The Defense of Fault in Fraud Claims
Promissory fraud is that variety of fraud wherein the misrepresentation is the state of mind of the promisor. For instance if I promise to do something for you and when I make that promise I have the intention of violating it, that can be promissory fraud. The state of mind is the fact. It is the intent not to perform that constitutes the present fact. If it is made to induce the other party to act to its detriment then that may be actual fraud. Colonial Ford Truck Sales, Inc. v. Harry Schneider, 228 Va. 671, 677 (1985).
The Defense of Fault In Fraud Claims
An affirmative defense to a fraud claim may be what is called in pari delicto i.e., in equal fault. If the party claiming to have been defrauded was in fact part of the overall scheme of fraud then that constitutes illegality and may be a bar to the claim. If however the parties are not in pari delicto then the defense of illegality may not bar the claim. Waller v. Eanes’ Adm’r, 156 Va. 389, 396 (1931). For instance if one party is less blame-worthy than the other than the defense of illegality 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 willingness or the same wrongful intent in terms of engaging in the transaction. Likewise if the undertakings of each of the parties are not equally blame-worthy then the parties may not be in pari delicto.
The Fault May Be Compared
In the Waller case the Court endorsed two factual situations in which such inequality exists. One of those situations is where there is evidence of imposition, oppression, duress, threats, undue influence or taking advantage of the necessities or 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 those of the others.
Where a party has entered into a transaction 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 financial difficulties, 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 and the court rebuked him, saying that the party stood in pari delicto and no relief would be provided.
In a fraud case 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 information. If a party has received information 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 with a transaction and then claim to have been defrauded. Harris v. Dunham, 203 Va. 760, 768-769 (1962). In this latter case a business purchaser made partial investigation of the business but did not follow through and 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 prudence to protect himself. 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 equitable relief. Barry v. Commonwealth, 280 Va. 572, 580 (2010).
For more information about fraud see the pages on Wikipedia