Constructive fraud is a breach of duty without actual fraudulent intent, which gains an advantage to the person at fault by misleading another to his prejudice.
Let’s break down the elements for constructive fraud here:
- Constructive fraud is
- a breach of duty
- (the defendant violates a fiduciary duty or a duty of confidentiality that was owed to the plaintiff)
- without an actually fraudulent intent
- (the defendant did not need to want to defraud the plaintiff)
- which gains an advantage to the person in fault
- (because of his fraud, the defendant gained a financial or actual advantage)
- by misleading another to his prejudice. 
- (the defendant mislead the plaintiff to his own disadvantage)
What does this mean?
A person commits constructive fraud when they gain an unfair advantage over another by using deceit.
1:21 Fiduciary or Confidential Relationship
Breach of duty must have occurred in the context of a confidential relationship. The defendant must have had a duty to keep the information confidential.
1:22 Breach of Duty
A breach of duty includes any act, omission, or concealment involving
- a breach of legal or equitable duty, trust, or confidence
- that results in damage to another,
- even though the conduct is not otherwise fraudulent. 
No intent to deceive is necessary for constructive fraud.
1:23 Advantage Gained
The breach of duty must have led to the defendant gaining an advantage over the plaintiff. 
1:24 Justifiable Reliance
The plaintiff must “justifiably rely” on the defendant’s misrepresentation. 
1:25 Causation and Damage
Constructive fraud requires a showing that the plaintiff was misled by deceit.
Constructive fraud need only be proved by a preponderance of the evidence.
- The preponderance of the evidence simply means “more likely than not”.
- Therefore, a plaintiff must show that was it not for the defendant’s deceit, it is “more likely than not” that the plaintiff would not have suffered damage.
1:31 Fiduciary or Confidential Relationship
Constructive fraud is different from other forms of fraud such as actual fraud or negligent misrepresentation.
Why? Because constructive fraud requires that the parties had a confidential relationship
What is a confidential relationship?
A confidential relationship exists whenever two parties expect confidentiality between one another.
- Confidentiality exists wherever one person offers trust and confidence and it is retained by integrity and fidelity of another. 
Examples of confidential relationships:
- Partners in a Partnership 
- Real Estate Brokers or Agents and Clients 
- Attorneys and Clients 
- Stockbrokers and Clients 
- Corporate Directors and Shareholders 
- Husbands and Wives 
1:32 Breach of Duty
A person (in a confidential relationship as above) has a duty to make full disclosure of all material facts if knows of any relating to the matter involved.
When does constructive fraud occur? 
- When a fiduciary fails to disclose a material fact that they know would affect another’s responsibilities or decision
- A careless misstatement, even if there is no fraudulent intent. 
- May involve defendants who are “ethical, principled professionals,” since no intent to deceive is necessary to satisfy the cause of action. 
- No clear line establishing when a fiduciary’s breach of duty will be merely negligent versus if constructive fraud. 
Examples of constructive fraud occurring in confidential relationships:
- Real estate broker and his client:
- For example, constructive fraud occurs when a real estate broker told his clients about the size and characteristics of real property without confirming the accuracy of such statements. 
- This is an affirmative statement
- This is a breach of duty
- This is constructive fraud
- Partners in business:
- Partners in business owe fiduciary duties of disclosure to each other regarding the business and assets.
- For example, a failure to properly account for the business and assets will result in a breach of duty. 
- A salesman employed by a real estate broker:
- For example, a salesman will breach his duty if he fails to disclose that an unsecured note given in exchange for the plaintiff’s investment was prohibited by law
- A salesman acts for the plaintiff (his client)
- A real estate agent acting as a dual fiduciary:
- A real estate agent must disclose all information that might affect the principals’ (his boss or his firm) decisions. 
- An attorney and his client:
- An attorney has a strict fiduciary duty and he holds a duty of confidentiality to his client.
- The attorney’s fiduciary duty involves more than refraining from exercising undue influence
- Attorney’s duty is of the very highest character. 
- An attorney breached his fiduciary duty to a client
- He failed to disclose any facts related to investments and dealings on behalf of the client. 
- A corporate officer and his corporation:
- A corporate officer owes a duty of complete honesty in any disclosure which he makes regardless of whether statements are fact or opinion.
- Deliberate withholding of information or producing false information constitutes a breach of that duty. 
