Fraud

Fairfax Injury Lawyer Brien Roche Addresses Fraud Cases

Brien Roche

Forms Of Fraud

When we think of fraud we tend to think of fraud in the inducement to enter into a contract.  There is more to fraud than the inducement. There is fraud in the factum. Hayes v. Virginia Mut. Protection Ass’n, 76 Va. 225 (1882) There is what some call promissory fraud.

Fraud in the inducement consists of a false statement of a material existing or past fact which is made with the intent to procure a contract. In addition the Plaintiff must justifiably rely on the false statement to enter into the contract.  Max Meadows, etc., Co. v. Brady, 92 Va. 77, 22 S.E. 247 (1895).

Fraud in the factum (performance) is seen in cases such as substituting a phony contract for a bona fide contract or some other such behavior.

Promissory fraud is seen where the person making the promise has the present intent of not performing the promise.

Elements of a Fraud Claim

In looking at a fraud claim the first thing that must be done is decide if a duty in tort exist.  In the 2007 case of Augusta Mutual Insurance Company v. Mason, 274 Va. 199, 645 S.E.2d 290 (2007) the Virginia Supreme Court defined the scope of fraud claims.  In Augusta the insurer claimed that its agent cheated it by applying for coverage for a client. In doing so the agent misstated the facts.  The agent owed certain duties to the insurer based upon the agent’s contract. The misstatement related to a duty that was called for by the contract.  Augusta failed to allege any duties other than contract duties. 

Because of that the Court said that there was no duty in tort. Rather there was a contract duty and therefore no basis for a fraud claim.  A similar narrow view of the duty in tort is found in Atlas Partners II, L.P. v.  Brumberg, Mackey & Wall, PLC, 2006 U.S. Dist. Lexis 983 (W.D.Va. 2006).  As a result, before getting to the basics of a fraud claim you must find a duty in tort. Further if the duty is a contract duty that limits the breadth of the claim.

For a free consultation about your fraud claim, please contact us.

Fraud Involves False Statement

That misstatement in most cases comes in the form of a false statement.  It may also, come in the form of hiding or not disclosing facts.  This may exist where there is the intent not to disclose facts and knowledge by that party that the other party assumes the fact does not exist.  Allen Realty Corp. v. Holbert, 227 Va. 441, 450, 318 S.E.2d 592, 597 (1984); Cohn v. Knowledge Connections, Inc., 266 Va. 362, 368, 585 S.E.2d 578, 581 (2003); Spence v. Griffin, 236 Va. 21, 28, 372 S.E.2d 595, 599 (1988).

Duty To Disclose

A question remains as to whether there must be first a duty to disclose.  There is no Virginia Supreme Court decision that imposes an absolute duty to disclose.  In Van Deusen v. Snead, 247 Va. 324, 328, 441 S.E.2d 207 (1994) the Court said there was a duty to disclose where failing to disclose would be equal to a knowing act of concealment with the intent to deceive. 

Pleading

To survive a Demurrer a claim based upon concealment should allege that:

  • The info was not open to the Plaintiff.
  • The party being sued did or said something to throw the Plaintiff off guard
  • The Defendant had a greater knowledge than the Plaintiff in regards to the deal.
  • The Defendant actively concealed or suppressed the info.

Fraud Involves Material Existing or Past Fact

The second part of a fraud claim is that the statement must be of a material present or past fact.  Being material in this context is much the same as it is in regards to a breach of  contract. It must be what causes the person to enter into the contract.  Packard Norfolk, Inc. v. Miller, 198 Va. 557, 563, 95 S.E.2d 207, 211-12 (1956).  To put it in the context of a breach of contract claim it must go to the heart of the deal.

The “fact” that is the subject of the statement must be something that can be the subject of “exact knowledge when the statement is made”.  Poe v. Voss, 196 Va. 821, 86 S.E.2d 47, 49 (1955).  It must be something that is provably true or false.  Raytheon Tech Servs. Co. v. Hyland, 273 Va. 292, 641 S.E.2d 84 (2007). Call, or contact us for a free consult.

Not Facts

There are several examples that arise in the case law of things that are not fact:

  • Commendatory statements, trade talk or puffing.  Tate v. Colony House Builders, 257 Va. 78, 84, 508 S.E.2d 597, 600 (1999).
  • A statement that an object was in excellent condition.  Lambert v. Downtown Garage, Inc., 262 Va. 707, 553 S.E.2d 714 (2001).
  • How stucco would perform in the future if used in constructing a home.  McMillion v. Dryvit Systems, Inc., 262 Va. 463, 552, S.E.2d 364 (2001).
  • An insurer’s statement that the need to report and treat all work injuries would reduce the cost of workers’ comp to the Plaintiff.  Lumbermen’s Underwriting v. Dave’s Cabinet, Inc., 258 Va. 377, 520 S.E.2d 362 (1999).

