Fraudulent Misrepresentation

All Lies May Not Be Frauds

There are several kinds of fraud.  For example, there’s concealment.  That’s when you know something the other guy doesn’t know, and you should tell him about it because he can’t find out for himself, but you don’t tell him because you want to trick him into doing something.  For example, concealment may be tempting when you sell your house.  The buyer can’t see the crack in the pool because you hid the crack with a good temporary patch and a good paint job, and it’s a slow leak.  You tricked him successfully, and he buys the house.

Concealment, Actual Fraud, Fraudulent Misrepresentation, Innocent Misrepresentation & Opinion

If you’d told him you’d only patched the crack temporarily, he would not have bought the house.  When the patch fails six months later, the next door neighbor tells your buyer how you bragged about screwing him.  It costs the buyer $25,000 to repair the crack properly.  He accuses you of lying, and sues you for the money.  He wins.

Then there’s something called actual fraud.  This is closer than concealment to what people usually think of as “lying.”  Here you didn’t do the temporary patch and paint all that well, the buyer notices the patched crack and asks you if there anything wrong with the pool.  You say, “Heavens, no!  We had it fixed last fall by a licensed pool contractor.” This what is known as fraudulent misrepresentation.

This time you’ve made a statement instead of keeping your mouth shut, it’s a statement of fact, and you knew it wasn’t true.  Again you wanted to trick him into buying your house, and he does.  When the crack opens up six months later, he finds out from the neighbors that you didn’t get the crack fixed by a licensed contractor.  He accuses you of lying, and heads for the courthouse.  He wins again.

Here comes a curveball, something that looks a lot like actual fraud but isn’t.  The curveball is called innocent misrepresentation.  Here you did have the crack fixed last fall by a licensed contractor, he looked competent, and you trusted him.  In fact the contractor did little more than cosmetic repairs with inferior materials.  Your buyer can see evidence of the repairs.  He asks you if there’s anything wrong with the pool.  You say, “We had it fixed last fall by a licensed pool contractor.”  He buys the house, calls you a liar and six months later you’re in trial.  This time he loses.  Why?  You made a statement of fact and it was false, buy you believed it was true, and you didn’t say it to trick him.

Here’s another curveball.  You patch the crack and congratulate yourself on the great job you did.  The pool stops leaking.  Despite your great job, the buyer notices the crack, and asks you if anything’s wrong with the pool.  You say, “It developed a crack and started to leak.  I think I did a great job fixing it myself, and I think it’s fixed for good.”  He buys the house, calls you a liar, and sues you, but he loses again.  Why?  You didn’t make a false statement of fact.  Instead you stated an opinion.  Your opinion was all wet (so to speak), but legally the buyer can’t rely on an opinion.  And although you stated your opinion to get him to buy the house, you didn’t intend to trick him.

If you look in the dictionary, you’ll find that “lie” is defined in multiple ways that are consistent with the legal definitions of concealment, actual fraud, fraudulent misrepresentation, innocent misrepresentation, and opinion.  Webster may think the last two are lies, but they won’t get you into legal trouble.

Stanley D. Prowse is a Civil Litigation Attorney practicing in the greater San Diego area.