Duhaime's Law Dictionary


Equitable Fraud Definition:

Conduct which, having regard to some special relationship between the two parties concerned, is an unconscionable thing for the one to do towards the other.

Related Terms: Fraud, Misrepresentation, Unconscionable, Undue Influence

Equitable fraud, like many concepts issue from equity, appears to be fluid concepts difficult to pin down, but fundamental in the Chancery jurisprudence. Indeed, in Myers v Redmill, Justice Merrill of the Supreme Court of Alabama remarked that:

"Fraud is the basic fact that gives jurisdiction to the equity court."

And in Wright v McKinney:

"Fraud is a recognized subject of equity jurisdiction and there is no ground upon which the jurisdiction is so readily entertained and so freely exercised as that of fraud."

To some, the term equitable fraud is synonymous with the contract law doctrine of an unconscionable transaction.

Equitable fraud was defined by Justice Evershed in Kitchen v. Royal Air Force Association as:

"... conduct which, having regard to some special relationship between the two parties concerned, is an unconscionable thing for the one to do towards the other."

Relying on Kitchen v. Royal Air Force Association, Canada's Supreme Court used these words in Guerin v. The Queen:

"... there was a concealment amounting to equitable fraud. It was conduct which, having regard to some special relationship between the two parties concerned, is an unconscionable thing for the one to do towards the other...."

In Pitt & Anor v Holt & Anor, Justice Lloyd of the English & Wales Court of Appeal:

"The jurisdiction of equity to protect parties against fraud, undue influence, unconscionable bargains and related conduct including abuse of confidence is long established and well known. Equity does not limit fraud, in this context, to actual dishonesty such as would give rise to an action in deceit at common law. Equitable fraud takes account of any breach of the sort of obligation which is enforced by a court that from the beginning regarded itself as a court of conscience."

As to the width of the doctrine, in Moffat v Moffat, Justice Somers of New Zealand suggested that unconscionable bargain is but a "species" of equitable fraud:

"The species of equitable fraud comprehended by the label unconscionable bargain does not lend itself to exhaustive definition. But at least it is a necessary element that an equity be raised against the party receiving or retaining the bargain or advantage – that is to say that the receipt or retention is unconscientious. It will have that character if the other party to the transaction was under a disability or disadvantage sufficiently serious to make it unfair to allow it to stand in favour of one who knew or ought to have known of the condition."

In Foont-Freedenfeld, the Appellate Division of the Superior Court of New Jersey, referred to:

"... the principles of equitable fraud, sometime known as misrepresentation....

"Legal fraud or misrepresentation consists of a material representation of a presently existing or past fact, made with knowledge of its falsity, with the intention that the other party rely thereon, and he does so rely to his damage.

"In equitable fraud, the second element (knowledge) is not necessary, but the other four are essential. However, in an action in which plaintiff relies upon equitable fraud, the only relief that may be sought is equitable relief, such as rescission or reformation of an agreement, and not monetary damages only."

In Jewish Center of Sussex City, Justice Clifford of the Supreme Court of New Jersey noted the same distinction, referring to knowledge of the fraud as scienter:

"Every fraud in its most general and fundamental conception consists of the obtaining of an undue advantage by means of some act or omission that is unconscientious or a violation of good faith. Depending on the remedy sought, an action for fraud may be either legal or equitable in nature. In addition, fraud may be either actual or constructive. The distinguishing factor is the element of untruth between the parties required in the former but not in the latter. A misrepresentation amounting to actual legal fraud consists of a material representation of a presently existing or past fact, made with knowledge of its falsity and with the intention that the other party rely thereon, resulting in reliance by that party to his detriment.

"The elements of scienter, that is, knowledge of the falsity and an intention to obtain an undue advantage therefrom, are not essential if plaintiff seeks to prove that a misrepresentation constituted only equitable fraud. Thus, whatever would be fraudulent at law will be so in equity; but the equitable doctrine goes farther and includes instances of fraudulent misrepresentations which do not exist in the law.

"Plaintiff seeks only equitable remedies and therefore need meet only the lesser burden of proving equitable fraud. Consequently, scienter is not at issue."

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