noun | \frȯd\
An intentional perversion of truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or to surrender a legal right. A false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations, or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury…
Black’s Law Dictionary, 6th Ed. (1992).
Fraud can be hard to define. Even the good editors of Black’s Law Dictionary have a hard time with it. But you know it when you see it. When you have been defrauded.
So how do you get a fraud case to court?
In Alabama, there are 4 elements to a fraud case – elements you have to prove in order to win.
- Misrepresentation. In other words, a lie. They told you something that was false. Keep in mind that the statement must be demonstrably false at the time it was said. A false promise of future conduct is not fraud. It may be breach of contract, but it isn’t fraud.
So if a merchant says “I will sell you this autographed 1995 Ozzie Smith baseball card for $50,” and the baseball card is not actually autographed by Ozzie Smith, then it is fraud. However, if he says “If you pay me $50, I will get Ozzie Smith to autograph this baseball card for you,” and he takes the money and never gets that autograph, then he has not defrauded you. He just breached his agreement.
- Of a material fact. The false statement has to be about something important.
Example: the card dealer says “I’ll sell you this signed Ozzie Smith baseball card for $50 and put it in this blue envelope for safekeeping.” And he sells it to you for the agreed price, but the envelope is a red, equally safe envelope, then it is not fraud. The color of the envelope was not part of the basis of the bargain. You pay for the baseball card, not the color.
- Reliance. You acted in reliance upon the false statement. Basically, the deception had to have caused you to act. In other words: if you had been told the truth, would you have acted any differently? If not, then there is no fraud.
Example: The card dealer says “This baseball card has been autographed by Ozzie Smith.” But your wife is a handwriting expert intimately familiar with the handwriting of Ozzie Smith. She tells you “No, that’s not a real autograph.” You buy the card anyway. There is no fraud, because you did not rely on the dealer’s false statement. You knew he was lying.
Reliance is the trickiest part of a fraud case, and it is the one area where fraudulent businesses most often get off the hook. Why? Because in Alabama, it isn’t enough to show that you relied on a false statement. You have to show that your reliance was reasonable. In other words, in relying on the false statement, were you applying common sense? But Alabama law goes farther than that. Our courts have decided that if there is a written contract that does state the truth, then you have a duty to read the contract. If the the dealer promises on his mother’s grave that the card is autographed, but the contract says in fine print “None of the baseball cards we sell are autographed,” then your reliance on the dealer’s statements will be deemed unreasonable, and the dealer is off the hook. Even though he is a liar, cheat, scoundrel, and blasphemer, you won’t get any money out of him. This is why businesses love fine print. Because they have paid a lot of money to elect judges who uphold the illusion that everyone who has purchased anything in the past 50 years has no children and no job, and and spends all day reading and deciphering fine print.
- Damages. The fraud has cost you something. It may be money. It may be time. It may be a a 20% off coupon at a local oil change shop. But whatever it is, you have to prove not only that someone lied to you, but that your reliance upon their lies has cost you something.
Example: You’re at a baseball card shop, and you see a 1995 Ozzie Smith card with a signature on it. The label says “Price: $5. Not a real autograph.” The card dealer says “That’s not really his autograph. It’s a forgery.” You buy the card, and when you take it home, your wife (the handwriting expert) looks at it and confirms that it is, actually a genuine Ozzie Smith autograph. The dealer told you a lie. About a very important aspect of any baseball card. You paid $5 in reliance upon that lie. So there’s a misrepresentation of material fact, with reasonable reliance on your part. But there is still no fraud, because you have not been damaged. You paid $5 for a card that is worth at least $50.
Now in real life, most people know when they’ve been screwed. When people call my office after learning that they have been cheated, there usually is no question that they were told a lie, and that they’ve been damaged by it. Otherwise they wouldn’t be calling me. The real challenge for a lawyer is proving that reliance was reasonable and that damages were attributable to the false statements.
But fortunately, we are up to that challenge, and we have more weapons in our arsenal than just fraud. Deceitful statements in commercials or print ads could be false advertising. Incorrect statements in lending documents could violate the Truth in Lending Act. And false, deceptive, or misleading statements by debt collectors are prohibited by the Fair Debt Collection Practices Act.