- Joint ventures are fiduciaries with a duty of disclosure and liability to account for profits. 
- Fiduciary duty for husband and wife:
- One spouse has the unquestioned right to rely upon the direct representations of the other.
- Agent and trustee:
- The acts of an agent are judged with almost the same strictness as those of a trustee.
- A violation of duty should be treated as a fraud on the principal (the boss, the firm, office). 
- Investment advisor and client:
- An investment advisor breached his duty to unsophisticated investors
- For example, an investment advisor will breach his fiduciary duty when he fails to apprise investors of the risks involved in proposed ventures. 
1:33 Advantage Gained
The defendant has the burden of proving the fairness of the transaction and his or her good faith in all respects. 
- What is the advantage gained here? The plaintiff has an advantage in court because the burden of proof falls on the defendant.
- The defendant must work to prove that he was fair (the plaintiff does not have to prove anything; he must simply show that the defendant was not fair).
- For example, when a husband fails to disclose information that gave him an advantage in his marital property when the property was under his control and management.
- His failure to disclose the information would constitute the concealment of material facts.
- His failure to disclose the information constitutes a breach of fiduciary duty concerning his wife’s interest in the property.
- If any advantage is gained, then this constitutes constructive fraud.
- It does not matter whether whoever failed to disclose something actually had any intent to lie and defraud. 
1:34 Justifiable Reliance
Constructive fraud presumes the plaintiff’s reliance.
What does this mean? An element of reliance is shown when the other party must have relied on the defendant’s constructive fraud when they acted upon it, and their actions led to the damage. 
1:35 Causation and Damage
The plaintiff bears the burden of proving all aspects of constructive fraud. 
1:40 What are the effects of constructive fraud?
Compensatory Damages 
Money awarded to the plaintiff to compensate for injury or loss that was incurred as a result of negligent misrepresentation.
The Benefit of the Bargain 
- All damages that the defendant made because of fraud must be paid to the wronged party.
Out-of-Pocket Damages 
- Example: If the defendant tricked seller into a lower price for the property than the fair market value
- The wronged party can recover the difference between the fair price of the property versus the amount that he actually received.
Punitive Damages 
- Damages that are awarded to punish the defendant for his wrongdoing.
1:50 STATUTE OF LIMITATIONS
The statute of limitations for constructive fraud is three years. The first days starts after the wronged party discovers the facts constituting fraud . This also starts after the wronged party learns facts that are sufficient to make a reasonably prudent man suspicious of fraud. 
 Cal. Civ. Code §1573.
 Salahutdin v. Valley of Cal., Inc., 24 Cal. App. 4th 555, 562, 29 Cal. Rptr. 2d 463, 466 (1994).
 Tyler v. Children’s Home Soc’y of Cal., 29 Cal. App. 4th 511, 547, 35 Cal. Rptr. 2d 291, 312 (1994).
 Demetris v. Demetris, 125 Cal. App. 2d 440, 444, 270 P.2d 891, 894 (1954).
 Odorizzi v. Bloomfield Sch. Dist., 246 Cal. App. 2d 123, 129, 54 Cal. Rptr. 533, 539 (1966).
 Tyler v. Children’s Home Soc’y of Cal., 29 Cal. App. 4th 511, 549, 35 Cal. Rptr. 2d 291, 313.
 Sierra Nat’l Bank v. Brown, 18 Cal. App. 3d 98, 104-06, 95 Cal. Rptr. 742, 746-747 (1971); Cal. Evid. Code §115.
 Byrum v. Brand, 219 Cal. App. 3d 926, 937-938, 268 Cal. Rptr. 609, 617-618 (1990).
 Kloehn v. Prendiville, 154 Cal. App. 2d 156, 160-161, 316 P.2d 17, 21 (1957).
 (Rosenfeld, Meyer & Susman v. Cohen, 191 Cal. App. 3d 1035, 1057-59, 237 Cal. Rptr. 14, 26-28 (1987)).
 (Salahutdin v. Valley of Cal., Inc., 24 Cal. App. 4th 555, 561-563, 29 Cal. Rptr. 2d 463, 466-467 (1994)).
 (Day v. Rosenthal, 170 Cal. App. 3d 1125, 1158 -1160, 217 Cal. Rptr. 89, 110-111 (1985)).
