Opinion ID: 2585525
Heading Depth: 3
Heading Rank: 1

Heading: The Elements of Fraudulent Inducement

Text: Regarding the elements of fraudulent inducement, this court recently stated: To constitute fraudulent inducement sufficient to invalidate the terms of a contract, there must be (1) a representation of a material fact, (2) made for the purpose of inducing the other party to act, (3) known to be false but reasonably believed true by the other party, and (4) upon which the other party relies and acts to [his or her] damage. Hawaii Community Federal Credit Union v. Keka, 94 Hawai`i 213, 230, 11 P.3d 1, 18 (2000) (quoting Pancakes of Hawai`i, Inc. v. Pomare Properties Corp., 85 Hawai`i 300, 312, 944 P.2d 97, 109 (App.1997) (other citations omitted).... Put similarly, [t]he general rule is that `[i]f a party's misrepresentation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient.' Park v. Government Employees Ins. Co., 89 Hawai`i 394, 399, 974 P.2d 34, 39 (1999) (quoting Restatement (Second) of Contracts § 164(1) (1979)). Fujimoto v. Au, 95 Hawai`i 116, 157, 19 P.3d 699, 740 (2001). However, we recognize that our case law has not always required that reliance be reasonable. See, e.g. Shoppe v. Gucci Am. Inc., 94 Hawai`i 368, 386, 14 P.3d 1049, 1067 (2000) (listing the elements of fraud as (1) false representations were made by defendants, (2) with knowledge of their falsity (or without knowledge of their truth or falsity), (3) in contemplation of plaintiff's reliance upon these false representations, and (4) actual reliance by the plaintiff) (citations omitted). Thus, we take this opportunity to clarify that, under Hawai`i law, to prevail on a claim of fraudulent inducement, plaintiffs must prove that their reliance upon a defendant's representations was reasonable.