Key Takeaways

  • The key difference in defraud vs fraud lies in their usage: "fraud" is generally a noun referring to the act or person, while "defraud" is a verb describing the action of deceiving for gain.
  • Fraud typically involves intentional misrepresentation or concealment of material facts that cause harm or loss to another party.
  • To prove fraud, the plaintiff must establish intentional deception, reliance on the misrepresentation, and resulting damages.
  • "Defraud" is commonly used in legal language to describe the act of deceiving someone to gain money, property, or other advantages unlawfully.
  • Both criminal and civil penalties can apply to fraud and acts intended to defraud, with criminal charges often requiring proof of intent to deceive.
  • Types of fraud include actual, constructive, positive, negative, motivational, and incidental fraud, each with specific legal implications.
  • The materiality of the misrepresentation and the existence of damages are critical elements in legal cases involving fraud or defraud.

The term "fraud" is generally defined in the law as an intentional misrepresentation of material existing fact made by one person to another with knowledge of its falsity and for the purpose of inducing the other person to act. The other person relies on this misrepresented material with resulting injury or damage.

Fraud may also include an omission or intentional failure to state material facts, knowledge of which would be necessary to make other statements not misleading.

What Is Misrepresentation?

To make a "misrepresentation" simply means to state as a fact something which is false or untrue. To make a material "omission" is to omit or withhold the statement of a fact, knowledge of which is necessary to make other statements not misleading.

There are several qualifications for a misrepresentation to constitute fraud:

  • A misrepresentation must be false (or an omission must make other statements misleading), and it must be material in the sense that it relates to a matter of some importance or significance rather than a minor or trivial detail.
  • A misrepresentation (or omission) must also relate to an existing fact. Ordinarily, a promise to do something in the future does not relate to an existing fact and cannot be the basis of a claim for fraud unless the person who made the promise did so without any present intent to perform it or with a positive intent not to perform it. Similarly, a mere expression of opinion does not relate to an existing fact and cannot be the basis of a claim of fraud unless the person stating the opinion has exclusive or superior knowledge of existing facts which are inconsistent with such opinion.
  • A misrepresentation (or omission) must be made knowingly and intentionally, not as a result of mistake or accident; that is, that the person either knew or should have known of the falsity of the misrepresentation (or the false effect of the omission), or that he made the misrepresentation (or omission) in negligent disregard of its truth or falsity.

Proving Fraud in Court

The Plaintiff must prove that the Defendant intended for the Plaintiff to rely upon the misrepresentation (and/or omission); that the Plaintiff did in fact rely upon the misrepresentation (and/or omission); and that the Plaintiff suffered injury or damage as a result of the fraud.

In some cases (depending on the specifics of the case and the law), when it is shown that a Defendant made a material misrepresentation (and/or omission) with the intention that the Plaintiff rely upon it, then, under the law, the Plaintiff may rely upon the truth of the representation, even though its falsity could have been discovered had he made an investigation, unless he knows the representation to be false or its falsity is obvious to him.

In other cases, when it is shown that a Defendant made a material misrepresentation (and/or omission) with the intention that the Plaintiff rely upon it, the Plaintiff must prove that his reliance was justified. If, in the exercise of reasonable care for the protection of his own interests, the Plaintiff could have learned the truth of the matter by making a reasonable inquiry or investigation under the circumstances presented, but failed to do so, then it cannot be said that he justifiably relied upon such misrepresentations (and/or omissions).

For injury or damage to be the result of fraud, it must be shown that, except for the fraud, the injury or damage would not have occurred.

What Is Material?

The word "material" means that the subject matter of the statement (or concealment) related to a fact or circumstance which would be important to the decision to be made as distinguished from an insignificant, trivial or unimportant detail. For example, for insurance fraud to be material, an assertion (or concealment) must relate to a fact or circumstance that would affect the liability of an insurer (if made during an investigation of the loss), or would affect the decision to issue the policy, or the amount of coverage or the premium (if made in the application for the policy).

What Is Torts?

