Understanding Constructive Fraud in California

Many civil claims arise out of fraud because fraud can cause substantial monetary loss and because fraud occurs far too frequently in business transactions. However, if a plaintiff is to be successful in a typical fraud claim, intent to deceive is generally required. Proving intent to deceive can sometimes be difficult. 

Constructive fraud is a legal concept that could create grounds for a claim for damages when a person or business was deceived, even without proof of deceptive intent on the part of a defendant (which is required for actual fraud).

What is Constructive Fraud?

Constructive fraud occurs:

• If there is an act, an omission or a concealment of facts.
• If the act, omission, or concealment of facts is in violation of some type of obligation, such as a fiduciary duty, a legal duty, an equitable duty, or any other relationship of trust.
• If the plaintiff is damaged as a result of the act, omission or concealment of facts.

There is no requirement for any intentional deception in this type of claim. The person or company who acts, fails to act, or conceals facts does not need to intend to be deceptive or misleading. Constructive fraud occurs even when conduct isn’t otherwise considered to be fraudulent, as long as some type of duty is breached in a way that causes damage.

If a person or company sustains damages as a result of constructive fraud, that individual or business can pursue a claim in civil court in order to recover damages. Proving that damages occurred as a direct result of the act, omission, or misrepresentation by the person or business with the legal duty should be sufficient to recover compensation for the loss incurred.

Examples of Constructive Fraud

Examples of constructive fraud could include:

• A real estate broker who inaccurately tells clients who intend to subdivide a property that subdivision is possible with confirming that it subdivision is, in fact, permitted. (Salahutdin v. Valley of California, Inc.)
• A real estate broker who provides misleading or false statements about the income that a property will produce while knowing that the potential buyer is primarily interested in purchasing the property specifically in order to generate income and while knowing that the buyer is relying on the broker’s statement of the income produced in order to make a purchasing decision. (Ford v. Cournale)
• An insurance adjuster who falsely tells an insured policy holder that a claim for damages is not covered by an insurance policy, if the insurance adjuster has not actually determined that the claim is in fact not covered under the terms of the insurance that the policyholder has purchased to provide protection from loss. (Bock v. Hansen)

These are just a few of many possible examples of situations where a breach of duty could be classified as constructive fraud and could give rise to a civil case. It is up to the plaintiff who pursues a case based on constructive fraud to provide sufficient proof that a duty or obligation was owed; that the obligation was breached by an act, omission or concealment; and that damages occurred as a result of the breach.

Getting Help from California Business Trial Lawyers

The trial lawyers at Brown & Charbonneau, LLP can help you to determine if constructive fraud occurred and can help you to determine if you can pursue a claim for compensation for damages on the basis of this type of fraud. Contact Brown & Charbonneau, LLP today to find out how our legal team can help you.  Call 714-406-4397 or email inquiries@bc-llp.com