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What is Fraud?

There are numerous types of fraud, both civil and criminal. This article focuses on civil fraud in North Carolina.

Legal Definition of Fraud

(1) False representation or concealment of a material fact that is

(2) Reasonably calculated to deceive (i.e., inviting you to rely on it), and

(3) That is made with intent to deceive someone, and

(4) That does deceive someone, and

(5) That results in damage to the injured party.

What Does All That Mean?

When a person says something to someone, or conceals something from someone, it must be about a material fact in order to be fraud. In legal terms, a material fact means the misrepresentation must be something important enough for two people to reach an agreement about, or for the victim to take some other action of consequence based on it.  The act must be intentional and done in a knowingly (i.e., calculated) deceptive manner, inviting the other person to rely on it.  Furthermore, the person who is the victim of a fraud must actually be deceived. In other words, if someone figures out the misrepresentation before taking action upon it, there is no fraud in a civil case, although there might be criminal consequences if an attempted fraud took place. Another requirement to prove fraud is that the victim has some damage (i.e., a bad result).  Damages in legal terms means the victim has lost money, his or her rights were violated, or he or she suffered some other loss for which he or she should receive financial compensation.

Types of Fraud 

There are two types of fraud in civil cases, actual fraud and constructive fraud.  Actual fraud is the most common type of fraud.  It occurs when there is no legal duty owed to the victim, who could be a stranger for example. Constructive fraud occurs when the person committing the fraud has some legal duty to the victim. In those cases, the victim has a special relationship with the person who committed the fraud, and has to prove fewer things. Constructive fraud means the law constructs (i.e., pretends there are already) two of the five requirements necessary to prove fraud, making it much easier to prove fraud.

Special Relationships (Easier to Prove Fraud)

Proving constructive fraud only requires three things because there is a special relationship, called a fiduciary relationship, between the people. This includes many types of special relationships, such as husband and wife, doctor and patient, or someone acting for another person by means of a signed power of attorney. In these cases, the act must be reasonably calculated to deceive the other person, and actually deceive him or her, resulting in damage.

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