FRAUD

fraud,n.1. A knowing misrepresentation of the truth or concealment of a material fact to

induce another to act to his or her detriment. • Fraud is usu. a tort, but in some cases (esp. when

the conduct is willful) it may be a crime. — Also termed intentional fraud. [Cases: Fraud 1, 3,

16.] 2. A misrepresentation made recklessly without belief in its truth to induce another person to

act. [Cases: Fraud 31.] 3. A tort arising from a knowing misrepresentation, concealment of

material fact, or reckless misrepresentation made to induce another to act to his or her detriment.

[Cases: Fraud 13(3).] 4. Unconscionable dealing; esp., in contract law, the unfair use of the

power arising out of the parties’ relative positions and resulting in an unconscionable bargain.

[Cases: Contracts 1. C.J.S. Contracts §§ 2–3, 9, 12.] — fraudulent,adj.

“[T]he use of the term fraud has been wider and less precise in the chancery than in the

common-law courts. This followed necessarily from the remedies which they respectively

administered. Common law gave damages for a wrong, and was compelled to define with care the

wrong which furnished a cause of action. Equity refused specific performance of a contract, or set

aside a transaction, or gave compensation where one party had acted unfairly by the other. Thus

‘fraud’ at common law is a false statement … : fraud in equity has often been used as meaning

unconscientious dealing — ‘although, I think, unfortunately,’ a great equity lawyer has said.”

William R. Anson, Principles of the Law of Contract 263 (Arthur L. Corbin ed., 3d Am. ed. 1919).

actual fraud.A concealment or false representation through a statement or conduct that injures

another who relies on it in acting. — Also termed fraud in fact; positive fraud; moral fraud. [Cases:

Fraud 3.]

bank fraud.The criminal offense of knowingly executing, or attempting to execute, a scheme

or artifice to defraud a financial institution, or to obtain property owned by or under the control of

a financial institution, by means of false or fraudulent pretenses, representations, or promises. 18

USCA § 1344. [Cases: Banks and Banking 509.10, 509.25. C.J.S. Banks and Banking §§ 687,

746, 749–754, 756–757, 769–783.]

bankruptcy fraud.A fraudulent act connected to a bankruptcy case; esp., any of several

proscribed acts performed knowingly and fraudulently in a bankruptcy case, such as concealing

assets or destroying, withholding, or falsifying documents in an effort to defeat bankruptcy-code

provisions. See 18 USCA § 152. — Also termed criminal bankruptcy; bankruptcy crime.

civil fraud. 1.FRAUD(3).2.Tax. An intentional — but not willful — evasion of taxes. • The

distinction between an intentional (i.e., civil) and willful (i.e., criminal) fraud is not always clear,

but civil fraud carries only a monetary, noncriminal penalty. Cf. criminal fraud; TAX EVASION.

[Cases: Internal Revenue 5218; Taxation 1103. C.J.S. Internal Revenue § 825; Taxation §

1782.]

common-law fraud.See promissory fraud.

constructive fraud. 1. Unintentional deception or misrepresentation that causes injury to

another. — Also termed legal fraud; fraud in contemplation of law; equitable fraud; fraud in equity.

2.See fraud in law. [Cases: Fraud 5.]

“In equity law the term fraud has a wider sense, and includes all acts, omissions, or

concealments by which one person obtains an advantage against conscience over another, or

which equity or public policy forbids as being to another’s prejudice; as acts in violation of trust

and confidence. This is often called constructive, legal, or equitable fraud, or fraud in equity.”

Encyclopedia of Criminology 175 (Vernon C. Branham & Samuel B. Kutash eds., 1949), s.v.

“Fraud.”

criminal fraud.Fraud that has been made illegal by statute and that subjects the offender to

criminal penalties such as fines and imprisonment. • An example is the willful evasion of taxes

accomplished by filing a fraudulent tax return. Cf. civil fraud; larceny by trick under LARCENY.

[Cases: Internal Revenue 5263.20; Taxation 1103. C.J.S. Internal Revenue §§ 851–852;

Taxation § 1782.]

election fraud.See ELECTION FRAUD.

equitable fraud.See constructive fraud (1).

extrinsic fraud. 1. Deception that is collateral to the issues being considered in the case;

intentional misrepresentation or deceptive behavior outside the transaction itself (whether a

contract or a lawsuit), depriving one party of informed consent or full participation. • For example,

a person might engage in extrinsic fraud by convincing a litigant not to hire counsel or answer by

dishonestly saying the matter will not be pursued. — Also termed collateral fraud. 2. Deception

that prevents a person from knowing about or asserting certain rights. [Cases: Judgment 375,

