Elements of Fraud in Texas

What is Common Law Fraud?

When looking at fraud while regarding common law, three components are necessary to prove the fraud: a party made a false statement while knowing it was false with intent to bamboozle the opposing party, potentially hurting business, a second party unaware of the falsity of the statements being spoken who either acts or doesn’t act according to the information given, and damages suffered as a result of the actions (or lack thereof) of the suffering party.


What Establishes Intent to Deceive?

To establish that there was an intent to deceive in a fraud case some form of evidence must come forward that establishes that the promise was made with intent to delude with no desire to do the tasks set forward in the agreements made at the time of the promises being made.


What is the Difference Between Fraud and Breach of Contract?

Simply, fraud occurs when a party makes purposeful, false, damaging statements to a second party, who, after hearing and believing the false statements, either acts or fails to act based on the assumptions made after hearing the information. It is difficult to prove that the statements were made purposefully, with the will of the speaker being to hurt the opposing party, so usually evidence is needed to solidify intent.

A breach of contract, however, is slightly different. A breach of contract only requires that there be an existing contract, which the plaintiff abides by, while the defendant breaches, and the hereby suffered damages. In breach of contracts, the defendant’s intent is irrelevant; what counts is whether they actually breached the terms of their contract with the plaintiff. The defendant also does not need to intend not to fulfill their promises in the contract when making it, if they breach the contract later.


Fraudulent Inducement Elements

Fraudulent inducement occurs when one purposefully makes false statements to another with intent for the other to believe them as true, and act on them, causing damages to themselves. The most common form of fraudulent inducement occurs just prior to signing a contract, if one party were to lie about what specifically was on the contract to make the other sign.

Fraud in the inducement is a specific kind of contract fraud. It entails that the defendant deluded the plaintiff into acting in the defendant’s interest, usually by tricking the plaintiff about the information in question and then the plaintiff going on to use the information which causes some sort of subsequent damages on themselves.

Fraud in the factum is a different type of contract fraud, which occurs when a defendant deceives the plaintiff about the actual facts that are on the contract. This could occur when an employer promises extra bonuses for performing more hours or working overtime, or if extra vacation time or a raise is promised and then never forthcoming. If promises to rise higher in the company were allotted as a reward for working hard and are never coming, that would be fraud in the factum.


How Long After Fraud Occurs can it be Reported?

Fraud’s statute of limitation is four years; this means that after four years of time passes, a legal claim will no longer mean anything, it will no longer be valid. The time begins the moment the plaintiff discovers the false statement and subsequent damages.


Establishing and Proving Damages in Fraud Cases

Several damages could arise in a claim of fraud; however, recoverable damages are limited only to damages caused by false statements. It must be proven that the damages were a direct result of the deceitful statements given from one party to another.

When establishing whether damages are fraudulent yet, consider whether the belief in false information is a significant factor in the damages suffered. Also, consider if the resulting damages would have been logically expected to occur given the misinformation.

There are a couple ways to establish causation regarding fraud to prove damages. Loss causation argues that when a party suffers damages that can be traced to fraud, even if the amount is not known that does not mean damages are not recoverable. Transactional causation offers an attempt to prove fraud by arguing that without the misinformation the party would have never committed or not committed an action and wouldn’t have suffered any loss.

Damages are typically limited to damages that are visible at the time of the given bad information. The losses typically need to be accompanied by damage to property or assets or physical self.

Proving damages in fraudulent inducement is usually very hard to do. The statements in question are required to be fact, such as a promised percentile raise. The belief and assumption both parties will follow through on the statements must be understood. It is very rare for these situations to have written fraud, therefore one must convince a judge or jury that an oral exchange occurred, and that false information was spread during the oral exchange which led to damages.


Types of Recoverable Damages

The most common form of recoverable damage for fraud are out-of-pocket damages, which are damages that are the expected and organic sustained by the plaintiff that exist due to a belief in misinformation provided by the defendant. This form of damage recovery, as the name suggests, only covers money lost due to the assumption of truth in the misinformation; it can only compensate what you pay “out-of-pocket”. This, however, does not account for what could have been gained if the misinformation had not been given. If, perhaps, a business does something that hinders their success for weeks and sustain a loss of potential customers, with only out-of-pocket damages, the business would not be able to recover the damages.

The second and less common form of damage which can be covered is known as benefit-of-the-bargain (BOB). This rule states that any party or individual that breaches a contract is required to pay the other party however much brings them to the financial standing they would have acquired if both parties had followed through with the contract. This means that while out-of-pocket damages can recover what you personally spent to try to recover, BOB can recoverable damages that were suffered in the form of potential lost business or simply business that was not acquired since a contract was not fulfilled.

Punitive damages can also be sought. These damages are sometimes awarded to further compensate the plaintiff and to punish the defendant further if the judge thinks they did something deserving. These damages are usually considered extra, and only given when a judge thinks the defendant needs additional punishment. Another distinguishing trait of breach of contracts is that they are not eligible to receive punitive damages. In breach of contract suits, the judge will not award extra damages to the plaintiff in an attempt to further punish the defendant.


What is Statutory Fraud?

Statutory fraud deals with real estate and stock exchange fraud. The rules that dictate statutory fraud are quite similar to those of the common law, with the only difference being that a plaintiff need not prove the defendant’s knowledge of a statement’s falsity or their lack of concern for the weight of their statements.

This type of fraud could occur if a real estate agent lied about the wellbeing of a house that was infested with termites, ants, roaches, mold, messed up piping, and peeling wallpaper, and the person trying to buy a house believed them without seeing the house and ended up buying it, causing them damages of thousands of dollars.