Fraud and Misrepresentation

Although fraud is a commonly used word, and we all know what it means in common parlance, fraud is also a very specific legal concept, and when it is proven, it can provide dramatic remedies for the victim of the fraud. Characterization of a claim as fraud has many advantages to a victim; primarily, the victim may be able to recover punitive damages in addition to actual damages. Punitive damages punish the wrongdoer and are awarded over and above the money awarded to compensate the victim of the wrongdoing for the harm he or she has suffered. Also, the measure of damages is generally more liberal under fraud and other “tort” theories, allowing victims a more complete recovery.

California’s Civil Code §1710, et seq. specifies four kinds of fraud:

1) Intentional Misrepresentation
2) Concealment
3) False Promise
4) Negligent Misrepresentation

Fraud generally requires a misrepresentation, knowledge of falsity, intent to defraud, justifiable reliance by the victim, and resulting damage. See Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal. 4th 951, 974. A person’s expression of his or her opinion does not generally constitute a misrepresentation – there must be an actual affirmation (or concealment) of a fact. Therefore, “sales talk” for example is generally considered to be an opinion only, unless it involves a representation of product safety. See Hauter v. Zogarts (1975) 14 Cal. 3d 104, 112.

An intentional misrepresentation is a statement, whether orally, in writing, or implied by conduct, that the defendant knows to be false when it is made, but that the defendant still makes recklessly and without regard for its truth. When a person’s reliance upon the misrepresentation is “an immediate cause of a plaintiff’s conduct, which alters his legal relations, and when, absent such representation, he would not, in all reasonable probability, have entered into the contract or other transaction,” the Courts may find that a fraud has occurred. See Engalla, supra, 15 Cal. 4th at 976. In fact, the plaintiff’s reliance on the fraudulent misrepresentation need not be the sole or even the predominant or decisive factor in influencing his or her conduct – it is enough that the representation has played a substantial part in making his or her decision. See id. at 977.

Concealment of a fact can also constitute a fraud, if the parties are in a confidential or fiduciary relationship, or the defendant otherwise owes a duty to the plaintiff. In other words, the defendant must have had a legal duty to disclose the fact to the plaintiff, but instead intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, and the plaintiff must have been independently unaware of the fact and would not have acted as he or she did if the fact had been disclosed. A common example involves a real estate broker who intentionally conceals a material fact about the property in order to induce a purchaser to enter into the transaction. See, e.g. La Jolla Village Homeowner’s Assn. v. Superior Court (1989) 212 Cal. App. 3d 1131, 1151. An exception to the fiduciary relationship requirement may arise when a defendant makes some representations but fails to disclose additional facts which materially qualify the facts already disclosed, or which render the disclosure likely to mislead. See Roddenberry v. Roddenberry (1996) 44 Cal. App. 4th 634, 666. As one court eloquently stated:“[A]lthough one may be under no duty to speak as to a matter, if he undertakes to do it, either voluntarily or in response to inquiries, he is bound not only to state truly what he tells but also not to suppress or conceal any facts within his knowledge… If he speaks at all he must make a full and fair disclosure. See Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal. App. 4th 603, 613.

False promise is also known as “promissory fraud,” and involves a promise made without any actual intention to perform. A common example of promissory fraud is when a defendant fraudulently induces the plaintiff to enter into a contract by promising to perform certain actions without any real intention of following through. However, if the declaration of intention was originally made in good faith, without the intention to deceive and in the honest expectation that the promise would be fulfilled, even if it is not eventually carried out, the courts will not find that a fraud was committed. There must have been no intent to perform the promise at the time it was initially made.

The fourth kind of fraud is negligent misrepresentation. If a defendant represented that an important fact was true – even if he or she honestly believed that the representation was true, but did not have a reasonable basis for that belief – and the defendant intended for the plaintiff to rely on the representation, which the plaintiff did to his or her detriment and that reliance was a substantial factor in the harm suffered, then the courts may find that a fraud was indeed committed. As is true with false promise, responsibility for negligent misrepresentation rests upon the existence of a legal duty, whether imposed by contract, statute or otherwise, owed by a defendant. Additionally, there must be more than an implied assertion or representation – there must be a “positive assertion” of a false fact. See Diediker v. Peelle Financial Corp. (1997) 60 Cal. App. 4th 288, 297.

If you or someone you know believes that they have been defrauded or taken advantage of in a way which has caused them significant financial harm, or if you have been accused of committing a fraudulent act, we would like to speak with you at the Boesch Law Group. Our Southern California lawyers are experienced in handling all types of fraud claims and are happy to help you analyze your situation. There is never a charge for an initial consultation, so call today to protect your rights: (310) 578-7880.


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