Section 15 Direct Fraud

• Library: Remedies 2006

Direct fraud requires proof of nine elements:

1. A representation
2. Its falsity
3. Its materiality
4. The speaker’s knowledge of the falsity or ignorance of the truth
5. The speaker’s intent that the statement should be acted on by the other party in a manner reasonably contemplated
6. The hearer’s ignorance of the falsity
7. The hearer’s reliance on the representation as true
8. The hearer’s right to rely on the representation
9. Injury to the hearer that was proximately caused by the speaker’s representation

Emerick v. Mut. Benefit Life Ins. Co., 756 S.W.2d 513 (Mo. banc 1988); Heberer v. Shell Oil Co., 744 S.W.2d 441 (Mo. banc 1988). This chapter focuses on the elements of the speaker’s intent and the representation as they relate to rescission and cancellation.

Aside from being the difference between direct and constructive fraud, intent has been an area of significant controversy
within the province of direct fraud cases. Proving the intent
to defraud can be very difficult, and courts have allowed litigants to make a case of direct fraud by using circumstantial evidence to create an inference of the requisite intent. In the past, courts have used the so-called “indicia” or “badges of fraud” as circumstantial evidence to find the requisite intent to defraud. See Blakeley v. Bradley, 281 S.W.2d 835 (Mo. 1955); Chesus v. Watts, 967 S.W.2d 97 (Mo. App. W.D. 1998). Some examples of this circumstantial evidence include:

• fictitious consideration in whole or in part
• false statements as to the consideration
• a transaction that differs from the usual method of doing business
• transfers in anticipation of suit or execution; and
• withholding conveyances from public record

See Blakeley, 281 S.W.2d at 839; Bank of New Cambria v. Briggs, 236 S.W.2d 289, 291 (Mo. 1951); Castorina v. Herrmann, 104 S.W.2d 297, 302 (Mo. 1937); Hendrix v. Goldman, 92 S.W.2d 733, 736 (Mo. 1936). It should be noted that the cases require more than one indicia or badge of fraud before an inference of intent to defraud may be drawn. Blakeley, 281 S.W.2d at 839. And circumstantial evidence of fraud must rise above mere suspicion, surmise, or speculation. In re Estate of Hayes, 658 S.W.2d 956, 959 (Mo. App. S.D. 1983). Moreover, care should also be taken when reading older cases that use language describing a “presumption” of fraud. See State ex rel. State Highway Comm’n v. Jacobs, 281 S.W.2d 597, 600 (Mo. App. E.D. 1955). Except for the circumstances set out in §14.17 below, fraud is never presumed. Schneider...