WHAT IS FRAUD?
Fraud is using deceit or dishonest means for the purpose of depriving another of money, property or a legal right.
This article discusses types of fraud, pleading and proving the elements thereof.
TYPES OF CIVIL TORT FRAUD AND MISREPRESENTATION:
Intentional fraud and deceit occur when the perpetrator uses deceit (false important facts) to convince the victim to rely on the false facts. Then the victim reasonably relied on and was harmed by the deceit.
Promissory fraud occurs when the perpetrator makes a promise that is important to the transaction that he or she never intends to (and never does) perform, in order to induce the victim to rely victim rely on the promise. Then the victim must reasonably rely on and be harmed by the false promise.
Compare breach of contract where a party makes a genuine promise but later breaks the promise.
Concealment fraud occurs when there is a fiduciary or other relationship between the parties where there is a duty of full disclosure. The concealing person, with an intention to deceive, does not disclose important facts that the concealing person knows but the victim does not and could not know. Further, the victim reasonably relied on and was harmed by the concealment.
Embezzlement: “Embezzlement is the fraudulent appropriation of property by a person to whom it has been intrusted [entrusted]” (Criminal CA Penal Code Section 503). From the civil relief standpoint, embezzlement may create various causes of action such as, for example, conversion (wrongful taking of property), fraud, and breach of fiduciary duty.
Constructive fraud (negligent misrepresentation) occurs when the perpetrator misrepresents to the victim that an important false fact is true. But the perpetrator may have honestly believed that the false representation is true. Yet, the perpetrator had no reasonable grounds for believing the representation was true when he or she made it; and he or she intends that victim rely on the representation. The victim must reasonably rely on and be harmed by the false representation.
Civil fraud, deceit and misrepresentation are defined in Civil Code Sections 1709, 1710, 1572 and 1573.
PLEADING FRAUD / MISREPRESENTATION IN A COMPLAINT:
In California, fraud must be pled in the complaint specifically. General and conclusionary allegations are not sufficient. (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 74; Nagy v. Nagy (1989) 210 Cal.App.3d 1262, 1268)
Unlike most causes of action where the "the policy of liberal construction of the pleadings,” fraud requires particularity, that is, “pleading facts which show how, when, where, to whom, and by what means the representations were tendered." (Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73; Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.)
Every element of a fraud cause of action must be alleged both factually and specifically. (Hall v. Department of Adoptions (1975) 47 Cal.App.3d 898, 904; Cooper v. Equity General Insurance (1990) 219 Cal.App.3d 1252, 1262.)
In a case where misrepresentations are repeated often, the plaintiff must at least allege a representative selection of the misrepresentations sufficient enough for the trial court to ascertain if the statements were material and actionable. (Goldrich v. Natural Y Surgical Specialties, Inc. (1994) 25 Cal.App.4th 772, 782-783; Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216 and 218.)
Less specificity and particularity is required when the allegations indicate that the defendant necessarily possesses full information concerning the facts of the controversy or “when the facts lie more in the knowledge of the opposite party ...." (Bradley v. Hartford Acc. & Indem. Co. (1973) 30 Cal.App.3d 818, 825; Turner v. Milstein (1951) 103 Cal.App.2d 651, 658; Committee On Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216-217.)
PROVING FRAUD / MISREPRESENTATION:
DECEIT OR INTENTIONAL FRAUD
The tort of deceit or intentional fraud requires that each and all of the following elements be proved:
“(a) misrepresentation (false representation, concealment, or nondisclosure);
(b) knowledge of falsity (or ‘scienter’);
(c) intent to defraud, i.e., to induce reliance;
(d) justifiable reliance; and
(e) resulting damage.”
(Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974; See also Gonsalves v. Hodgson (1951) 38 Cal.2d 91, 100-101; Younan v. Equifax Inc. (1980) 111 Cal.App.3d 498, 512.)
The representation must normally state a fact rather than an opinion. Puffing or sales talk is generally considered an opinion (unless dealing with product safety). (Hauter v. Zogarts (1975) 14 Cal.3d 104, 112).
A misrepresentation may be verbal, written or implied by conduct.” (Thrifty-Tel, Inc. v. Bezenek (1996) 46 Cal.App.4th 1559, 1567.)