Facts

Cases where “facts” have been noted are:

  • Dryvit uses only 100% acrylic polymer formula in its coating.  McMillion, Supra.
  • The new house was free from defect in its structure, built in a workmanlike manner and was fit for being lived in.  Tate v. Colony House Builders, Inc., 257 Va. 78, 508 S.E.2d 597, 600 (1999).
  • Agent’s advice that the contract would cover all bills in excess of a certain sum.  Even though this was a matter of opinion the Court held that it was a fact statement since the agent had info about the policy that was not open to the client.  Nationwide Ins. Co. v. Patterson, 229 Va. 627, 331 S.E.2d 490 (1985).
  • The car was in perfect condition.  Packard, Supra.

No Future Facts

The facts that are pled must be either past or present facts as opposed to future facts.  The future fact bar does not apply where the other party makes a promise with the intent not to perform (promissory fraud).  Sea-Land Service, Inc. v. O’Neal, 224 Va. 343, 297 S.E.2d 647 (1982); Lloyd v. Smith, 150 Va. 132, 145, 142 S.E. 363 (1928); Elliott v. Shore Stop, Inc., 238 Va. 237, 245, 384, S.E.2d 752 (1989).

The pleading of these “facts” must be with detail which ideally should include the name of the individual who did the fraud as well as the time and place of the act.  Tuscarora v. B. V. A., 218 Va. 849, 858, 241 S.E.2d 778 (1978). Call, or contact us for a free consult.

Fraud Requires Intent

The third part of fraud is that the statement must be made with the intent to deceive. The goal in most cases being the signing of a contract.  It is the intent that sets an actual fraud claim apart from a constructive fraud claim.  With the latter the statement may be innocent or negligent.  It may be based either upon an overt statement or a failure to disclose facts where there is a duty to disclose.  Nationwide Mutual Ins. Co. v. Hargraves, 242 Va. 88, 405 S.E.2d 848 (1991)

With a constructive fraud claim to the extent that the statement is innocent then it in effect becomes a strict liability claim.  That is, without proof of any fault the Plaintiff may prevail even though the statement is purely innocent. 

In general, strict liability is not recognized in Virginia.  Harris v. T. I., Inc., 243 Va. 63, 413 S.E.2d 605 (1992).  The one exception to that is blasting cases.  Pope v. Overbay, 196 Va. 288, 83 S.E.2d 365 (1954).  The logic of strict liability in blasting cases is that blasting is inherently dangerous.  There is nothing within a constructive fraud claim that involves any element of inherent danger. Therefore there is some question as to whether an innocent statement could withstand a close look through the prism of the first amendment.

Fraud Involves Justifiable Reliance

The fourth part of a fraud claim is that of justifiable reliance.  This is somewhat akin to proximate cause.  That is, was it the statement that caused the damage or did the Plaintiff in fact rely upon other facts. These other facts may have been known only to the plaintiff.

Justifiable reliance should not be overlooked as a key part of a fraud case. Hence it may be the soft spot in a plaintiff’s case.  Murayama 1997 Trust v. NISC Holdings, LLC, 284 Va. 234, 246, 727 S.E.2d 80, 86 (2012).

Diligence

The lack of reliance may be seen in lack of diligence. The plaintiff must show some degree of diligence. In Lake v. Tyree, 90 Va. 719, 724 (1894) the Court noted that the law of fraud does not indemnify one against the consequences of indolence, folly or careless indifference to the ordinary and accessible means of info.  If a party has received info that would excite suspicion then that party cannot ignore it.  Crowder v. Crowder, 125 Va. 80, 87 (1919). 

The plaintiff may not ignore warning signs and proceed blindly and then claim to have been cheated..  Harris v. Dunham, 203 Va. 760, 768-769 (1962).  In this latter case a business purchaser made partial investigation of the business. She did not follow through. She did not discover the full details.  Likewise in Costello v. Larsen, 182 Va. 567, 571 (1994)  the court noted that it is the duty of the party to make use of ordinary care and to protect herself.  The law will leave that party where the law has found them if that positioning is a product of their own imprudent confidence.  Such conduct may lead to a defense of unclean hands which may be a bar to any equiy relief.  Barry v. Commonwealth, 280 Va. 572, 580 (2010). Call, or contact us for a free consult.

Fraud Involves Detriment or Damage

The final part of a fraud claim is damage.  Any damage in the context of fraud must be looked at in light of the purpose of a tort claim. That purpose is pay the plaintiff for losses involving the safety of persons and property.  Filak v. George, 267 Va. 612, 618, 594 S.E.2d 610, 613 (2004).

Tort law is not designed to pay parties for losses from the breach of a contract.  Sensenbrenner v. Rust, Orling & Neale, Architects, Inc., 236 Va. 419, 425, 374 S.E.2d 55, 58 (1988).  The economic loss rule is not applicable to a fraud in the inducement claim. In other words fraud in this context precedes the forming of the contract.  Filak, supra.

