1. What Is Misrepresentation?
2. Proving Fraud in Court
3. What Is Material?
4. What Is Torts?
5. Torts in a Contract
6. Types of Fraud

The term "fraud" is generally defined in the law as an intentional misrepresentation of material existing fact made by one person to another with knowledge of its falsity and for the purpose of inducing the other person to act. The other person relies on this misrepresented material with resulting injury or damage.

Fraud may also include an omission or intentional failure to state material facts, knowledge of which would be necessary to make other statements not misleading.

What Is Misrepresentation?

To make a "misrepresentation" simply means to state as a fact something which is false or untrue. To make a material "omission" is to omit or withhold the statement of a fact, knowledge of which is necessary to make other statements not misleading.

There are several qualifications for a misrepresentation to constitute fraud:

  • A misrepresentation must be false (or an omission must make other statements misleading), and it must be material in the sense that it relates to a matter of some importance or significance rather than a minor or trivial detail.
  • A misrepresentation (or omission) must also relate to an existing fact. Ordinarily, a promise to do something in the future does not relate to an existing fact and cannot be the basis of a claim for fraud unless the person who made the promise did so without any present intent to perform it or with a positive intent not to perform it. Similarly, a mere expression of opinion does not relate to an existing fact and cannot be the basis of a claim of fraud unless the person stating the opinion has exclusive or superior knowledge of existing facts which are inconsistent with such opinion.
  • A misrepresentation (or omission) must be made knowingly and intentionally, not as a result of mistake or accident; that is, that the person either knew or should have known of the falsity of the misrepresentation (or the false effect of the omission), or that he made the misrepresentation (or omission) in negligent disregard of its truth or falsity.

Proving Fraud in Court

The Plaintiff must prove that the Defendant intended for the Plaintiff to rely upon the misrepresentation (and/or omission); that the Plaintiff did in fact rely upon the misrepresentation (and/or omission); and that the Plaintiff suffered injury or damage as a result of the fraud.

In some cases (depending on the specifics of the case and the law), when it is shown that a Defendant made a material misrepresentation (and/or omission) with the intention that the Plaintiff rely upon it, then, under the law, the Plaintiff may rely upon the truth of the representation, even though its falsity could have been discovered had he made an investigation, unless he knows the representation to be false or its falsity is obvious to him.

In other cases, when it is shown that a Defendant made a material misrepresentation (and/or omission) with the intention that the Plaintiff rely upon it, the Plaintiff must prove that his reliance was justified. If, in the exercise of reasonable care for the protection of his own interests, the Plaintiff could have learned the truth of the matter by making a reasonable inquiry or investigation under the circumstances presented, but failed to do so, then it cannot be said that he justifiably relied upon such misrepresentations (and/or omissions).

For injury or damage to be the result of fraud, it must be shown that, except for the fraud, the injury or damage would not have occurred.

What Is Material?

The word "material" means that the subject matter of the statement (or concealment) related to a fact or circumstance which would be important to the decision to be made as distinguished from an insignificant, trivial or unimportant detail. For example, for insurance fraud to be material, an assertion (or concealment) must relate to a fact or circumstance that would affect the liability of an insurer (if made during an investigation of the loss), or would affect the decision to issue the policy, or the amount of coverage or the premium (if made in the application for the policy).

What Is Torts?

Torts is unlawfully, designedly, and knowingly appropriating the property of another without criminal intent. For example:

  1. Every appropriation of the right of property of another is not fraud. It must be unlawful; that is to say, such an appropriation as is not permitted by law. Property loaned may, during the time of the loan, be appropriated to the use of the borrower. This is not fraud, because it is permitted by law.
  2. The appropriation must be not only unlawful, but it must be made with a knowledge that the property belongs to another and with a design to deprive him of the same. It is unlawful to take the property of another; but if it be done with a design of preserving it for the owners or if it be taken by mistake, it is not done designedly or knowingly and, therefore, does not come within the definition of fraud.
  3. Every species of unlawful appropriation, not made with a criminal intent, enters into this definition, when designedly made, with a knowledge that the property is another's; therefore, such an appropriation, intended either for the use of another or for the benefit of the offender himself, is comprehended by the term.
  4. Fraud, however immoral or illegal, is not in itself a crime or offense for want of a criminal intent. It only becomes such in the cases provided by law.

Torts in a Contract

Torts in a contract is any trick or artifice employed by one person to induce another to fall into an error or to detain him in it, so that he may make an agreement contrary to his interest. The fraud may consist either, first, in the misrepresentation or, secondly, in the concealment of a material fact. Fraud, force, and vexation are odious in law. Fraud gives no action; however, without damage and in matters of contract, it is merely a defense and cannot in any case constitute a new contract.

Fraud avoids a contract, ab initio, both at law and in equity, whether the object be to deceive the public, third persons, or one party endeavor thereby to cheat the other.

Types of Fraud

The following is an enumeration of frauds for which equity will grant relief:

  1. Dolus Malus, which may be actual, arising from facts and circumstances of imposition. It's the simplest kind of fraud.
  2. Fraud which may be presumed from the circumstances and condition of the parties contracting.
  3. Fraud which may be collected and inferred in the consideration of a court of equity, from the nature and circumstances of the transaction, as being an imposition and deceit on other persons, not parties to the fraudulent agreement.
  4. Fraud in what are called catching bargains, with heirs, reversioners, or expectants on the life of the parents. This last seems to fall under one or more of the preceding divisions.

Frauds may be also divided into actual or positive and constructive frauds.

Actual Fraud

An actual or positive fraud is the intentional and successful employment of any cunning, deception, or artifice used to circumvent, cheat, or deceive another.

Constructive Fraud

Constructive fraud is a contract or act, which, though not originating in any actual evil design or contrivance, still deceives or misleads a person, violates private or public confidence, or impairs or injures the public interests. This type of fraud is deemed equally reprehensible with positive fraud and therefore is prohibited by law, as within the same reason and mischief as contracts and acts done malo animo.

Constructive frauds are such as are either against public policy; in violation of some special confidence or trust; operate substantially as a fraud upon the private rights, interests, duties, or intentions of third persons; or unconscientiously compromise or injuriously affect the private interests, rights, or duties of the parties themselves.

Positive vs. Negative Fraud

The civilians divide frauds into positive, which consists of doing one's self or causing another to do such things, or negative, which consists of doing or dissimulating certain things to induce the opposite party into error or to retain him there. The intention to deceive, which is the characteristic of fraud, is here present.

Motivational Fraud vs. Accidental Fraud

Fraud is also divided into that which has induced the contract and incidental or accidental fraud. The former is that which has been the cause or determining motive of the contract, without which the party defrauded would not have contracted.

Incidental or accidental fraud is that by which a person, is deceived on some accessories or incidents of a contract. An example of this might be misleading the person on the quality of the object of the contract or its price so that he has made a bad bargain. Accidental fraud does not, according to the civilians, avoid the contract, but simply subjects the party to damages.