Fraud & Deceit
This chapter presents interrogatories for use in litigation where plaintiff claims to have suffered pecuniary loss as a result of defendant’s fraudulent misrepresentation. These claims, often referred to generically as “fraud” claims, are predicated upon a variety of distinct legal theories that must be carefully distinguished in practice. Given the nature and breadth of commercial transactions within our economy, claims for “fraud” or “misrepresentation” have become increasingly prevalent in modern society.
- Intentional Misrepresentation – A claim for intentional misrepresentation is usually predicated on the assertion that the defendant induced the plaintiff to enter into some transaction or relationship by misrepresenting material facts pertaining to the relationship or transaction. In this context, the elements of intentional misrepresentation include: 1) the misrepresentation of a material fact; 2) knowledge of falsity (scienter); 3) intent to induce reliance; 4) actual and justifiable reliance on the misrepresentation; and 5) resulting damage. When the elements of intentional misrepresentation are present, the complaint will frequently also seek punitive damages. This is because the existence of “fraud” is one of the bases upon which exemplary damages may be predicated. See Civ. Code §3294.
- Fraudulent Concealment or Non-Disclosure – A special species of fraudulent misrepresentation exists when a defendant, under an affirmative duty to disclose all material facts, conceals facts in order that the plaintiff may be induced to enter into a transaction or relationship. These claims differ from claims predicated on intentional misrepresentation in that notwithstanding the absence of any affirmative misrepresentation, the law provides for recovery when plaintiff is damaged as a result of concealment. A primary issue to be determined in these cases is whether the defendant stood in such a relation to the plaintiff as to give rise to an affirmative duty of disclosure under the circumstances. Once that duty is established, the remaining elements of actionable fraud, including intent to induce reliance, justifiable reliance, and resulting damage, are established as in cases involving affirmative misrepresentations.
- Negligent Misrepresentation – Negligent misrepresentation involves many of the elements of intentional misrepresentation, although this cause of action is characterized by a less culpable mental state. Thus, the plaintiff in a negligent misrepresentation case must prove: 1) a misrepresentation of material fact; 2) intent to induce reliance; 3) justifiable reliance on the misrepresentation; and 4) resulting damage. The scienter element differs, however; negligent misrepresentation occurs when a defendant’s false statement is made without a reasonable ground for a belief in the truth of the misrepresented fact. The liability in these cases is essentially negligence liability, although the application of negligence defenses is subject to some controversy. See §1861.3.
- Constructive Fraud – When there is a fiduciary or confidential relationship between the plaintiff and the defendant, the law recognizes a fourth species of fraud, i.e., constructive fraud. In general, constructive fraud consists of any breach of duty by a person who, without an actual fraudulent intent, gains an advantage by misleading another to his prejudice or to the prejudice of anyone claiming under him. See Civ.Code §1573. In this respect, constructive fraud resembles fraudulent concealment (or non-disclosure), but it is not identical. As with fraudulent concealment, constructive fraud requires some relation between the parties giving rise to an affirmative duty to disclose. However, unlike fraudulent concealment, a finding of constructive fraud is not subject to the requirement that the failure to disclose material facts be intentional. Byrum v. Brand, 219 Cal. App. 3d 926 (1990). Despite the absence of an “intent” requirement, many of the interrogatories set forth in this section on fraudulent concealment may be adapted for use in constructive fraud cases.
A Note on Election of Remedies
Fraud claims pose difficult questions relating to the requirement that a plaintiff elect between potentially inconsistent remedies. When a plaintiff has been induced by a defendant’s fraud to enter into a contractual relationship, the plaintiff must elect between affirming the contract (and seeking damages), or rescinding the contract (and seeking restitution). The distinctions between restitution and damage remedies, together with an in depth analysis of the requirement that plaintiff elect his remedies, is set forth in 3 Witkin, Cal. Procedure (4th ed. 1997) §175 et seq.