Assorted Defenses To A Fraud Claim

[In Progress]

By Ethan Watts

Actionable Fraud

The elements of fraud are: (1) a misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (or scienter); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage. Lazar v. Superior Court (1996) 12 Cal. 4th 631, 638. A plaintiff must establish each one of these elements to prevail on a cause of action for fraud.

Predictions about future events, or statements about future action by some third party, are deemed opinions, and not actionable fraud. Zeh v. Alameda Community Hotel Corp. (1932) 122 Cal. App. 366, 368; Borba v. Thomas (1977) 70 Cal. App. 3d 144, 152; 5 Witkin, Summary of Cal. Law (10th ed.) Torts, § 774, p. 1124.

Justifiable Reliance

To prevail on a fraud cause of action, a plaintiff must show not only actual reliance, but justifiable reliance; i.e., that the circumstances were such as to make it reasonable for the plaintiff to accept the defendant’s statements without an independent inquiry or investigation. Kahn v. Lischner (1954) 128 Cal. App. 2d 480, 489 (stating that “if the conduct of the complaining party in the light of his own intelligence and information, or ready availability of information, was manifestly unreasonable, he will be denied a recovery.”). “[W]hether a party's reliance was justified may be decided as a matter of law if reasonable minds can come to only one conclusion based on the facts.” Alliance Mortgage Co. v. Rothwell (1995) 10 Cal. 4th 1226, 1239; see also Hadland v. NN Investors Life Ins. Co. (1994) 24 Cal. App. 4th 1578, 1586.

“[C]laims of misrepresentation over the content of a document are not easily abused and will rarely be successful because the defrauded party cannot normally complain of unfamiliarity with the language of the document and must show he or she reasonably relied on the misrepresentations.” Pacific State Bank v. Greene (2003) 110 Cal. App. 4th 375, 379; see also Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal. 4th 394, 419-423; Hinesley v. Oakshade Town Center (2005) 135 Cal. App. 4th 289, 303.

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The above discussion is intended to be a general commentary on legal issues. Each situation is different and this article is not intended as legal advice. Further, nothing in this article is intended to create an attorney-client relationship.