FRAUD
A false representation of a matter of fact—
whether by words or by conduct, by false or mis-
leading allegations, or by concealment of what
should have been disclosed—that deceives and is
intended to deceive another so that the individual
will act upon it to her or his legal injury.
Fraud is commonly understood as dishon-
esty calculated for advantage. A person who is
dishonest may be called a fraud. In the U.S. legal
system, fraud is a specific offense with certain
features.
Fraud is most common in the buying or sell-
ing of property, including real estate, PERSONAL
PROPERTY, and intangible property, such as
stocks, bonds, and copyrights. State and federal
statutes criminalize fraud, but not all cases rise
to the level of criminality. Prosecutors have dis-
cretion in determining which cases to pursue.
Victims may also seek redress in civil court.
Fraud must be proved by showing that the
defendant’s actions involved five separate ele-
ments: (1) a false statement of a material fact,
(2) knowledge on the part of the defendant that
the statement is untrue, (3) intent on the part of
the defendant to deceive the alleged victim, (4)
justifiable reliance by the alleged victim on the
statement, and (5) injury to the alleged victim as
a result.
These elements contain nuances that are not
all easily proved. First, not all false statements
are fraudulent. To be fraudulent, a false state-
ment must relate to a material fact. It should
also substantially affect a person’s decision to
enter into a contract or pursue a certain course
of action. A false statement of fact that does not
bear on the disputed transaction will not be
considered fraudulent.
Second, the defendant must know that the
statement is untrue. A statement of fact that is
simply mistaken is not fraudulent. To be fraud-
ulent, a false statement must be made with
intent to deceive the victim. This is perhaps the
easiest element to prove, once falsity and mate-
riality are proved, because most material false
statements are designed to mislead.
Third, the false statement must be made
with the intent to deprive the victim of some
legal right.
Fourth, the victim’s reliance on the false
statement must be reasonable. Reliance on a
patently absurd false statement generally will
not give rise to fraud; however, people who are
especially gullible, superstitious, or ignorant or
who are illiterate may recover damages for fraud
if the defendant knew and took advantage of
their condition.
Finally, the false statement must cause the vic-
tim some injury that leaves her or him in a worse
position than she or he was in before the fraud.
A statement of belief is not a statement of
fact and thus is not fraudulent. Puffing, or the
expression of a glowing opinion by a seller, is
likewise not fraudulent. For example, a car
dealer may represent that a particular vehicle is
“the finest in the lot.” Although the statement
may not be true, it is not a statement of fact, and
a reasonable buyer would not be justified in
relying on it.
The relationship between parties can make a
difference in determining whether a statement is
fraudulent. A misleading statement is more
likely to be fraudulent when one party has supe-
rior knowledge in a transaction, and knows that
the other is relying on that knowledge, than
when the two parties possess equal knowledge.
For example, if the seller of a car with a bad
engine tells the buyer the car is in excellent run-
ning condition, a court is more likely to find
fraud if the seller is an auto mechanic as
opposed to a sales trainee. Misleading state-
ments are most likely to be fraudulent where
one party exploits a position of trust and confi-
dence, or a fiduciary relationship. Fiduciary
relationships include those between attorneys
and clients, physicians and patients, stockbro-
kers and clients, and the officers and partners of
a corporation and its stockholders.
A statement need not be affirmative to be
fraudulent. When a person has a duty to speak,
silence may be treated as a false statement. This
can arise if a party who has knowledge of a fact
fails to disclose it to another party who is justi-
fied in assuming its nonexistence. For example,
if a real estate agent fails to disclose that a home
is built on a toxic waste dump, the omission may
