Fraud vs. Lying: What's the Legal Difference?

"Fraud" and "liar" are both ugly names, but only one will land you on the defense side of a civil lawsuit.

At some point, telling lies goes from being a poor decision to a violation of the law. But there are lots of circumstances in which it's not a legal problem, just a personal one. Knowing when lying becomes fraud is important, if only so you can avoid crossing the line.

It's not a complicated rule to figure out, but that doesn't make it easy to apply. Let's start by breaking down the definition of "fraud."

A fraud is an intentionally false representation made with the intent to mislead the listener, and that the listener relied on "to her detriment."

The first part means that fraud must involve an intentional lie. If you truly believe you're telling the truth and end up being wrong, that doesn't qualify.

That doesn't excuse willful denial or ignorance of the truth. If you should have known the truth or could easily have discovered it before telling the lie, it could still be a problem.

The second part is about the liar's intention. A lie that you don't mean anyone to take seriously, such as a joke or hyperbole, wouldn't constitute fraud.

When it comes to proving intent for fraud, courts often look at what the liar could gain if someone believes the lie. If the liar benefits from someone believing and acting on the lie, that tends to show intent.

The legal analysis will also rely on context. A lie while you're trying to sell your house is more likely to result in a lawsuit than a lie told over drinks at a bar. Those are obvious examples, but there are many situations in between where the line isn't so easy to see.

The third element is whether the lie actually caused harm.

If the listener believed the lie, acted as if it were true, and suffered some kind of injury because of that belief, then there may be some liability for fraud.

Injury can mean actual physical harm or financial loss. In general, emotional "pain" isn't enough to build a case for fraud.

While fraud could potentially apply anywhere, it's most commonly brought up in the area of contracts when one party lies about an important part of the agreement.

In general, anything other than a white lie (like how nice your spouse looks) should be avoided. Remember, a lie runs the risk of becoming fraud if you expect the listener to act on the lie. Keeping it honest isn't just a good personal policy; it's a sound legal strategy too.

Related Resources:

• Lying on a Resume or Job Application (FindLaw)
• Credit Suisse Fraud: Two Traders Plead Guilty to Fraud (The New York Criminal Law Blog)
• Flo Rida Caught Lying to Judge, Must Pay Fine (FindLaw's Celebrity Justice)
• Avoiding Online Fraud: Six Tips from an Expert (FindLaw's Common Law)