13.4.8 Justifiable Reliance.

• Jurisdiction: Arizona

13.4.8 Justifiable Reliance. The eighth element of actionable fraud is that the party charging fraud by misrepresentation must show that they had a right to rely on such representation as being true.⁷⁹ Succinctly put, “it must appear from the facts alleged as also from the proof that the one charging fraudulent misrepresentation not only relied upon such representation but had a right to.”⁸⁰ “Whether a complaining party had a right to rely on the representations as true or not cannot be determined by an affirmative allegation to that effect”; it must be determined from facts alleged in the complaint and shown by competent evidence.⁸¹

Assuming the party claiming fraud can show an actionable representation, the court will look to examine the nature of the parties’ relationship and the recipient’s conduct to determine whether reliance was justified in the context of the case. The Arizona Supreme Court has stated, “[w]here parties deal at arm’s length and are on equal terms, one who has failed to avail himself of knowledge readily within his reach cannot claim the right to rely upon representations which he could have discovered to be false by the use of such knowledge.”⁸² This is not to say that a party has to undertake an extensive investigation into the truthfulness of a representation; rather, it is only required to act as a reasonable person would act in a similar situation.⁸³ This general principle was clearly reflected in the case of Law v. Sidney.⁸⁴

In Law, the defendant told plaintiff he would put up a bond to secure her investment in defendant’s company.⁸⁵ She subsequently invested without investigating whether such bond had in fact been put up by the defendant.⁸⁶ In assuming that the defendant made a promise to do something with the intent not to perform (which was not reflected in the record but assumed for the purpose of the analysis), the court held that the plaintiff had no right to rely upon the defendant’s representation because the parties were dealing at arm’s length and the information (i.e. whether the bond was put up) was readily available to her.⁸⁷ In reversing the verdict, the court noted:

we are of the opinion that when the representation was made to [plaintiff] that before she invested her money a bond guaranteeing its return would be placed in a bank in the same city where she resided that, as a reasonable person, it was her duty before investing her money to see if such bond had been deposited . . .⁸⁸

Yet, the converse may also be...