Torts is unlawfully, designedly, and knowingly appropriating the property of another without criminal intent. For example:

  1. Every appropriation of the right of property of another is not fraud. It must be unlawful; that is to say, such an appropriation as is not permitted by law. Property loaned may, during the time of the loan, be appropriated to the use of the borrower. This is not fraud, because it is permitted by law.
  2. The appropriation must be not only unlawful, but it must be made with a knowledge that the property belongs to another and with a design to deprive him of the same. It is unlawful to take the property of another; but if it be done with a design of preserving it for the owners or if it be taken by mistake, it is not done designedly or knowingly and, therefore, does not come within the definition of fraud.
  3. Every species of unlawful appropriation, not made with a criminal intent, enters into this definition, when designedly made, with a knowledge that the property is another's; therefore, such an appropriation, intended either for the use of another or for the benefit of the offender himself, is comprehended by the term.
  4. Fraud, however immoral or illegal, is not in itself a crime or offense for want of a criminal intent. It only becomes such in the cases provided by law.

Torts in a Contract

Torts in a contract is any trick or artifice employed by one person to induce another to fall into an error or to detain him in it, so that he may make an agreement contrary to his interest. The fraud may consist either, first, in the misrepresentation or, secondly, in the concealment of a material fact. Fraud, force, and vexation are odious in law. Fraud gives no action; however, without damage and in matters of contract, it is merely a defense and cannot in any case constitute a new contract.

Fraud avoids a contract, ab initio, both at law and in equity, whether the object be to deceive the public, third persons, or one party endeavor thereby to cheat the other.

Types of Fraud

The following is an enumeration of frauds for which equity will grant relief:

  1. Dolus Malus, which may be actual, arising from facts and circumstances of imposition. It's the simplest kind of fraud.
  2. Fraud which may be presumed from the circumstances and condition of the parties contracting.
  3. Fraud which may be collected and inferred in the consideration of a court of equity, from the nature and circumstances of the transaction, as being an imposition and deceit on other persons, not parties to the fraudulent agreement.
  4. Fraud in what are called catching bargains, with heirs, reversioners, or expectants on the life of the parents. This last seems to fall under one or more of the preceding divisions.

Frauds may be also divided into actual or positive and constructive frauds.

Actual Fraud

An actual or positive fraud is the intentional and successful employment of any cunning, deception, or artifice used to circumvent, cheat, or deceive another.

Constructive Fraud

Constructive fraud is a contract or act, which, though not originating in any actual evil design or contrivance, still deceives or misleads a person, violates private or public confidence, or impairs or injures the public interests. This type of fraud is deemed equally reprehensible with positive fraud and therefore is prohibited by law, as within the same reason and mischief as contracts and acts done malo animo.

Constructive frauds are such as are either against public policy; in violation of some special confidence or trust; operate substantially as a fraud upon the private rights, interests, duties, or intentions of third persons; or unconscientiously compromise or injuriously affect the private interests, rights, or duties of the parties themselves.

Positive vs. Negative Fraud

The civilians divide frauds into positive, which consists of doing one's self or causing another to do such things, or negative, which consists of doing or dissimulating certain things to induce the opposite party into error or to retain him there. The intention to deceive, which is the characteristic of fraud, is here present.

Motivational Fraud vs. Accidental Fraud

Fraud is also divided into that which has induced the contract and incidental or accidental fraud. The former is that which has been the cause or determining motive of the contract, without which the party defrauded would not have contracted.

Incidental or accidental fraud is that by which a person, is deceived on some accessories or incidents of a contract. An example of this might be misleading the person on the quality of the object of the contract or its price so that he has made a bad bargain. Accidental fraud does not, according to the civilians, avoid the contract, but simply subjects the party to damages.

Legal Definitions and Examples of Defraud

To defraud someone means to use intentional deception or trickery to obtain money, property, or other benefits from another party. Common legal examples include:

  • Falsifying documents to obtain a loan
  • Misrepresenting the value of an asset during a sale
  • Withholding material facts in an insurance claim
  • Engaging in financial schemes such as Ponzi schemes

The term "defraud" appears in both civil and criminal law. For example, criminal statutes often penalize individuals who “knowingly and willfully defraud” another, which requires proof of intent to deceive. In civil law, defrauding someone may form the basis for a lawsuit seeking damages or restitution.

