B. Elements Defined
Fraud must be shown by clear, cogent and convincing evidence, but rules concerning the admission of evidence are very liberal because of the difficulty of proving that the defendant knew that the representation was false and intended that the plaintiff rely on it.7 Standards for alleging and proving fraud are the same whether the claim of fraud is a cause of action or an affirmative defense.8
1. Representation Must Concern Existing Fact
To be actionable, the representation must be a statement or a set of actions9 which concerns an existing fact.10 Statements of opinion,11 predictions of future events,12 and broken promises13 do not amount to fraud. Statements of law, except where one deliberately takes advantage of the ignorance of others are also not examples of fraud.14
2. Falsity
A fraudulent act is characterized by dishonesty in fact, unfair dealing, or unlawful appropriation of another's property by design.15 Nondisclosure, or silence, becomes fraudulent when it is the duty of the party having knowledge of the facts to uncover them to the other.16 Absent such a duty, nondisclosure is not fraudulent.17 Deliberate concealment can also constitute misrepresentation.18
3. Materiality: Affected Decision
If an objective, reasonable person using the misrepresentation would have viewed the representation as sufficiently important and significant that it would have played a role in the decision to enter into a contractual relationship, the relationship may be deemed material.19 The representation need not be the sole cause of the transaction, it need only play a part in inducing the victim to transact.20
Gaskins v. S. Farm Bureau Cas. Ins. Co.,21 provides an example of the meaning of materiality. In Gaskins the plaintiffs alleged an insurer fraudulently induced them to sign a release of a claim. The court said the plaintiffs could not maintain an action against the insurer until they proved the materiality of the false representation, and to establish materiality they would have to demonstrate the insurer had an obligation to pay by alleging and proving the liability of the tortfeasor.
4. Knowledge of Falsity or Reckless Disregard of Truth: Standards
The plaintiff must show the defendant knew his or her statement was false.22 The knowledge of falsity extends to statements made in the reckless disregard of the truth.23 Reckless disregard exists where one makes a statement and knows that he lacks the knowledge necessary to be confident that the statement is true.24 An action for "constructive fraud," however, may lie where the defendant has not acted with knowing or reckless disregard of falsity but the other elements of fraud are present.25 Additionally, a plaintiff may recover for a defendant's conduct under the theory of negligent misrepresentation despite the absence of fraudulent conduct when circumstances exist indicating a duty to avoid mistake or a duty of due care.26 Also see fraudulent inducement.
5. Intent that the Representation Be Acted Upon: Privity Not Necessary
A defendant may be held liable for misrepresentations made to "the persons or class of persons whom he intends or has reason to expect to act or to refrain from action in reliance upon the fraudulent misrepresentation."27 The intent requirement may, therefore, be extended to parties who are not in privity.28
6. Hearer's Ignorance of Its Falsity
If the plaintiff knew that the misrepresentation was false, there is no cause of action because there could not have been any reliance on the truth of the statement.29 Similarly, where a person fails to read a written instrument, he or she cannot complain of fraud in the misrepresentation of the instrument's contents where the truth could have been determined by reading it.30
7. Hearer's Reliance of Its Truth
To recover for misrepresentation, the plaintiff must have relied on the misrepresentation.31 The two reliance elements — actual reliance, and right to rely — together make class actions problematic in fraud cases.32
8. Hearer's Right to Rely Thereon
A victim of fraud has a right to rely on a misrepresentation so long as his reliance is not reckless or grossly negligent.33 Legitimacy of reliance is a jury issue to be resolved in a case by case manner.34 Additionally, where the plaintiff would have undertaken the transaction regardless of whether the representation was true, then there is no reliance and, therefore, no cause of action for fraud.35 A plaintiff's action will not be found to have been "fraudulently induced" if the plaintiff was legally required to enter into the transaction.36
9. Consequent and Proximate Injury
There is no tort cause of action for a fraudulent statement unless the plaintiff is injured.37 The plaintiff must show the injury clearly,38 and the damages must not be excessively speculative.39 Plaintiff may recover punitive and actual damages where defendant acted in reckless or in conscious disregard of plaintiff's rights.40
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Notes:
[7] See, e.g., Allen-Parker Co. v. Lollis, 257 S.C. 266, 185 S.E.2d 739 (1971).
[8] Hansen v. DHL Laboratories, Inc., 319 S.C. 79, 450 S.E.2d 624 (Ct. App. 1994), aff'd, 319 S.C. 79, 459 S.E.2d 850 (1995). Other causes of action can involve fraud but are judged by different standards. For example, see Ball v. Canadian American Express Co., Inc., 314 S.C. 272, 442 S.E.2d 620 (Ct. App. 1994) (breach of contract accompanied by a fraudulent act is not simply a combination of a claim for breach of contract and a claim for fraud and has different elements), and Green v. Sparks, 232 S.C. 414, 102 S.E.2d 435 (1958) (even if there is no fraud in the factum, evidence may show fraud in the inducement if misrepresentation, concealment, coercion and duress are found).
[9] See, e.g., Carter v. Boyd Constr. Co., 255 S.C. 274, 279, 178 S.E.2d 536 (1971). See also Satcher v. Berry, 299 S.C. 381, 385 S.E.2d 41 (Ct. App. 1989).
[10] But see Turner v. Milliman, 392 S.C. 116, 708 S.E.2d 766 (S.C. 2011) (to be actionable statement must ordinarily relate to present or preexisting fact, and cannot be predicated on unfulfilled promises or statements as to future events, however, where someone promises to do certain thing having at that time no intention of keeping that agreement, fraudulent misrepresentation of fact occurs that is actionable; future promise is not fraudulent unless promise was part of general design or plan, existing at time, to induce party to enter into contract or act as he or she otherwise would not have acted, to his or her injury).
[11] See Fields v. Melrose Limited Partnership, 312 S.C. 102, 439 S.E.2d 283 (Ct. App. 1993) (where representations were mere "puffing" permitted by law and on their face not unfair trade practice); Gilbert v. Mid South Mach. Co., Inc., 267 S.C. 211, 227 S.E.2d 189 (1976); Hooters of Am. v. Phillips, 39 F. Supp. 2d 582 (D.S.C. 1998), aff'd, 173 F.3d 933 (4th Cir. 1999) (nonactionable opinion statements speaker believed to be true); Enhance-It, L.L.C. v. Am. Access Techs., Inc., 413 F. Supp. 2d 626 (D.S.C. 2006) (representation that product had been tested was representation of fact, not opinion, and if product had, in fact, not been tested, representing otherwise was false representation of pre-existing fact that could serve as basis for fraud cause of action).
[12] Bishop Logging Co. v. John Deere Industrial Equipment Co., 317 S.C. 520, 455 S.E.2d 183 (Ct. App. 1995); Whitman v. Seaboard Airline Ry., 107 S.C. 200, 92 S.E. 861 (1917). See also Brown v. Pearson, 326 S.C. 409, 483 S.E.2d 477 (Ct. App. 1997) (allegation that defendant fraudulently represented it would provide counseling to help plaintiffs in healing and recovery from sexual harassment and create a policy and procedure on sexual harassment no more than representations or promises of future action that could not be basis for a...
