What is Fraud?

Fraud is either actual or constructive. Constructive fraud arises when there is a confidential or fiduciary relationship between the parties, but actual fraud may arise regardless of any special relationship. Distinguish fraud in the inducement and fraud in the inception. The following discussion of fraud is limited to "fraud in the inducement" as contrasted with what is referred to as "fraud in the inception."

When Fraud Occurs

fraudFraud in the inducement occurs when a person knows what he or she is signing but consent is induced by the fraud of another. Fraud in the inception happens when a party is deceived concerning the nature of his or her acts and does not know what he or she has signed and does not intend to enter into a contract. It occurs when, through the fraud of another, a person is deceived as to the nature of the contents of the document itself. When a person who cannot read relies on the representation of the other party's agent that a document is merely a receipt and signs a release, it is "fraud in the inception." Similarly, if the grantor of a deed does not realize the nature of the instrument being signed and, because of the fraud of another, believes that it is not a deed, there is fraud in the inception, and the deed is void. In both cases, if the party signing the document knew what he or she was signing, but relied on misrepresentations when induced to sign it, there would be fraud in the inducement.

Types of Fraud

There are several types of fraud, and the elements of proof are different for each type. Fraud consists of any of the following, "committed by a party to the contract, or with his connivance, with intent to deceive another party thereto, or to induce him to enter into the contract":

  1. "Intentional Fraud" is the suggestion, as a fact, of that which is not true, by one who does not believe it to be true.
  2. "Negligent Fraud" is the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he or she believes it to be true.
  3. "Concealment" is the suppression of that which is true, by one having knowledge or belief of the fact and a duty to disclose the fact.
  4. Promissory Fraud is a promise made without the intent to perform.
  5. Innocent Misrepresentation is a misrepresentation by one who believes it to be true and has reasonable grounds to believe it is true. An innocent misrepresentation is not actionable.
  6. General Fraud is any other act fitted to deceive. Deceit is: (a) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true; (b) the assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true; (c) 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 (d) a promise made without any intention of performing. Distinguish between fraud and deceit. The courts use the terms "fraud" and "deceit" interchangeably and without any expressed concern over a need to draw a distinction. In most cases, when parties have a contractual relationship, there is rarely any need to make a distinction. However, the statutory definitions are different, and this distinction may be material in some cases, but both may coexist at the same time.