443(1). C.J.S. Judgments § 309.]

fraud in contemplation of law.See constructive fraud (1).

fraud in equity.See constructive fraud (1).

fraud in fact.See actual fraud.

fraud in law.Fraud that is presumed under the circumstances, as when a debtor transfers

assets and thereby impairs creditors’ efforts to collect sums due. — Also termed constructive

fraud.

fraud in the execution.See fraud in the factum.

fraud in the factum.Fraud occurring when a legal instrument as actually executed differs from

the one intended for execution by the person who executes it, or when the instrument may have

had no legal existence. • Compared to fraud in the inducement, fraud in the factum occurs only

rarely, as when a blind person signs a mortgage when misleadingly told that it is just a letter. —

Also termed fraud in the execution; fraud in the making. Cf. fraud in the inducement. [Cases:

Contracts 94(1). C.J.S. Contracts §§ 136, 139–140, 156–160, 170–171, 173–174.]

fraud in the inducement.Fraud occurring when a misrepresentation leads another to enter into

a transaction with a false impression of the risks, duties, or obligations involved; an intentional

misrepresentation of a material risk or duty reasonably relied on, thereby injuring the other party

without vitiating the contract itself, esp. about a fact relating to value. — Also termed fraud in the

procurement. Cf. fraud in the factum. [Cases: Contracts 94(1); Fraud 3, 24. C.J.S. Contracts §§

136, 139–140, 156–160, 170–171, 173–174.]

fraud in the making.See fraud in the factum.

fraud in the procurement.See fraud in the inducement.

fraud on the community.Family law.In a community-property state, the deliberate hiding or

fraudulent transfer of community assets before a divorce or death for the purpose of preventing the

other spouse from claiming a half-interest ownership in the property.

fraud on the court.In a judicial proceeding, a lawyer’s or party’s misconduct so serious that it

undermines or is intended to undermine the integrity of the proceeding. • Examples are bribery of

a juror and introduction of fabricated evidence. [Cases: Federal Civil Procedure 2654; Judgment

372, 440. C.J.S. Judgments §§ 309, 319, 331, 465.]

fraud on the market. 1. Fraud occurring when an issuer of securities gives out misinformation

that affects the market price of stock, the result being that people who buy or sell are effectively

misled even though they did not rely on the statement itself or anything derived from it other than

the market price. [Cases: Securities Regulation 60.25. C.J.S. Securities Regulation §§ 214,

226–227.] 2. The securities-law claim based on such fraud. See FRAUD-ON-THE-MARKET

PRINCIPLE.

fraud on the Patent Office.Patents. A defense in a patent-infringement action, attacking the

validity of the patent on the grounds that the patentee gave the examiner false or misleading

information or withheld relevant information that the examiner would have considered important

in considering patentability. • The scope of prohibited acts is wider than that covered by

common-law fraud, and today the defense is generally called “inequitable conduct before the

PTO.” If the defense is established, the entire patent is rendered unenforceable. See defense of

inequitable conduct under DEFENSE(1). [Cases: Patents 97. C.J.S. Patents §§ 135–138, 145,

178.]

hidden fraud.See fraudulent concealment under CONCEALMENT.

insurance fraud.Fraud committed against an insurer, as when an insured lies on a policy

application or fabricates a claim.

intrinsic fraud.Deception that pertains to an issue involved in an original action. • Examples

include the use of fabricated evidence, a false return of service, perjured testimony, and false

receipts or other commercial documents. [Cases: Judgment 373, 441. C.J.S. Judgments §§ 319,

331, 465, 471.]

legal fraud.See constructive fraud (1).

long-firm fraud.The act of obtaining goods or money on credit by falsely posing as an

established business and having no intent to pay for the goods or repay the loan.

mail fraud.An act of fraud using the U.S. Postal Service, as in making false representations

through the mail to obtain an economic advantage. 18 USCA §§ 1341–1347. [Cases: Postal

Service 35. C.J.S. Postal Service and Offenses Against Postal Laws § 23.]

moral fraud.See actual fraud.

positive fraud.See actual fraud.

promissory fraud.A promise to perform made when the promisor had no intention of

performing the promise. — Also termed common-law fraud. [Cases: Fraud 12.]

tax fraud.See TAX EVASION.

wire fraud.An act of fraud using electronic communications, as by making false

representations on the telephone to obtain money. • The federal Wire Fraud Act provides that any

artifice to defraud by means of wire or other electronic communications (such as radio or

television) in foreign or interstate commerce is a crime. 18 USCA § 1343. [Cases:

Telecommunications 362.][Blacks Law 8th]