“…false representations made recklessly and without regard for their truth in order to induce action by another are the equivalent of misrepresentations knowingly and intentionally uttered.” (Yellow Creek Logging Corp. v. Dare (1963) 216 Cal.App.2d 50, 55.)
The tort of deceit or fraud by a false promise requires that each and all of the following elements be proved:
(1) a promise made regarding a material fact without any intention of performing it;
(2) the existence of the intent at the time of making the promise;
(3) the promise was made with intent to deceive or with intent to induce the party to whom it was made to enter into the transaction;
(4) the promise was relied on by the party to whom it was made;
(5) the party making the promise did not perform;
(6) the party to whom the promise was made was injured.
(Regus v. Schartkoff (1957) 156 Cal.App.2d 382, 389.)
“An action for promissory fraud may lie where a defendant fraudulently induces the plaintiff to enter into a contract.” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 973-974; Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 30.)
A promise is fraud only if made without a present intent to perform. An honest and good-faith promise without intention to deceive and in the honest expectation that it will be fulfilled, even if not carried out, is not fraud. (Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 481).
The tort of deceit or fraud by concealment requires that each and all of the following elements be proved:
“(1) the defendant must have concealed or suppressed a material fact,
(2) the defendant must have been under a duty to disclose the fact to the plaintiff,
(3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff,
(4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and
(5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.”
Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230, 248; see also Mosier v. Southern California Physicians Ins. Exchange (1995) 63 Cal.App.4th 1022, 1045.)
“There are ‘four circumstances in which nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts… Each of the circumstances in which nondisclosure may be actionable presupposes the existence of some other relationship between the plaintiff and defendant in which a duty to disclose can arise…
relationship can only come into being as a result of some sort of
between the parties… Thus, a duty to disclose may arise from the
between seller and buyer, employer and prospective employee, doctor and
patient, or parties entering into any kind of contractual agreement.’
these relationships are created by transactions between parties from
duty to disclose facts material to the transaction arises under certain
(Limandri v. Judkins (1997) 52 Cal.App.4th 326, 336-337.)
The tort negligent misrepresentation (also known as “constructive fraud”) requires that each and all of the following elements be proved:
“(1) a misrepresentation of a past or existing material fact,
(2) without reasonable grounds for believing it to be true,
(3) with intent to induce another’s reliance on the fact misrepresented,
(4) ignorance of the truth and justifiable reliance thereon by the party to whom the misrepresentation was directed, and
(Fox v. Pollack (1986) 181 Cal.App.3d 954, 962)
“Where a person makes statements which he does not believe to be true, in a reckless manner without knowing whether they are true or false, the element of scienter is satisfied and he is liable for intentional misrepresentation.” (Yellow Creek Logging Corp. v. Dare (1963) 216 Cal.App.2d 50, 57)
” If defendant’s belief is both honest and reasonable, the misrepresentation is innocent and there is no tort liability.” (Diediker v. Peelle Financial Corp. (1997) 60 Cal.App.4th 288, 297.)
“In its generic sense, constructive fraud comprises all acts, omissions and concealments involving a breach of legal or equitable duty, trust, or confidence, and resulting in damage to another… Constructive fraud exists in cases in which conduct, although not actually fraudulent, ought to be so treated--that is, in which such conduct is a constructive or quasi fraud, having all the actual consequences and all the legal effects of actual fraud.” (Estate of Arbuckle (1950) 98 Cal. App. 2d 562, 568; See also Santa Cruz v. McLeod (1961) 189 Cal. App. 2d 222, 234.)
“…the rule of caveat emptor [Let the buyer beware] should not be relied upon to reward fraud and deception.” (Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230,249).
Fraud assumes many shapes. Therefore, courts have long been cautious in attempting to define it.
And although the phrase, “You know it when you see it” may have some level of application, in order to successfully establish and prove fraud legally, one must plead specifically and prove at trial (by the preponderance of evidence) each and every element of the legal definitions established by case law (Liodas v. Sahadi (1977) 19 Cal. 3d 278, 292-293).
Preponderance of evidence means that one is required to prove each element is more likely to be true than not true. (See In re Angelia P. (1981) 28 Cal.3d 908, 918.)
Statute of Limitations in CA (including fraud/misrepresentation)
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