April 29, 2025
Is a signed contract always enforceable? Not if it was executed through fraud. Contracts governed by Maryland law can be rescinded based on the theory of fraudulent inducement. These issues were recently addressed by the Maryland Appellate Court in Swinton Home Care, LLC v. Tayman, 264 Md. App. 487 (January 31, 2025). Swinton involved a home health care services provider’s lawsuit against Lillian and Mary Tayman to recover amounts allegedly owed for services rendered to Mary pursuant to a signed agreement. In her defense, Lillian claimed that there were no valid agreements between the parties because she was fraudulently induced to sign a services agreement for in-home health care and nursing services (the “Agreement’) and a Guaranty Agreement (the “Guaranty”).
During the trial, Lillian testified that prior to signing the Agreement, she told Plaintiff’s representative that she did not have power of attorney over Mary. She added that Plaintiff’s representative told her she could sign the Agreement in Mary’s name without the power of attorney and that she could sign the Guaranty in her own name. Based on these representations, Lillian signed both contracts. At the conclusion of the trial, the circuit court found that there was no enforceable contract because Lillian was fraudulently induced to execute the original contract in Mary’s name. Once the trial court determined that the Agreement was rescinded, the Guaranty that Lillian signed securing that Agreement was also unenforceable.
On appeal, the Appellate Court of Maryland restated the elements of fraudulent inducement: (1) the defrauding party made a false representation to the party defrauded; (2) the falsity of the representation was either known to the defrauding party or the representation was made with reckless indifference to its truth; (3) the misrepresentation was made for the purpose of defrauding the party defrauded; (4) the party defrauded relied on the misrepresentation and had the right to rely on it; and (5) the party defrauded suffered compensable injury as a result of the misrepresentation.
The Appellate Court of Maryland stated “[f]raudulent inducement refers to ‘a situation where a person is induced by some fraudulent representation or pretense to execute the very instrument which is intended to be executed.’” The remedy for fraudulent inducement is recission. “Recission of a contract is the abrogation or unmaking of the agreement and the placing of the parties to it in statu quo. Rescission is an extraordinary remedy that requires ‘proof of justifiable reliance on a material misrepresentation.’” Under Maryland law, an innocent misrepresentation may be sufficient to warrant rescission.
The Swinton Court found that there was competent evidence presented at the trial to support the trial court’s finding of fraudulent inducement and its decision to rescind the Agreement. Therefore, the Appellate Court of Maryland affirmed the judgment of the trial court. This case highlights that it is critical to make sure there are no misrepresentations associated with the execution of a contract because a party cannot enforce an agreement procured by fraud.
The information in this notice is informational in nature and should not be taken as formal legal advice. You should consult an attorney for advice regarding your individual situation.
********
Jim Crossan is Partner with the firm and serves as the Director of the firm’s Litigation Practice Group.
If you have questions on this article or another business law matter, our attorneys are here to help. Please contact Liff, Walsh & Simmons for assistance.
