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What Is Common Law Fraud?

Terry Masters
Terry Masters

Common law fraud is the intentional misrepresentation of material facts presented to and relied upon by another party to his detriment. It is the version of fraud that has been established through the traditional application of English common law by local courts for hundreds of years. The crime of fraud has since been codified in various jurisdictions, but lawyers often allege common law fraud in addition to the applicable statutory fraud as an alternative position in case the elements of statutory fraud prove harder to establish.

Statutory fraud is defined by the legal code in the jurisdiction where the crime took place. The statute lists the specific components of the crime that must be present in order for the defendant to be found guilty, such as intent and reliance. Crimes based on English common law, however, lack that sort of dispositive definition because the crime is based on tradition in courts that were not necessarily uniform in the way they operated. For example, the U.S. Supreme Court identified the elements of common law fraud in the form of a test that should be applied to the circumstances surrounding a case. State-level courts in the U.S. are bound by precedent to use the same framework when evaluating this type of fraud, but each court may articulate the test differently.

Woman with hand on her hip
Woman with hand on her hip

There are generally five elements of the crime of common law fraud that must exist in order for a court to find a defendant guilty. As an initial matter, the defendant must have made a false representation of a present or past fact. Deceit is the basis of fraud, so whatever the defendant used to entice the victim’s reliance must have been an actual lie. It cannot have been information that is or was true, which was then used by the defendant for nefarious purposes.

Second, the defendant must have known the information used was false or intentionally maintained ignorance of the truth. Third, the defendant must have intended for the victim to rely on the misrepresentation in order to induce the victim to act. The fourth element concerns the mental state of the victim. He must have actually been induced to rely on the representation and acted upon it. There is no crime if the misrepresentation did not cause a change in the victim’s behavior, or if the victim did not act at all.

One of the most important elements of the crime of common law fraud is actual damages. A victim must have been detrimentally impacted by the intentional misrepresentation. If the victim is simply angry or upset, or if the damage experienced was negligible, the defendant cannot be found guilty of this version of the crime.

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