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Constructive Fraud

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What Is Constructive Fraud?

Constructive Fraud is any conduct that is treated as fraud under the law because it violates public interests. These can include: violations of fiduciary duties; violations of public/private trust; or the application of undue influence. Constructive fraud can be found even if the defendant did not intend to deceive the plaintiff, and even if they weren’t aware of a factual error. 

In contrast, normal or “actual” fraud requires a showing that the defendant intentionally deceived the plaintiff through misrepresentation or deceit. In a normal fraud claim, the defendant must intentionally misrepresent material facts for the purpose of inducing the other party to act. The defendant must have knowledge that the facts are untrue.

In most constructive fraud cases a special relationship must exist between the parties in order for constructive fraud to be found (i.e., confidential, fiduciary, etc.). It is common for plaintiffs to cite the parties’ relationship as a foundation for proof if the normal elements of fraud cannot be met.   

What Are Some Examples of Constructive Fraud?

Some examples of constructive fraud include:

  • Not disclosing product defects to consumers
  • Completing a transaction for considerably less than fair market values, especially if the plaintiff is in a distressed economic situation
  • Continuing trading where business normally should have ceased, causing the plaintiff to suffer losses

Thus, many constructive fraud claims have more to do with the underlying financial circumstances of the parties, rather than one party’s intent to deceive. Constructive fraud claims are common in lawsuits involving contract fraud, insurance fraud, securities fraud, and consumer fraud.   

What Are Some Legal Consequences of Constructive Fraud?

Consequences for constructive fraud are largely the same as those for actual fraud. These can include:

  • Criminal Charges (possibly felony charges depending on the circumstances)
  • Fines
  • Imprisonment
  • Repayment based on losses

In most cases, the plaintiff may be allowed to recover any property that was wrongfully transferred on account of the constructive fraud. If the property cannot be recovered physically, the plaintiff can receive the monetary value of the property lost. 

How Can a Lawyer Help If I Have Issues With Constructive Fraud?

If you feel that you have been the subject of constructive fraud, you may need the assistance of a lawyer. The experience of a qualified attorney may be necessary, since constructive fraud does not involve any obvious, intentional deceit on the part of the defendant. Hiring a lawyer can help ensure that you are reimbursed for any losses you may have suffered on account of constructive fraud. Alternatively, if you are facing criminal charges of fraud, it is advisable to speak with a criminal defense attorney in order to properly defend yourself.

Photo of page author Adam Vukovic

, LegalMatch Legal Writer

Last Modified: 12-26-2014 02:58 PM PST

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