Constructive fraud is an umbrella term for a type of fraud that involves an a person’s deceptive actions, either intentionally or unintentionally, that is not only damaging to another person but is also able to be established through circumstantial evidence. This form of fraud is particularly relevant to business professionals and it is important to be aware of the implications it can have.
What Are the Three Types of Constructive Fraud?
Constructive fraud, also known as “fraud by mistake”, can be broken down into three distinct categories: fraud in the execution, fraud in the inducement, and transaction avoidance. Fraud in the execution occurs when an individual or business knowingly or unknowingly issues an incomplete or inaccurate piece of information in order to induce another party to make a decision based on that incomplete or inaccurate information. Fraud in the inducement describes when another party offers misleading, false, or incomplete information in an effort to get another individual or business to enter into a contract that does not benefit them. Transaction avoidance involves a person or business’s intentional inaction in order to take advantage of the other party’s weakened position.
Examples of Constructive Fraud in the Modern Age
One example of constructive fraud in the modern age is the practice of “bait and switch”. This involves sellers competing for business by using false advertising in order to attract customers into a store. Once customers have arrived, they are then subjected to false promises or pricing and pushed into making purchases that are outside of their budget.
Another example of constructive fraud is the practice of employers making false promises when it comes to the terms and conditions of employment. This often involves employers making statements about promotions, wages, or benefits which are never fulfilled. This type of deceptive tactic would be considered a form of fraud by mistake.
What Should Business Professionals Keep in Mind?
Constructive fraud is a serious issue and one that should not be taken lightly. It is important for business professionals to understand the implications of this type of fraud and take steps to ensure that they are not unknowingly engaging in activities that could result in legal ramifications. Specifically, businesses should avoid making promises or statements that they cannot or do not intend to keep, as well as be aware of potential forms of deceptive tactics that could be used against them. It is also important to be vigilant in monitoring one’s own behaviour and to report any suspicions.
Conclusion
Constructive fraud is a serious legal issue for business professionals. It is important to be aware of the potential forms that it can take, such as “bait and switch” and false promises, in order to avoid engaging in activities that could result in legal ramifications. Taking the proper precautions and staying vigilant are the most important steps that businesses can take when it comes to protecting themselves against this type of fraud.