Tortious fraud or deceit occurs when a party “willfully deceives another with the intent to induce him to alter his position to his injury or risk.” Civ. Code § 1709.
Note: The Civil Code makes specific provisions for fraudulent dealings in a contractual setting in §1572 (actual fraud) and in sales involving a confidential, fiduciary or legally recognized special relationship in §1573 (constructive fraud). In the contractual setting, a claim for reformation or rescission of a contract can be established by alleging elements that are essentially equivalent to the elements discussed below for the tort cause of action for deceit. South Tahoe Gas Co. v. Hofmann Land Improvement Co., 25 Cal. App. 3d 750, 765.
ELEMENT 1: MISREPRESENTATION
The defendant must have made a misrepresentation consisting of either: (1) an affirmative misrepresentation—the suggestion, as a fact, of that which is not true by one who does not believe it to be true; (2) a concealment or half-truth—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 (3) a false promise—a promise made without any intention of performing it. Civ. Code § 1710.
Fraud Can Take Numerous Forms
Fraud is a generic term that embraces all the multifarious means which human ingenuity can devise and are resorted to by one individual to get an advantage over another. No definite and invariable rule can be laid down as a general proposition defining fraud, and it includes all surprise, trick, cunning, dissembling, and unfair ways by which another is deceived. (GSF Enters. v. Victorville Mediterranean Gardens, LLC (2013) Cal.App.Unpub. LEXIS 5126 citing (Wells v. Zenz (1927) 83 Cal.App. 137).)
“In its broad general sense, the concept of fraud embraces anything that is intended to deceive, including all statements, acts, concealments and omissions involving a breach of legal or equitable duty, trust or confidence which results in injury to one who justifiably relies thereon.” (Okun v. Morton (1988) 203 Cal.App.3d 805.)
A Single Misrepresentation of a Material Fact Constitutes Fraud
A single false representation as to a material fact made with the intent to defraud and relied upon by another party supports an action for fraud. (Tenet Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245 Cal.App.4th 821.)
True Statements Intended to Create False Impressions Constitute Fraud
True statements can form the basis of false representations if they are made in a manner designed to create a false impression and were so acted on. (Faber v. U.S. Bank, N.A. (2017) Cal.App.Unpub. LEXIS 4814 citing (Smith v. Brown (1943) 59 Cal.App.2d 836).)
Misrepresentations Can Be Implied or Inferred
A misrepresentation need not be express for a claim in tort to lie. A misrepresentation may be implied or inferred from the circumstances. (Tenet Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245 Cal.App.4th 821.)
A Person Who Voluntarily Offers Information Is Obligated to Speak the Truth
A party who has no duty to another but voluntarily offers information or a response to questions is thereafter obligated to speak truly and to avoid suppression of information he may have that would have a material effect on the circumstances. (Standefer v. Burrows (2012) Cal.App.Unpub. LEXIS 4294 citing (Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603).)
Misrepresentation Can Be Affirmative Misrepresentation or Failure to Disclose
The misrepresentation that forms the backbone of an intentional deceit claim can be either a positive statement or the failure to disclose a fact that is true. An affirmative false representation or a knowing concealment of information material to the circumstance will provide the necessary misrepresentation element. Civ. Code § 1572.
Deceit May Be Affirmative Misrepresentation or Failure to Disclose
Deceit may be negative as well as affirmative, arising out of the suppression of information that should have been revealed, as well as by the expression of information that is false. (Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal.App.4th 282.)
Dishonest Opinions Can Form the Basis of Deceit
The expression of a dishonest opinion to a person entitled to rely on the assertion forms the basis of an action for deceit. (People v. Webb (1999) 74 Cal.App.4th 688.)
Expressions of Professional Opinion
“Under certain circumstances, expressions of professional opinion are treated as representations of fact. When a statement, although in the form of an opinion, is ‘not a casual expression of belief’ but ‘a deliberate affirmation of matters stated,’ it may be regarded as a positive assertion of fact. Moreover, when a party possesses or holds itself out as possessing superior knowledge or special information or expertise regarding the subject matter, and a plaintiff is so situated that it may reasonably rely on such supposed knowledge, information or expertise, the defendant’s representation may be treated as one of material fact.” (Public Employees’ Retirement System v. Moody’s Investors Service, Inc. (2014) 226 Cal.App.4th 643.)
Opinions by Defendant with Apparent Superior Knowledge
Opinions, when expressed by a defendant with apparent superior knowledge and when not honestly held, are actionable in tort as misrepresentations. (Id.)
Opinion Statements Presented as Facts
When a statement is made which ordinarily would be framed as an opinion, but is instead presented as an existing fact material to the circumstances, such that it may be reasonably relied on, the statement may form the basis of a deceit claim. (Id.)
To avoid a finding of deceit, an expression of an opinion must be honestly entertained by the person making the statement. (Id.)
