Fraud Definition may give rise to an action of damages for deceit, or to a right to relief from, and rescission of, any contract to which it is attached. To sustain an action of deceit, there must be proof of fraud, and nothing short of that will suffice. Fraud is false representation has been made: (1) knowingly, or (2) without belief in its truth, or (3) recklessly, tailless whether it be true or false. Though the two latter aspects of fraud are treated as distinct cases, the third is really but an instance of the second, for one who makes a statement under such circumstance* can have no real belief in the truth of what he states.
To prevent a false statement being fraudulent then; must always he an honest belief in its truth; and this probably covers the whole ground, for one who knowingly alleges that which is false has obviously no such honest belief. Once fraud is proved, the motive of the person guilty of it is immaterial; it matters not that there was no intention to cheat or injure the person to whom the statement was made. But making n false statement through want of care falls far short of, and is a very different thing from fraud, and the same may be said of a false representation honestly believed though on insufficient grounds. If, therefore, there is fraud, it is actionable ; if there is no fraud, but merely carelessness, it is not.
The following were the facts in the well-known case of Derry v. Petk, which has finally established the law on this subject, as stated above- A special Act incorporating n tramway company provided that the carriages might be moved by animal power, and, with the consent of the Hoard of Trade, by steam power. The directors issued a prospectus containing a statement that by their special Act the company had the light to use steam power instead of horses. The plaintiff took shares on the faith of this statement. The Board of Trade afterwards refused their consent to the use of steam power and the company was wound up. The plaintiff having brought an action of deceit against the directors, founded upon the false statement, it was held by the House of Lords that the defendants were not liable, the statement as to steam power having been made by them in the honest belief that it was true.
Fraud may be said to vitiate everything. Where there is a delay in seeking relief against a transaction charged as fraudulent, that delay will only operate so a to prejudice the complaining party after he has knowledge, or full means of knowledge, of the circumstances alleged as constituting Fraud.
Examples of Real Fraud in Law
- Embezzlement: A company executive secretly transfers funds from the company’s account into their personal account without authorization, disguising the transactions to appear legitimate. This act of embezzlement constitutes real fraud as it involves intentional deceit and misappropriation of funds for personal gain.
- Fraudulent Misrepresentation: An individual knowingly provides false information about a product or service to induce another party to enter into a contract. For example, a car salesman misrepresents the mileage of a vehicle to make a sale. This deceitful act constitutes real fraud as it involves intentional deception with the aim of benefiting financially.
- Ponzi Schemes: A fraudulent investment scheme where returns are paid to earlier investors using the capital of newer investors, rather than legitimate profits. The organizers of Ponzi schemes knowingly deceive investors by presenting fake investment opportunities and promising high returns. This type of financial fraud constitutes real fraud as it involves intentional misrepresentation and deceit.
- Forgery: An individual alters a contract or document without permission in order to gain an advantage. For example, forging a signature on a financial document to secure a loan. This act of forgery constitutes real fraud as it involves intentional deceit and manipulation of legal documents for personal gain.