In many circumstances, telling a lie does not create a legal problem, just a personal one. But at some point, telling a lie moves from a simple exercise of bad judgment to a violation of the law.
Perjury, for instance, which generally means lying in court while under oath, is illegal. But in this article, I want to focus on fraud.
Legally speaking, fraud is a broad term that can refer to a variety of offenses involving dishonesty. At its essence, fraud is an intentionally false representation that does in fact deceive the listener, to his or her detriment. Usually, the purpose of fraud is to gain something of value (usually money or property) by misleading another person into believing something which the speaker knows to be false.
Fraud requires an intentional lie. To paraphrase from a line George Costanza said in a "Seinfeld" episode, it's not fraud if you believe it. If a person honestly believes she is making a true statement, it isn't fraudulent. It could, however, be negligent if that person should have known the truth, or could easily have discovered the truth before making the statement. Negligent misrepresentation may also be actionable in court.
Fraud also requires an affirmative intent to deceive, which may be hard to prove. Statements that no reasonable person would believe to be true, such as jokes or hyperbole, are probably not fraudulent.
How is the requisite intent shown? Context can be crucial. For instance, consider a lie about the condition of a house told to a potential buyer by a homeowner who is anxious to sell it. Compare that to a lie told in a bar over drinks about the speaker's age or relationship status. The first lie is far more likely to result in a lawsuit than the second.
Next, the lie must actually cause harm to rise to the level of fraud. In other words, the listener must rely upon the lie, to her detriment. Harm generally includes physical or financial loss.
Also, the listener's reliance upon the lie must be justifiable. Was it reasonable for the listener to believe the lie and act upon it? If so, the speaker may be liable for fraud.
Fraud can be both criminal and civil in nature. The news is replete with examples of criminal fraud, which includes bankruptcy, tax and credit-card fraud, as well as identity theft and insider trading. Most criminal fraud offenses are felonies, punishable by jail, fines, probation, or a combination of the above.
Civilly, fraud is a tort (a wrongful act that creates liability) and can be raised in a contract dispute in which one party alleges that the other lied about an important part of the agreement. For example, in an Idaho Supreme Court case, an automobile purchaser sued a dealership to rescind a contract after learning that the car, which the dealer said was "new," was in fact a used vehicle with a set-back odometer.
The bottom line? Speaking honestly is not merely a good personal policy; it's also good legal strategy.