What Kind of Representations Will Support a Fraud Claim?

Common law fraud requires a representation of a fact and the falsity of that representation. Future promises generally do not support a fraud claim. This issue was discussed by the Arizona Supreme Court in Staheli v. Kauffman, 595 P.2d 172, 122 Ariz. 380 (1979).

Staheli involved an indefinite promise to arrange a partnership to manage a cattle ranch. Kauffman owned a cattle ranch in Arizona, and contacted Staheli to ask if he would like to manage it. After several conversations, Staheli believed that he and Kaufmann had agreed that he would be paid wages for his work, but that there would also be a partnership arrangement.

Further details were discussed when Staheli arrived in Arizona. He stated that Kauffman promised to place money in a trust fund, and the money could be drawn upon after six months, and that the money could be used to purchase a portion of the ranch. Kaufmann later wrote a letter stating that he would write up a draft of a trust agreement that could lead to a partnership.

Kauffman ultimately backed out of his plans to offer Staheli a partnership. The trust account was never set up, and Kauffman stated that he would have to sell a portion of the ranch to cover operating expenses. Staheli brought suit for breach of contract and fraud.

A Future Promise is Not a Representation That Supports Fraud

The court noted that representation must relate to either a past or existing fact in order to support a claim for fraud. An unfulfilled promise would not give rise to a fraud claim unless it was made with the present intention not to perform.

In this case, Kauffman merely made a promise to perform in the future. This is not the kind of representation that can be shown to be true or false at the time it was made. This rule distinguishes between a claim for a breach of contract, which is often based on the failure to keep a promise to perform in the future, and fraud, which cannot be based on such a representation.

A fraudulent representation must be false at the time it is made. If not, a claim of fraud will not be viable and other potential claims must be considered.

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