 (Black v. Shearson, Hammill & Co., 266 Cal. App. 2d 362, 367, 72 Cal. Rptr. 157, 160 (1968)).
 (Hobart v. Hobart Estate Co., 26 Cal. 2d 412, 433, 159 P.2d 958, 970 (1945)). Joint Venturers (Weiner v. Fleischman, 54 Cal. 3d 476, 482, 286 Cal. Rptr. 40, 43 (1991)).
 Boeseke v. Boeseke, 255 Cal. App. 2d 848, 852, 63 Cal. Rptr. 651, 655 (1967)).
 Edmunds v. Valley Circle Estates, 16 Cal. App. 4th 1290, 1298, 20 Cal. Rptr. 2d 701, 705-706 (1993).
 Salahutdin v. Valley of Cal., Inc., 24 Cal. App. 4th 555, 562, 29 Cal. Rptr. 2d 463, 466.
 Salahutdin v. Valley of Cal., Inc., 24 Cal. App. 4th 555, 562, 29 Cal. Rptr. 2d 463, 466.
 Tyler v. Children’s Home Soc’y of Cal., 29 Cal. App. 4th 511, 548, 35 Cal. Rptr. 2d 291, 312 (1994).
 Salahutdin v. Valley of Cal., Inc., 24 Cal. App. 4th 555, 563, 29 Cal. Rptr. 2d 463, 467 (1994).
 Salahutdin v. Valley of Cal., Inc., 24 Cal. App. 4th 555, 561-562, 29 Cal. Rptr. 2d. 463, 466 (1994).
 Rosenfeld, Meyer & Susman v. Cohen, 191 Cal. App. 3d 1035, 1057-59, 237 Cal. Rptr. 14, 26-28 (1987).
 Montoya v. McLeod, 176 Cal. App. 3d 57, 64-65, 221 Cal. Rptr. 353, 358 (1985).
 Jorgensen v. Beach ‘n’ Bay Realty, Inc., 125 Cal. App. 3d 155, 160, 177 Cal. Rptr. 882, 885 (1981).
 Trafton v. Youngblood, 69 Cal. 2d 17, 27, 69 Cal. Rptr. 568, 575 (1968).
 Day v. Rosenthal, 170 Cal. App. 3d 1125, 1159, 217 Cal. Rptr. 89, 110-111 (1985).
 Hobart v. Hobart Estate Co., 26 Cal. 2d 412, 433, 159 P.2d 958, 970 (1945).
 Weiner v. Fleischman, 54 Cal. 3d 476, 482, 286 Cal. Rptr. 40, 43 (1991).
 Boeseke v. Boeseke, 255 Cal. App. 2d 848, 853-854, 63 Cal. Rptr. 651, 656 (1967).
 Estate of Arbuckle v. West, 98 Cal. App. 2d 562, 569, 220 P.2d 950, 955 (1950).
 Stokes v. Henson, 217 Cal. App. 3d 187, 195, 265 Cal. Rptr. 836, 841 (1990).
 Platt v. Wells Fargo Bank American Trust Co., 222 Cal. App. 2d 658, 35 Cal. Rptr. 377 (1963).
 Vai v. Bank of Am. Nat’l Trust & Sav. Ass’n, 56 Cal. 2d 329, 15 Cal. Rptr. 71 (1961).
 Edmunds v. Valley Circle Estates, 16 Cal. App. 4th 1290, 1302, 20 Cal. Rptr. 2d 701, 708 (1993).
 Tyler v. Children’s Home Soc’y of Cal., 29 Cal. App. 4th 511, 549-550, 35 Cal. Rptr. 2d 291, 313 (1994).
 (Walsh v. Hooker & Fay, 212 Cal. App. 2d 450, 461, 28 Cal. Rptr. 16, 24 (1963)).
 (Salahutdin v. Valley of Cal., Inc., 24 Cal. App. 4th 555, 564-568, 29 Cal. Rptr. 2d 463, 467-470 (1994)).
 (Lazar v. Superior Court, 12 Cal. 4th 631, 646, 49 Cal. Rptr. 2d 377, 386 (1996)).
 (Stokes v. Henson, 217 Cal. App. 3d 187, 197-198, 265 Cal. Rptr. 836, 843 (1990)).
 Cal. Civ. Code §338(d))
 Hobart v. Hobart Estate Co., 26 Cal. 2d 412, 437, 159 P.2d 958, 972 (1945).