Damage

The types of damages allowed where fraud has been proved by clear and convincing evidence are:

  • Delay damages.  Jefferson Standard Life Ins. Co. v. Hedrick, 181 Va. 824, 835, 27 S.E.2d 198, 203 (1943).
  • Damages for embarrassment and humiliation and mental anguish.  Sea-Land Serv., Inc. v. O’Neal, 224 Va. 343, 297 S.E.2d 647 (1982); Humphreys v. Baird, 197 Va. 667, 90 S.E.2d 796 (1956).
  • In cases dealing with property the damages are the delta between the value of the property at the time the contact was made and the value that the property would have possessed if the statement had been true.  Prospect Development Company, Inc. v. Bershader, 258 Va. 75, 91, 515 S.E.2d 291, 300 (1999).  Repair or replacement costs are not the proper measure of damages in these cases.  Klaiber v. Freemason Assocs, Inc., 266 Va. 478, 486, 587 S.E.2d 555, 559 (2003).
  • Loss of potential future earnings.  Sea-Land Serv., Inc. v. O’Neal, 224 Va. 343, 297 S.E.2d 647 (1982).
  • Attorney’s fees.  Prospect Development Company, Inc. v. Bershader, 258 Va. 75, 92, 515 S.E.2d 291, 300 (1999).
  • Punitive damages.  Jordan v. Sauve, 219 Va. 448, 452, 247 S.E.2d 739, 741 (1978).
  • Rescission. Ashmore v. Herbie Morewitz, Inc., 252 Va. 141, 148 (1996).

Standard of Proof For Damages

Although fraud must be proven by clear and convincing evidence the amount of damage need only be proven by the greater weight of the evidence.  Jefferson Standard Life Ins. Co. v. Hedrick, 181 Va. 824, 835, 27 S.E.2d 198, 203 (1943).

Other Types Of Fraud

The second type of fraud is what is called fraud in the factum.  Factum means “doing” or “done”.  Fraud in the factum might be found in a forged contract or a change of contract terms by one side without the knowledge of the other party.  It may relate to performance of the contract. For instance, a builder builds a home and states that a deck has been built in a workman like manner. In fact he knows it has not been.  The owner relies upon that statement and uses the deck. While using it the deck falls.  The builder may be liable in tort.  The statement at issue did not cause the owner to enter into the contract. It simply caused the owner to use the deck that was built per the contract.

Fraud in Performance

Fraudulent inducement to perform a contract may exist where the contract is not fully performed and one party induces the other party to perform by concealing some fact which would excuse performance.  Ware v. Scott, 220 Va. 317, 257 S.E.2d 855 (1979).

Fraud may also be found in a non-contract case.  For instance, a driver stops in his lane of traffic to allow a left turning car to turn in front of him. He knows that there is a speeding truck coming up on his right that the left turning driver does not see.  The left turning driver completes the turn and then is struck by the fast moving truck. Is this a fraud?  The action of the driver in waving the left turning driver through is a false statement of a material existing fact. It was done with the intent to mislead. The left turning driver relies on this action to his detriment.  In that context there is fraud, there is an inducement but there is no contract.

The point to be made is that the claim of fraud is broader than simply fraud in the inducement.  Indeed, the fraud may relate to the performance of a contract or in some instances it may even be non-contractual. Call, or contact us for a free consult.

Promissory Fraud

The final type of fraud is what is called promissory fraud.  The statement must be intentional (there is no constructive fraud within this context). It is that intent or state of mind that is the “existing fact”. Super Value, Inc. v. Johnson, 276 Va. 356, 666 S.E.2d 335 (2008).

The Defense of Fault In Fraud Claims

An affirmative defense to a fraud claim may be what is called in pari delicto This means in equal fault.  If the party claiming to have been cheated was in fact part of the scheme of fraud then that may be a bar to the claim.  If however the parties are not in pari delicto then this may not bar the claim.  Waller v. Eanes’ Adm’r, 156 Va. 389, 396 (1931).  For instance if one party is less at fault than the other then this defense may not be a bar to the claim.  The parties are not in pari delicto if they don’t have the same level of knowledge, the same level of being willing or the same wrongful conduct.

The Fault May Be Compared

In the Waller case the Court referenced two situations. One is where there is imposition, oppression, duress, threats, undue influence or taking advantage of the weakness of the other party.  A second instance where such inequality may exist is where, even though the contract is illegal, the position of one of the parties is less illegal and blame-worthy than that of the other.

Where a party has entered into a deal with the intent of defrauding, hindering or delaying creditors then the court will not provide that party with any legal relief.  Cline v. Berg, 273 Va. 142, 147 (2007).  In Boggs v. Snoddy, 146 Va. 325 (1926) the plaintiff, facing money trouble, placed bonds in the name of a third party to prevent them from being seized in a collection process.  He later sued to recover the bonds. The court rebuked him, saying that the party stood  in pari delicto and no relief would be provided.

Fraudulent Conveyance

There is a large body of case law that has arisen around Virginia Code section 55-80 et.seq. Much of this relates to bankruptcy cases where a debtor is accused of hiding assets. These cases involve specific forms of deceit and concealment.

If you have been the victim of fraud contact our office.

Brien Roche is a tort lawyer who has been serving the Northern Virginia and D.C. area for over 40 years. Feel free to contact him today or read more about his expertise in terms of helping you with your fraud case or other intentional torts. For more information about fraud see the pages on Wikipedia.

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Fraud

Contact Us For A Free Consultation

Contact Us For A Free Consultation