In common parlance, fraud means lying to or fooling another person. Although the legal definition is somewhat the same, to constitute legally actionable fraud, several other factors that must be present. First, the most basic requirement is that there must be a misrepresentation (or a nondisclosure) made with knowledge of its falsity (or with knowledge that the nondisclosure would give rise to a false impression). Further, the maker of the false statement must intend to defraud the person to whom the statement is made; that is, the maker must intend to induce the hearer to rely on the misrepresentation. The person to whom the statement is made must in fact rely on the misrepresentation, and that reliance must be justifiable; if a reasonable person would have known that he or she would be foolish to rely on a particular statement, fraud has probably not occurred. And the person so relying and acting on the misrepresentation must suffer damages as a result.
Fraud thus results from an intentional misrepresentation, but in some cases it can even arise from a negligent misrepresentation. A negligent misrepresentation is made when, for example, a seller tells a buyer that a product is safe for a particular use when he or she actually does not know if it is safe or not; if the product turns out to be unsafe, the seller may not have intentionally misled the consumer, but it was negligent for him or her to make the statement without knowing the facts, and thus it is a misrepresentation giving rise to fraud nonetheless.
Exploring the misrepresentation element even further, in order to form the basis for a fraud claim, the misrepresentation must generally be of a past or present fact. Misrepresentations about what a person believes will happen in the future are usually not considered fraudulent. It is sometimes difficult to distinguish between present- and future-based statements. For instance, if a seller says that new accounting software will not be technologically surpassed in the next five years, there is no clear cut answer as to whether that is a misrepresentation of a present or a future fact.
In addition, the misrepresentation, to be actionable, must be of a material fact. If the software salesperson tells a customer that it is raining outside when it is not, there probably has been no fraud that would support a products liability claim. In other words, if the statement, even if false, is not material to the consumer’s decision about whether or not to buy a product, it generally cannot form the basis for a fraud claim. Opinions, too, because they are not statements of fact, are generally not actionable. There are exceptions to this general premise, however, such as when a seller holds himself or herself out as an expert on the product, or if the maker of the statement presents his or her opinion as if it were fact.
Concealment or suppression of facts may constitute an actionable misrepresentation if the person doing the concealing had an obligation or duty to reveal the information suppressed. Similarly, nondisclosure, while perhaps not as purposeful a concept as concealment, can lead to fraud liability if there is a special, or fiduciary, relationship between the parties such that there is an absolute duty to disclose all facts relevant to the transaction. A fiduciary duty may arise when one person knows that the other person is relying on his or her specialized knowledge or expertise. In addition, nondisclosure may give rise to liability for fraud if the person holding the knowledge is aware of the fact that the other party does not know and cannot discover the facts.
The next elements of a fraud claim relate not to the statement itself but to its maker. A legally recognizable claim for fraud requires scienter—the person making the misrepresentation must actually know that the statement is false. Innocent misstatements are not punishable under the law, but statements made in reckless disregard for whether or not they are true may constitute fraud. The maker of the false statement must also intend that the hearer rely on the misrepresentation. This element is interrelated with the requirement of materiality, since the maker of a false statement probably would not intend that the hearer rely on and act upon an immaterial misrepresentation, such as one about what he had for lunch, or that her dog’s name is Fluffy when it really is Fifi.
The focus next shifts to the recipient of the misrepresentation. The hearer must justifiably rely on the false statement or omission. This element requires, first, that the hearer not know that the statement is false, since if he or she did know that it was false any reliance on the statement would not be justified. Second, there must be actual reliance, meaning that the false statement must actually have led to the action taken thereon (e.g., the purchase of the product about which the false statement was made). And the reliance must have been justifiable under the circumstances, which, in addition to requiring no knowledge of the statement’s falsity, also sometimes requires a duty to investigate (unless there is that fiduciary relationship, discussed above, in which the maker of the misrepresentation knows that the recipient is relying on his or her superior knowledge of the subject matter).
Damages available in a fraud action may be more limited than those available in a products-liability case based on other allegations, like negligence or strict liability. In certain cases and in certain jurisdictions, fraud damages may be limited to economic losses. Under those circumstances, it may be wise to plead alternative or multiple counts in a products liability complaint to ensure the most comprehensive recovery possible.
Lastly, in some states, fraud claims may be subject to statutes relating to consumer fraud, or regulations applicable to particular industries and business transactions. A San Antonio defective product attorney will be aware of all applicable statutes and regulations and can determine whether they have been violated, as well as whether they govern a consumer’s claim such that particular procedures must be followed.