Legal Definitions - constructive fraud

Constructive fraud is a type of breach of duty in contract law where a third party relies on material misrepresentations made by another party. Unlike standard fraud, constructive fraud does not require intent to deceive. However, it can still lead to nonperformance and unjust enrichment claims.

Under contract law, a defendant can be held liable for constructive fraud if:

• They made a false misrepresentation about a material fact
• The misrepresentation was made to induce the other party to rely on it
• The other party justifiably relied on the misrepresentation
• The reliance resulted in damages or injury
• There was a fiduciary relationship between the parties

For example, if a car dealer fails to disclose a mandatory arbitration clause in a car purchase contract, it can be considered constructive fraud because the dealer had a duty to disclose that information to the buyer. This breach of duty can lead to damages or injury for the buyer.

Overall, constructive fraud is a type of breach of duty that can lead to legal consequences even if there was no intent to deceive. It is important for parties in a contract to be truthful and disclose all material information to avoid potential legal issues.