WHEN DO LIES BECOME AN ACTIONABLE FRAUD CLAIM IN CALIFORNIA?
The term “fraud” is thrown around a loosely these days. It is not uncommon for a business client to tell her attorney that she has been defrauded in a business deal because a vender lied, a partner stole from the business, or a supplier failed to deliver an order. While each of these scenarios may be fraudulent, more times than not, such actions or inactions do not quite rise to the level required under the law. It can be very difficult to prove all the elements of a fraud in court even where it even actually exists. More importantly, there is a general misunderstanding of what fraud is and how it’s applied under the law.
II. TYPES OF LEGAL FRAUD
There are four types of acts that can be considered fraud or deceit. They are commonly known as intentional misrepresentation, negligent misrepresentation, concealment, and false promise. Sometimes available is a fifth “catch-all” fraud category of “any other act fitted to deceive.”)
A. Intentional Misrepresentation
For an intentional misrepresentation to be considered fraudulent:
• The statement must be an intentionally or recklessly false statement of fact. It generally cannot be an opinion (though there are some exceptions);
• The perpetrator must have intended to defraud the victim. Intent is usually the most difficult element to prove;
• The victim must have reasonably relied on that false statement and altered a change his or her position. A victim can’t reasonably rely on the statement if she knew or should have known the statement was false; and
• The victim must be able to prove that it caused some type of measurable damage.
B. Negligent Misrepresentation
Negligent misrepresentation is essentially the same thing as intentional misrepresentation, except that the alleged perpetrator doesn’t have to know that the statement was false, but he or she must only lack a reasonable basis to believe it was true. This is generally easier to prove than intentional misrepresentation, but unlike intentional misrepresentation, the victim cannot collect punitive damages.
Concealment is when someone who has a duty to disclose a material fact either does not disclose it or conceals it with the intent to defraud the victim. For concealment to be considered fraudulent, a victim must show the following:
• The perpetuator intentionally failed to disclose an important fact or disclosed some facts without full disclosure could be another important fact and thereby making the disclosure deceptive;
• The victim did not know of the concealed fact;
• The perpetrator intended to deceive the victim by concealing the fact;
• The victim reasonably relied on the concealed fact to change her position.
• The concealment caused some type of measurable damage.
D. False Promise
A false promise is a promise made without any intention of performing it. The elements of false promise are the following:
• The promise was important to the transaction;
• At the time of the promise, the promisor did not intend to perform it;
• The promisor intended the victim to rely on the promise;
• The victim reasonably relied on the promise;
• The promisor did not perform the promise;
• The victim was harmed as a result; and
• Reliance on the promise cause the victim’s harm.
E. Constructive Fraud
Aside from the types of actual fraud above which require an intent to defraud, with some exception, a court can also treat any misrepresentation as fraud if it gives someone an unfair advantage over someone else so long as there is some duty owed because of a legal relationship. The key to constructive fraud is that there must be some special relationship between the parties in the eyes of the law. For example, real estate brokers have a legal duty to disclose all known material facts to buyers. If the misrepresentation is made by someone who owes no duty to the other, then what might otherwise be constructive fraud becomes an innocent misrepresentation.
III. How to Deal with a Potential Fraud Claim
Being lied to or tricked can stir up feelings of anger and betrayal, not to mention the actual harm to you individually or your business. It is important to keep a clear head and focus on pursuing legal remedies that address the specific situation. The law disfavors contract fraud while at the same time provides significant remedies for victims under the appropriate circumstances.
Please contact us or seek the advice of competent counsel to advise you of your rights. PLEASE BE ADVISED: Views expressed are not intended to be legal advice and does not create an attorney-client relationship.