Fraud

Builders and Contractors Exchange
Weekly Bulletin: 26 apr 2010

Fraud
By: Edward E. "Ned" Nicholas, III

Actual fraud is an intentional misstatement of a material fact that the victim relies on to his detriment. A plaintiff has to prove each element to prevail on an actual fraud claim. So if the plaintiff shows that the defendant made the intentional misstatement but the evidence shows that the plaintiff (knowing better) did not rely on the statement or (not knowing better) relied on the statement but was not damaged by the reliance, there will be no recovery.

Actual fraud can be “fraud in the inducement.” This is when the misstatement is made before a contract is executed and the misstatement caused the victim to enter into the contract. Such misstatements can include false representations about experience or capacity to perform. Upon proof of such a claim, the contract may be rescinded (cancelled).

Constructive fraud is actual fraud with the intentional element removed. The plaintiff still must prove that the statement was false, but not that the defendant knew it was false. Proof of constructive fraud may also lead to cancelling a contract.

Breaking a promise can be fraud, but only if the maker of the promise intended to break the promise when making the promise. This is usually hard to prove.

In Virginia, making a misrepresentation during the performance of a contract is often not fraud. For example, in one case a general contractor falsely stated in an affidavit of payment and certificate of substantial completion that it had constructed the project as designed. In fact, the contractor had left our steel tendons from certain conduit and failed to inject grout into the conduits. Even worse, the contractor injected grout into the end of the conduits so that it appeared that the required grout had been provided. Nevertheless, the Supreme Court of Virginia held that the contractor’s actions were breaches of its contractual obligations and, therefore, could not support a fraud claim.