement. They hope that this added document will help the company recover damages from the artist if they abandon their work or breach the contract in another way.

Whether inducement letters are actually effective in courts is up for debate, but having another layer of protection in any contract can't hurt.

What Is Fraudulent Inducement?

If one party in an agreement convinces another to sign a contract based on false information, this is called fraudulent inducement. When fraudulent inducement causes some form of injury to the party that is signed based on a lie, they have the right to pursue legal action.

Usually, this type of inducement takes place before the contract is signed. In the case that fraudulent inducement is proven, the injured party can rescind the agreement or seek damages after the contract has been completed.

Fraudulent inducement is very important in contracts like loan agreements, employment contracts, and others. It usually happens when one side of the contract convinces the other to sign using lies or trickery. This can be done with threats as well. If a bank tells someone that they have to sign a mortgage contract or they will lose their car, this is considered fraudulent inducement if that consequence is false.

Contract lawyers are a great resource when considering signing a contract or forming one of your own. They can help avoid illegal forms of inducement, whether intended or accidental. Contract law is complicated, so it's better to enlist the help of a lawyer than trying to handle it yourself.

Proving Fraud in Inducement

It can be tough to prove fraudulent inducement for the following reasons:

  • To be considered fraud, fraudulent statements must have been presented as facts and not opinions.
  • There must be proof that the injured party relied on the false statements.
  • Integrated contracts make it even more complicated to prove fraud.
  • The court must be provided with a persuasive record of the contract and its fraudulent statements.

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