What is fraud? What is misrepresentation? Many people think they have been defrauded when they have not, and many people don’t know that they have been defrauded when they actually have been.
In Alabama, fraud is statutorily defined and interpreted by case law. The statute is as follows:
Fraud – Misrepresentations of material facts.
Misrepresentations of a material fact made willfully to deceive, or recklessly without knowledge, and acted on by the opposite party, or if made by mistake and innocently and acted on by the opposite party, constitute legal fraud.
(Code 1907, §4298; Code 1923, §8049; Code 1940, T. 7, §108.)
As you can see, fraud can be made by mistake and innocently, but if you rely on the mistaken misrepresentation, it constitutes fraud. In addition, silence can constitute fraud:
Suppression of material facts.
Suppression of a material fact which the party is under an obligation to communicate constitutes fraud. The obligation to communicate may arise from the confidential relations of the parties or from the particular circumstances of the case.
(Code 1907, §4299; Code 1923, §8050; Code 1940, T. 7, §109.)
Of course, the issue in these cases centers around what constitutes "material". Typically, this can arise when there is a fiduciary relationship between the parties.
There are numerous elements to fraud. Not only does one have to prove that there was misrepresentation of a material fact, but you have to show some form of reliance. In other words, you have to rely on the misrepresentation and act to your detriment. Then, you must show that you have been damaged in some form or fashion.
How does this work? Well, I have a case right now where my clients purchased a home. The contract showed that the home was on a sewer. The seller and agent checked the box showing that it was on a sewer. They didn’t know that it wasn’t on a sewer, but they represented, in writing, that it was on a sewer. My clients bought the house. After a year, the clients find out that the home was not on a sewer or septic system. It was tied to an underground well. They had to pay a plumber to come out and connect the home to the sewer lines.
In this case, the seller misrepresented that the home was on a sewer system (even though it was innocent, and they didn’t know). My client relied on the representation and bought the house at a certain price (they wouldn’t have paid the same amount if they had known there was no sewer or septic system). They were damaged in that they had to pay to have the line dug up and connected to the sewer. That is a fraud and misrepresentation claim in Alabama.