Torts

Fraud & Deceit

FRAUD AND DECEIT-INTRODUCTION

Conduct may constitute fraud because of an intentional misrepresentation, concealment, a false promise or a negligent misrepresentation.

DECEIT

A deceit is either:

1. The suggestion, as a fact, of that which is not true, by one who does not believe it to be true;

2. The assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true;

3. The suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact; or,

4. A promise, made without any intention of performing it. (Cal.Civ.Code § 1710)

INTENTIONAL MISREPRESENTATION

The essential elements of a claim of fraud by an intentional misrepresentation are:

1. The defendant must have made a representation as to a past or existing material fact;

2. The representation must have been false;

3. The defendant must have known that the representation was false when made or must have made the representation recklessly without knowing whether it was true or false;

4. The defendant must have made the representation with an intent to defraud the plaintiff, that is, he she must have made the representation for the purpose of inducing the plaintiff to rely upon it and to act or to refrain from acting in reliance thereon;

5. The plaintiff must have been unaware of the falsity of the representation; must have acted in reliance upon the truth of the representation and must have been justified in relying upon the representation;

6. And, finally, as a result of the reliance upon the truth of the representation, the plaintiff must have sustained damage. (See, Cal.Civ.Code § 1572; Stansfield v. Starkey (1990) 220 Cal.App.3d 59.)

EXPRESSION OF OPINION

Ordinarily, expressions of opinion are not treated as representations of fact upon which to base actionable fraud. However, when one party possesses or holds himself out as possessing superior knowledge or special information regarding the subject of a representation, and the other party is so situated that he or she may reasonably rely upon such supposed superior knowledge or special information, a representation made by the party possessing or holding himself out as possessing such knowledge or information will be treated as a representation of fact although if made by any other person it might be regarded as an expression of opinion. When a party states an opinion as a fact, in such a manner that it is reasonable to rely and act upon it as a fact, it may be treated as a representation of fact.

CONCEALMENT

Concealment is a term of art which includes mere nondisclosure when a party has a duty to disclose. (See, e.g., Lingsch v. Savage (1963) 213 Cal.App.2d 729, 738; Rest.2d Torts, § 551)

The essential elements of a claim of fraud by concealment are:

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 or she did if he or she had known of the concealed or suppressed fact;

5. And, finally, the concealment or suppression of the fact caused the plaintiff to sustain damage.

NONDISCLOSURE OF KNOWN FACTS

Where material facts are known to one party and not to the other, failure to disclose them is not actionable fraud unless there is some relationship between the parties which gives rise to a duty to disclose such known facts.

A duty to disclose known facts arises where the party having knowledge of the facts is in a fiduciary or a confidential relationship. A fiduciary or a confidential relationship exists whenever under the circumstances trust and confidence reasonably may be and is reposed by one person in the integrity and fidelity of another.

A duty to disclose known facts arises in the absence of a fiduciary or a confidential relationship where one party knows of material facts and also knows that such facts are neither known nor readily accessible to the other party.

Failure to disclose a negative fact where it will have a foreseeably depressing effect on income expected to be generated by a business is tortious. (See Rest.2d Torts, § 551, illus. 11.)

ACTIVE CONCEALMENT OF KNOWN FACTS

Intentional concealment exists where a party:

(1) Knows of defects in a property and intentionally conceals them, or

(2) Actively prevents investigation and discovery of material facts by the other party, or

(3) While under no duty to speak, nevertheless does so, but does not speak honestly or makes misleading statements or suppresses facts which materially qualify those stated.

The essential elements of a claim of fraud by a false promise are:

1. The defendant must have made a promise as to a material matter and, at the time it was made, he or she must have intended not to perform it;

2. The defendant must have made the promise with an intent to defraud the plaintiff, that is, he or she must have made the promise for the purpose of inducing plaintiff to rely upon it and to act or refrain from acting in reliance upon it;

3. The plaintiff must have been unaware of the defendant's intention not to perform the promise; he or she must have acted in reliance upon the promise and must have been justified in relying upon the promise made by the defendant;

4. And, finally, as a result of reliance upon defendant's promise, the plaintiff must have sustained damage.

PROOF OF INTENT NOT TO PERFORM

The conduct of a party making a promise, either before or after the promise was made, may be taken into consideration in determining whether there was an intention not to perform the promise when made.

NEGLIGENT MISREPRESENTATION

The essential elements of a claim of fraud by a negligent misrepresentation are:

1. The defendant must have made a representation as to a past or existing material fact;

2. The representation must have been untrue;

3. Regardless of his or her actual belief the defendant must have made the representation without any reasonable ground for believing it to be true;

4. The representation must have been made with the intent to induce plaintiff to rely upon it;

5. The plaintiff must have been unaware of the falsity of the representation; must have acted in reliance upon the truth of the representation and must have been justified in relying upon the representation;

6. And, finally, as a result of the reliance upon the truth of the representation, the plaintiff must have sustained damage. (Gagne v. Bertran (1954) 43 C.2d 481.)

PERSONS IN/NOT IN PRIVITY WITH DEFENDANT

The misrepresentation or false promise or concealment must have been made or done with the intent to induce some person or persons to act in reliance upon it and the party making the representation or promise is liable only to those persons to whom the representation or promise has been made from whom a material fact was concealed with such intent. If others become aware of the representation or promise or are misled by the concealment and act upon such, there is no liability.

One who makes a misrepresentation or false promise or conceals a material fact is subject to liability if he or she intends or has reason to expect that the misrepresentation or false promise concealment of material fact will be passed on to another person and influence such person's conduct in the type of transaction involved.

A person has reason to expect that a misrepresentation, false promise or nondisclosure of material fact will be passed on to other persons and influence that person's conduct if he or she has information that would lead a reasonable person to conclude that there is a likelihood that it will reach such persons and will influence them or their conduct in the type of transaction involved. Subject to liability means that the defendant is liable if all of the other essential elements of the claim of fraud are established.

One who makes a misrepresentation or false promise or conceals a material fact with the intent to defraud the public or a particular class of persons is deemed to have intended to defraud every individual in that category who is actually misled thereby.

RELIANCE

A party claiming to have been defrauded by a false representation or promise must have relied upon the representation or promise; that is, the representation or promise must have been a cause of plaintiff's conduct in entering into the transaction and without such representation or promise plaintiff would not have entered into such transaction.

The fraud, if any, need not be the sole cause if it appears that reliance upon the representation or promise substantially influenced such party's action, even though other influences operated as well.

A party claiming to have been defrauded by a false representation or promise must not only have acted in reliance on it but must have been justified in such reliance, that is, the situation must have been such as to make it reasonable in the light of the circumstances and plaintiff's intelligence, experience and knowledge, to accept the representation or promise without making an independent inquiry or investigation.

EFFECT OF INDEPENDENT INVESTIGATION

If a party claiming to have been defrauded makes an independent investigation of the subject matter of the alleged false representation or promise and the decision to engage in the transaction is the result of his or her independent investigation and not his or her reliance upon the representation or promise, he or he is not entitled to recover. (Carpenter v. Hamilton (1936) 18 Cal.App.2d 69, 75.)

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