Making a Promise Without Intending to Perform is Deceit
Deceit may consist of a promise, made without the intention of performing it. Civ. Code § 1710(4).
Fraud for false promise is a subspecies of an action for deceit, grounded in the notion that a promise to do something necessarily implies an intention to perform. Thus, where a promise is made without any intention of performing, there exists an implied misrepresentation of fact that may be actionable fraud. (Behnke v. State Farm General Ins. Co. (2011) 196 Cal.App.4th 1443.)
ELEMENT 2: MISREPRESENTATION OF MATERIEL FACT
The misrepresentation must be of a material fact, essential to the analysis undertaken by the plaintiff and such that the plaintiff would not have acted as he did without it. (Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105.)
Material Fact If It Relates to a Matter of Substance
The fact represented or suppressed is deemed material if it relates to a matter of substance and directly affects the purpose for which the deceived party acted. (In re Marriage of Goodwin-Mitchell & Mitchell (2019) 40 Cal.App.5th 232.)
Not Material If Plaintiff Could Not Have Improved His Position
A plaintiff will be unable to show materiality or causation if he could have done nothing to improve his position had he known initially that the representation was false. (Bezaire v. Fidelity and Deposit Co. (1970) 12 Cal.App.3d 888.)
ELEMENT 3: KNOWLEDGE OF FALSITY
The misrepresentation must be made with a knowledge of its falsity or a knowledge of the effect of concealment of a material fact. (Tenet Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245 Cal.App.4th 821.)
Note: This element distinguishes intentional deceit from the related tort of negligent misrepresentation. (Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872.)
Defendant Still Liable If Plaintiff Proves Reckless Disregard for the Truth
A defendant may be liable for deceit without actual knowledge that the representation was false if the plaintiff can prove the defendant’s reckless disregard for the truth. Civ. Code § 1710(1).
Misrepresentation Must Be Made with Knowledge of its Falsity
To support a finding of intentional deceit, the misrepresentation must have been made with the knowledge it is or may be untrue. (Chapman v. Skype Inc (2013) 220 Cal.App.4th 217.)
Information Given by a Party Who Does Not Believe It to Be True
Deceit may be the suggestion as fact of information that is not true by a party who does not believe it to be true. (Wilhelm v. Pray, Price, Williams & Russell (1986) 186 Cal.App.3d 1324.)
ELEMENT 4: INTENTO TO INDUCE RELIANCE
The defendant must intend to induce the plaintiff to alter his or her position to his or her injury or risk. Civ. Code § 1710.
Intent to Deceive Not Required
The intent to defraud or deceive is not required; the plaintiff need only prove the defendant’s intent to cause another to alter his position. Civ. Code § 1709.
Plaintiff Must Show Defendant Intended to Induce Action
In the essential analysis, the plaintiff must prove that the defendant acted to cause a change of position, and to induce action on the part of the party claiming fraud. (Oakland Raiders v. Oakland-Alameda County Coliseum, Inc. (2006) 144 Cal.App.4th 1175.)
Intent Can Be Inferred from Acts of the Parties
Intent may be established by inference from the acts of the parties because direct proof of intent for fraud is often impossible. (Continental Airlines, Inc. v. McDonnell Douglas Corp. (1989) 216 Cal.App.3d 388.)
Defendant Not Liable If He or She Did Not Intend to Induce Plaintiff’s Reliance
If a defendant made a misrepresentation but had no intent to induce the plaintiff’s reliance on the statement, there is no deceit proven, despite plaintiff’s reliance to his detriment. The defendant is not liable for intentional deceit for unintended consequences. (Lovejoy v. AT&T Corp. (2001) 92 Cal.App.4th 85.)
To state a cause of action for fraud, the defendant must have intended that the plaintiff rely on the statement. Civ. Code § 1572.
Example: Financial consultant did not intend to induce reliance although he did conceal, suppress and misrepresent a material fact to investor. (Byrum v. Brand (1990) 219 Cal.App.3d 926.)
Fraud as a Defense to Upholding Contractual Obligations
Under Civil Code §1572 a defense of fraud lies when a party to a contract misrepresents or conceals information in order to induce someone to enter into a contract. (Masters v. San Bernardino County Employees Retirement Ass’n (1995) 32 Cal.App.4th 30.)
ELEMENT 5: JUSTIFIABLE RELIANCE
The plaintiff must actually and justifiably or reasonably rely on the defendant’s misrepresentation. (Beckwith v. Dahl (2012) 205 Cal.App.4th 1039.)
Plaintiff Must Prove Actual Reliance
A party seeking relief from intentional deceit must prove that he actually relied on the defendant’s misrepresentation. Actual reliance occurs when a misrepresentation is an immediate cause of plaintiff’s conduct and which, absent such representation, he would not have engaged in the activity in all probability. (Conroy v. Regents of University of California (2009) 45 Cal.4th 1244.)
