Fraud, in the legal sense, may be defined as deceit which causes injury to another. Active misrepresentation usually amounts to fraud; but a certain latitude is tacitly permitted to persons puffing their own goods, or exaggerating their own resources and credit. Concealment of the truth amounts to fraud if the party who withholds information is under a legal duty to disclose what he knows. A person purchasing an estate is not bound in law to inform the owner of its advantages; he may have discovered a mine of which the owner knows nothing, but he may conceal his discovery without being guilty of fraud. There are certain cases in which the rules are applied with special rigour. The party deceiving may be in a fiduciary position. A solicitor dealing with his client; a director dealing with a person applying for shares; a man of business dealing with a person who trusts to him and can make no inquiries—all these are plainly under a special duty to state the facts fairly. The party deceived may be incapable of protecting himself;—e.g. transactions with infants or with persons of weak mind must be strictly scrutinised. Again, the transaction itself may be one uberrimæ fidei, in which the law requires perfect good faith. A person insuring a ship, for example, is bound to tell whatever he knows of the condition and situation of the ship. It is to be observed that fraudulent intention is not a necessary element in fraud. A prospectus which omits to notice a contract entered into by promoters of a company is none the less fraudulent because the omission is accidental. A gift of property may be set aside as a fraud on creditors, although the donor made it in the full belief that he was perfectly solvent. The general effect of fraud is to render void the contract or disposition of property induced by it, or to give the party injured a right of action for damages or restitution. Even marriage may be treated as nullity on this ground, if the fraud be such as to exclude the notion of true consent. The principles set forth above are, in substance, common to the laws of all civilised nations.
Fraud is an element in theft, embezzlement, personation, and many other crimes. The offence of obtaining goods or money by false pretences was not indictable by the English common law; it was made punishable by acts passed in 1542 and 1757, the provisions of which were consolidated and amended by the 24 and 25 Vict. chap. 96, which prescribes five years' penal servitude as the maximum punishment. Every person who fraudulently represents as an existing fact that which is not a fact, and so obtains money or money's worth, commits an offence within the act. The false pretence must relate to some present fact, and therefore a promise merely to do some act is not such a false representation as will sustain a conviction. It is not necessary that the deception should be by words or writing, but any act tending to deceive will bring a person within the statute. Thus, a man at Oxford wearing a cap and gown, in order to induce a tradesman of whom he ordered goods to believe that he was a member of the university, was properly convicted. The deception practised, however, must not be simply as to the quality of an article, for this is regarded as merely a dishonest trick of trade, and not criminally punishable. It is also necessary that the owner should be deceived by the pretence; and where a tradesman is induced to part with goods to a regular customer making a false statement, not on account of the statement, but from his belief in the credit of the party, the transaction is not punishable under the act. It is no bar to a conviction that the crime on being proved amounts to larceny, nor is it necessary to prove an intent to defraud any particular person; the obtaining delivery of money, &c. to another person for the benefit of the party using the deception, and also the obtaining signature to, or destruction of, a valuable security, &c. by a false representation subject the offender to punishment. The same statute provides that a person attempting to extort money by threatening to accuse another of certain felonies, or of an infamous crime, is liable to penal servitude for life (see THREAT).—Long Firm is the name given to a company of swindlers who pretend to be established in business at a particular place, order goods to be sent to them as such, and decamp without payment to resume the system elsewhere. The
Statute of Frauds, frequently referred to, was passed in 1677.
In Scotland this offence is known as Falsehood, Fraud, and Wilful Imposition. Each species of the offence which in England is punishable under the statute is in Scotland indictable at common law. Thus, false personation, as where a man in the assumed character of an exciseman received money as a composition for smuggled goods, has been held to warrant a conviction of falsehood. So, also, where the deception consists in fictitious appearances; as where a man by fitting his shop with false bales induced another to trust him with goods. Obtaining money by begging-letters and the common practice of ring-dropping fall under this denomination of crime.
In the United States, to constitute the offence known as False Pretences, it is not necessary that the loss occasioned be of a public nature. It consists of a false representation as to some fact existing in the past or present, made with the intent to defraud, by which representation a party is induced to part with something of value to him, generally money, goods, or merchandise. The offence may be committed by a false representation of the nature, quality, or quantity of the goods, or by a false personation, or a false representation of the capacity in which one assumes to transact business; also by the use of false marks or brands, or fictitious or worthless writings, or the false reading of a deed of conveyance to an illiterate person, or by a warranty consisting of a positive false statement of a material latent fact by which a party is induced to purchase. It differs from larceny in that the property is obtained with the consent of the owner, and the false pretence must be the operative cause of the transfer. It is usually a misdemeanour, but the grade of the offence, as also the punishment therefor, is governed by statutes of the several different states. It is recognised as an offence by act of congress, known as the Bankrupt Act (Rev. Stat. 3732), but congress has no power to define what shall constitute the offence within a state. The money or goods obtained on false pretence may also be recovered by civil action.
See Hunter's Roman Law; Pollock, On Contracts; May, On Fraudulent Conveyances; Hasting, The Law of Fraud and Misrepresentation (1888); M. M. Bigelow, Law of Fraud on its Civil Side (Boston, 1888).