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Good Faith as a Defense to Fraud Charge

Cite this article as: Jason Mance Gordon, "Good Faith as a Defense to Fraud Charge," in The Business Professor, updated January 5, 2015, last accessed April 8, 2020, https://thebusinessprofessor.com/knowledge-base/good-faith-as-a-defense-to-fraud-charge/.
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Good Faith Defense to Fraud
This video explains the Good Faith Defense to a charge of criminal fraud.

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How does “Good Faith” affect fraud?

Fraud requires knowing and willful conduct carried out with the intent to defraud someone. As such, good faith in one’s actions is a defense to the allegations. The defense is that the defendant acted in good faith and did not have the necessary intent to defraud anyone. It does not matter that a person’s statement or belief is wrong, there is no action for fraud unless intent is deceive is present. Further, an individual’s lack of due care in making a statement is not relevant in determining fraud.

Discussion: How do you feel about the mental intent requirement for a charge of fraud? Do you think a person should be able to escape a criminal fraud charge if she is reckless in her actions? What if she recognizes that her assertions are extremely unlikely, but she leads a customer or client to believe that the unlikely result is reasonably certain?

Discuss Input

  • Some might argue that fraud and misrepresentation are one in the same. Misrepresentation has the same elements as fraud, without the element of knowingly deceiving another. A mistake of fact would constitute misrepresentation. Even recklessness, which is a conscious disregard of the probability of a negative result from one’s actions, might be a defense against fraud. Actively understanding risk and misrepresenting a lower level of risk may still constitute fraud.

Practice Question: Mitchell owns a baseball card of Mickey Mantle. He believes that the card is an original rookie card. He offers to sell the card to Amy for $1,500. Amy buys the card. No long afterward, she has the card inspected and learns that it is simply a reproduction of the original card and is not worth any money. She is angry at Mitchell and asks your opinion on whether she should report the incident to the police. Has Mitchell committed fraud? Why or why not?

Proposed Answer

Academic Research

Fincham, Derek, Towards a Rigorous Standard for the Good Faith Acquisition of Antiquities (August 14, 2009). Syracuse Journal of International Law and Commerce, Vol. 37, Issue 1 . Available at SSRN: https://ssrn.com/abstract=1350649 or http://dx.doi.org/10.2139/ssrn.1350649

Schill, Stephan W. and Bray, Heather L, Good Faith Limitations on Protected Investments and Corporate Structuring (March 13, 2017). in Andrew D. Mitchell, M. Sornarajah and Tania Voon (eds.), Good Faith and International Economic Law (Oxford: Oxford University Press, 2015) 88-116; Amsterdam Law School Research Paper No. 2017-16; Amsterdam Center for International Law No. 2017-13. Available at SSRN: https://ssrn.com/abstract=2932140

Fox, Irina, Minimizing the Risk of Fraudulent Transfer Avoidance: A Good-Faith Solvency Opinion as the Shield to Protect a Leveraged Transaction (July 19, 2016). Available at SSRN: https://ssrn.com/abstract=2811703

Podgor, Ellen S., A New Corporate World Mandates a Good Faith Affirmative Defense (2007). American Criminal Law Review, Vol. 44, No. 4, 2007. Available at SSRN: https://ssrn.com/abstract=1100845

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