Constructive Fraud

Elements

• Constructive fraud is the breach of some legal or equitable duty which, irrespective of moral guilt, the law declares fraudulent because of its tendency to deceive others or to violate confidence.
• Constructive fraud is characterized by a breach of duty arising out of a fiduciary or confidential relationship.
• A "confidential or fiduciary relationship" exists when one reposes a special confidence in another so that the latter, in equity and good conscience, is bound to act in good faith and with due regard to the interests of the one reposing the confidence.

Long v. Towne, 98 Nev. 11, 13, 639 P.2d 528, 529-30 (Nev. 1982).

Example Cases

Executive Mgmt. v. Ticor Title Ins. Co., 114 Nev. 823, 963 P. 2d 465 (Nev. 1998).

Proof

Damages

Defenses

Misc

• Fiduciary duty not necessary for constructive fraud - Can have "confidencial relationship" instead

In its reply brief, Executive seems to concede the point that there is no fiduciary relationship between a buyer and seller of real property, but maintains that the absence of such a relationship is not fatal to its cause of action for constructive fraud. We agree and conclude that although Executive's breach of fiduciary duty claim will not lie against Palmall/Shipkey, there are factual questions concerning the issue of "special confidence" yet to be resolved, and thus a claim for constructive fraud may be viable. SeeMullen, 643 N.E.2d at 401 (holding that existence of a fiduciary relationship is not the only basis for a claim of constructive fraud and that such a claim may arise between buyers and sellers). Accordingly, we affirm that portion of the district court's judgment dismissing Executive's breach of fiduciary duty claim against Palmall/Shipkey, but we reverse the dismissal of all remaining claims against Palmall/Shipkey and remand this case for further proceedings thereon.

Executive Mgmt. v. Ticor Title Ins. Co., 114 Nev. 823, 841, 963 P. 2d 465, 477 (Nev. 1998).

• Examples of confidential relationships

Persuasive authority suggests that a confidential relationship may arise by reason of kinship or professional, business, or social relationships between the parties. See **338 In re Guardianship of Chandos, 18 Ariz.App. 583, 585, 504 P.2d 524, 526 (1972). Such a relationship "exists when one party gains the confidence of the other and purports to act or advise with the other's interests in mind; it may exist although there is no fiduciary relationship; it is particularly likely to exist when there is a family relationship or one of friendship." Kudokas v. Balkus, 26 Cal.App.3d 744, 103 Cal.Rptr. 318, 321 (1972). When a confidential relationship exists, the person in whom the special trust is placed owes a duty to the other party similar to the duty of a fiduciary, requiring the person to act in good faith and with due regard to the interests of the other party. See Hamberg v. Barsky, 355 Pa. 462, 50 A.2d 345, 347 (1947). We conclude that the record contains ample evidence of the existence and breach of just such a relationship between Perry and Jordan.
Perry v. Jordan, 111 Nev. 943, 900 P.2d 335 (Nev. 1995).

• Mere trust does not create a confidential relationship

The mere fact that one reposes trust and confidence in another does not create a confidential relationship. In the majority of business dealings, opposite parties have trust and confidence in each other's integrity, but there is no confidential relationship by this alone.
Yerington Ford, Inc. v. General Motors Acceptance Corp., 359 F.Supp.2d 1075, 1092 (D. Nev. 2004), reversed on other grounds byGiles v. General Motors Acceptance Corp., 494 F.3d 865 (9th Cir. (Nev.) 2007).