Reliance Must Be Reasonable
Relief will not be granted if the plaintiff placed too much confidence in the person defrauding him. The court will consider the plaintiff’s knowledge and the relevant information available to him at the time, as well as his intelligence and relative sophistication, to determine whether the reliance was reasonable in light of all the circumstances. (Public Employees’ Retirement System v. Moody’s Investors Service, Inc. (2014) 226 Cal.App.4th 643.)
Reliance Can Be Presumed
Reliance may be proven by circumstantial evidence, as well as by direct evidence. The law will presume reliance when representations have been made and action taken thereafter. (McAdams v. Monier, Inc. (2010) 182 Cal.App.4th 174.)
Reasonableness of Reliance Determined Case-By-Case
The reasonableness of plaintiff’s reliance is determined on a case-by-case basis, considering the representation’s actual effect on the plaintiff, and not a reasonable person. (Public Employees’ Retirement System v. Moody’s Investors Service, Inc. (2014) 226 Cal.App.4th 643.)
ELEMENT 6: CAUSATION AND DAMAGES
Reliance on the misrepresentation must cause plaintiff damage; misrepresentations without damage do not support a cause of action for deceit. (Beckwith v. Dahl (2012) 205 Cal.App.4th 1039.)
The Misrepresentations Must be the Proximate Cause of Damages
The misrepresentation must be the proximate cause of the damage. (Id.)
Standard of Proof Is by a Preponderance of the Evidence
The standard of proof requires that the party claiming fraud must prove the elements of the claim. The claim must be proven by a preponderance of the evidence. (The Grubb Co., Inc. v. Department of Real Estate (2011) 194 Cal.App.4th 1494.)
If fraudulent deceit is proven, the defendant is liable to the plaintiff “for any damage which he thereby suffers.” Civ. Code § 1709. However, damage recovery is limited to those consequences that the defendant could reasonably foresee when making the misrepresentation. (Melican v. Regents of University of California (2007) 151 Cal.App.4th 168.)
The recipient of a fraudulent misrepresentation is entitled to recover as damages in an action of deceit against the maker the pecuniary loss to him or her of which the misrepresentation is a legal cause, including (a) the difference between the value of what he or she has received in the transaction and its purchase price or other value given for it; and (b) pecuniary loss suffered otherwise as a consequence of the recipient’s reliance upon the misrepresentation. (OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp., 157 Cal.App.4th 835.)
A defrauded party whose claim is subject to the out-of-pocket measure of damages may recover funds expended to mitigate damages, provided that the funds do not exceed the damages prevented or reasonably anticipated. (Id.)
Emotional Distress Damages
Emotional distress damages are recoverable, but only when the defendant assumes a duty in which the emotional condition of the plaintiff is an object. It must be foreseeable that serious emotional distress may result from the fraud. (Friedman v. Merck & Co. (2003) 107 Cal.App.4th 454.)
Upon discovery of fraud, plaintiff may have contract rescinded and recover damages incurred. (Denevi v. LGCC, LLC (2004) 121 Cal.App.4th 1211.)
When through fraud or a mutual mistake of the parties, a written contract does not truly express the intention of the parties, it may be revised, on the application of a party aggrieved, so as to express that intention, so far as it can be done without prejudice to rights acquired by third persons, in good faith and for value. Civ. Code § 3399.
A party that entered into a contract based on fraudulent misrepresentations may rescind the contract and secure restitution of those benefits lost to him by the transaction. Civ. Code § 1689(1).
Injured plaintiff entitled to recover for any and all detriment proximately caused by the misrepresentation. Civ. Code §§ 1709-1710.
Prejudgment Interest on Damages
Jury has discretion to award prejudgment interest on plaintiff’s loss from the time plaintiff parted with the money or property on the basis of the defendant’s fraud. Civ. Code § 3288.
Punitive damages may be recovered where fraud is proven by “clear and convincing” evidence. Civ. Code § 3294(a). Punitive damages are not limited to affirmative misrepresentations. Intentional concealment of material fact provides an evidentiary basis upon which punitive damages may be awarded. Civ. Code § 3294(b)(3).
STATUTE OF LIMITATIONS FOR FRAUD
The statute of limitations for deceit is three years. Civ. Code § 338.
The cause of action does not accrue until the aggrieved party discovers the facts constituting the fraud. However, a claimant has a duty to exercise diligence so as to discover the facts that would give rise to delayed discovery. Plaintiff must plead and prove facts showing (a) lack of knowledge; (b) lack of means of obtaining knowledge, or why the facts could not have been discovered at an earlier date through reasonable diligence; and (c) how and when plaintiff actually did discover the fraud or mistake. (Lee v. Escrow Consultants, Inc. (1989) 210 Cal.App.3d 915.)
AFFIRMATIVE DEFENSES TO FRAUD
Accepting substantial benefit constitutes a waiver of any right to tort damages. (Oakland Raiders v. Oakland-Alameda County Coliseum, Inc. (2006) 144 Cal.App.4th 1175.)