Chapter 1-5 Statutory Fraud

• Jurisdiction: United States

1-5 Statutory Fraud

1-5:1 Overview

Statutory fraud is specific to fraud in real estate and stock transactions,¹⁴⁴ with essentially all except one of the same elements as common-law fraud (excluding the requirement that the defendant's knowledge of falsity or recklessness must be proven).¹⁴⁵ Statutory fraud allows recovery of the same actual damages as common-law fraud¹⁴⁶ but with the additional ability to also recover attorney fees and other litigation fees.¹⁴⁷

1-5:1.1 Related Causes of Action

Common Law Fraud, Fraud by Non-Disclosure, Uniform Fraudulent Transfer Act (UFTA), Negligent Misrepresentation, DTPA, Breach of Fiduciary Duty, Breach of Contract

1-5:2 Elements

(1) There was a transaction involving real estate or stock in a corporation or joint stock company.¹⁴⁸

• A transaction occurs if there is either a sale or a contract to sell real estate or stock.¹⁴⁹

(2) During the transaction, the defendant either:

• (1) made a false representation of past or existing material fact, and (2) for the purpose of inducing the person to enter into a contract;¹⁵⁰ or
• (1) made a false promise to do an act which was material, (2) made with the intention of not fulfilling it, and (3) for the purpose of inducing the person to enter into a contract;¹⁵¹ or
• (1) had actual awareness of the falsity of a representation or promise made by another person, (2) failed to disclose the falsity of the representation or promise to the person defrauded, and (3) benefitted from the false representation or promise.¹⁵²

(3) The plaintiff relied on the false representation or promise in entering into the contract.¹⁵³

• Reliance is a necessary element of a statutory fraud claim, and a disclaimer of reliance can conclusively negate an allegation of reliance.¹⁵⁴

(4) Actual damages to the plaintiff from the false representation or promise.¹⁵⁵

1-5:3 Damages and Remedies

1-5:3.1 Actual Damages

The same damages recoverable for common law fraud are recoverable for statutory fraud, with the addition of attorney's fees and other litigation fees.¹⁵⁶

1-5:3.1a Benefit-of-the-Bargain

Benefit-of-the-bargain damages are recoverable for statutory fraud.¹⁵⁷

1-5:3.1b Out-of-Pocket

Out-of-pocket damages, the difference between the value paid and the value received, are recoverable for statutory fraud.¹⁵⁸

1-5:3.2 Exemplary Damages

Exemplary damages are recoverable.¹⁵⁹ See Chapter 11, Section 11-2. The plaintiff must prove the defendant's actual awareness by clear and convincing evidence.¹⁶⁰

1-5:3.3 Rescission and Reformation

The equitable remedies of rescission or reformation of contracts obtained through fraud are available.¹⁶¹ See Chapter 8, Sections 8-4 and 8-5.

1-5:3.4 Specific Performance

Specific performance is available in lieu of actual damages as a remedy for statutory fraud in real estate transactions.¹⁶² See Chapter 8, Section 8-6.

1-5:3.5 Attorney's Fees

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