Common Types of Defrauding Schemes

Defrauding schemes can take various forms, including but not limited to:

  • Wire fraud: Using electronic communications to execute fraudulent schemes.
  • Mail fraud: Employing postal services to carry out deception.
  • Bank fraud: Illegally obtaining assets or money from a financial institution.
  • Securities fraud: Deceiving investors or manipulating financial markets.
  • Tax fraud: Deliberately falsifying information to reduce tax liability.

Each of these types involves a specific method of deception with the intent to defraud individuals, businesses, or the government. The penalties for defrauding are often severe, especially in criminal cases.

Fraud vs. Defraud in Everyday and Legal Language

While "fraud" can also refer to a person ("he is a fraud"), "defraud" is strictly an action ("she tried to defraud the bank"). In criminal indictments, the language often centers on the intent "to defraud," as in “conspiracy to defraud the United States.” Understanding this distinction helps clarify the specific nature of the accusation or claim being made.

Legal Consequences for Fraud and Defraud

Legal consequences for fraud and defrauding can include:

  • Civil penalties: Such as compensatory damages, punitive damages, and restitution orders to make the injured party whole.
  • Criminal penalties: Fines, imprisonment, probation, and forfeiture of assets.
  • Reputational damage: Individuals or businesses found liable for fraud or defrauding may suffer lasting harm to their reputations and future opportunities.

In both civil and criminal contexts, proving the intent to deceive is often essential for a successful claim or prosecution. The severity of the punishment typically depends on the scale and impact of the fraudulent activity, as well as whether it involved vulnerable victims or significant financial harm.

Statutory Use of "To Defraud"

Many laws use the phrase "to defraud" when describing offenses that require an intent to deceive as an essential element. For example, federal statutes on wire fraud and mail fraud require the prosecution to prove that the defendant intended “to defraud” another person or entity. The statutory language emphasizes both the conduct (deception) and the objective (to obtain something of value unlawfully).

When reviewing legal documents or statutes, pay close attention to the use of "defraud" versus "fraud," as this may affect the interpretation of the law and the elements the prosecution or plaintiff must prove in court.

Defraud vs Fraud: Understanding the Distinction

The terms "fraud" and "defraud" are often used interchangeably in everyday conversation, but they have distinct meanings in legal contexts. Fraud is a noun that refers to the act or the person committing deceit for personal gain. In contrast, defraud is a verb that describes the act of deliberately deceiving another person to secure an unfair or unlawful advantage.

  • Fraud: Generally refers to a wrongful or criminal deception intended to result in financial or personal gain. It encompasses a wide range of deceptive practices, from false representations to concealment of important facts.
  • Defraud: Means to actively engage in an act designed to deceive or cheat another party. It is used in statutes and criminal law to describe conduct aimed at obtaining property, money, or services from someone else through deceitful means.

In legal proceedings, you might see charges for “attempting to defraud” (an action) and allegations that someone “committed fraud” (a result or status). Understanding the distinction is crucial, as "defraud" focuses on the action, while "fraud" focuses on the occurrence or condition.

Frequently Asked Questions

1. What is the main difference between fraud and defraud?

Fraud is a noun that refers to the act or condition of deception, while defraud is a verb meaning to commit the act of deception for personal gain.

2. Can you be charged with both fraud and defrauding?

Yes. A person may face civil or criminal penalties for both the act of fraud and the specific action of defrauding another, depending on the facts of the case and applicable statutes.

3. What must be proven in court to establish fraud or defraud?

To establish fraud or defraud, a plaintiff or prosecutor must generally prove intentional misrepresentation or concealment of material facts, reliance by the victim, and resulting damages.

4. Are the penalties different for fraud and defraud?

The penalties are usually related but depend on whether the conduct is charged as a civil wrong (tort), a criminal offense, or both. Severe cases of defrauding may lead to criminal prosecution, imprisonment, and substantial fines.

5. Is an omission of fact considered fraud or defraud?

Yes, if the omission involves withholding material information with the intent to deceive or mislead, it can qualify as fraud or an attempt to defraud under the law.

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