Chicago Business Litigation Attorney Blog

The Illinois First District Appellate Court has defined “constructive fraud” as any act, statement or omission which amounts to positive fraud or which is construed as fraud by the courts because of its detrimental effect upon public interests and public or private confidence. Small v. Sussman, 306 Ill.App.3d 639, 646 (1st Dist. 1999). Essentially, constructive fraud is a breach of a legal or an equitable duty which, irrespective of the moral guilt of the wrongdoer, Illinois courts declare as fraudulent because of its tendency to deceive others. Prodromos v. Everen Securities, Inc., 341 Ill.App.3d 718, 726 (1st Dist. 2003). A cause of action for constructive fraud requires neither actual dishonesty, nor intent to deceive. Cessna v. City of Danville, 296 Ill.App.3d 156, 168 (4th Dist. 1998). On the other hand, a cause of action for constructive fraud can be inferred from the circumstances regardless of any actual dishonesty of purpose. Id.

Constructive fraud can arise only if there is a confidential or fiduciary relationship between the parties. Prodromos, 341 Ill.App.3d at 726. In Illinois, a fiduciary relationship arises when one has influence over a person through the trust and confidence of that person, such as where a person solicits trust by holding himself or herself out as an expert. Illinois Jurisprudence, Personal Injury and Torts § 13:02. In a fiduciary relationship, where there is a breach of a legal or equitable duty, a presumption of fraud arises. Id. Where there has been a breach of a fiduciary duty, a cause of action can lie in constructive fraud. Id.

Once the party claiming constructive fraud has established the existence and breach of a confidential or fiduciary relationship between the parties, the burden of proof shifts to the opposing party to produce evidence to negate the existence and breach of a confidential or fiduciary relationship. Illinois Jurisprudence, Personal Injury and Torts § 13:36. If the opposing party is successful in negating the existence and breach of a confidential or fiduciary relationship, the cause of action for constructive fraud ceases to exist and the party claiming constructive fraud has the burden of proving fraud. Id.

Informational Purposes Only: The content of this writing was prepared by Tamari & Blumenthal, LLC for informational purposes only. The content of this writing is not intended to constitute and does not constitute legal advice. Reading the content of this writing or communicating with our office staff or attorneys by telephone, fax or e-mail does not make you a client of Tamari & Blumenthal, LLC. To become a client, you must sign and return our governing engagement agreement. Persons reading the content of this writing should not act upon this information without contacting and speaking with an attorney. Do not issue or provide us with confidential information until an attorney-client relationship has been formally established with our firm.

Illinois courts have held that to state a cause of action for breach of a fiduciary duty, a plaintiff must prove: (1) a fiduciary duty on the part of the defendant, (2) the defendant's breach of that duty, and (3) damages that were proximately caused by the defendant's breach. DOD Technologies v. Mesirow Ins. Services, Inc., 381 Ill.App.3d 1042 (1st Dist. 2008). An Illinois appellate court found that a fiduciary relationship is created when, by agency, or business association and experience, trust and confidence are placed by one party in another who, as a result, gains an influence and superiority over the other party. Illinois Non-Profit Risk Management Ass'n v. Human Service Center of Southern Metro-East, 378 Ill.App.3d 713 (4th Dist. 2008). Regardless of the level of trust between the parties, a fiduciary relationship requires one party to exert dominance and influence over the other party. Id. A fiduciary duty consists of a duty of exercising good faith, honesty, and fairness in the parties’ dealings. Illinois Jurisprudence, Business Relationships § 15:40.

A fiduciary relationship may be presumed, as a matter of law, from the relationship of the parties, such as an attorney-client relationship. Illinois Jurisprudence, Personal Injury and Torts § 13:36. Other examples of a fiduciary relationship are directors owe a fiduciary duty to their corporations and to their shareholders and principal-agent relationships. Crichton v. Golden Rule Ins. Co., 358 Ill.App.3d 1137 (5th Dist. 2005); and Illinois Non-Profit Risk Management Ass'n v. Human Service Center of Southern Metro-East, 378 Ill.App.3d 713 (4th Dist. 2008).

In determining whether the facts of a particular case establish a fiduciary relationship, courts look to the following factors: (1) the disparity in age, health, mental condition, education, and business experience between the parties; (2) the degree of kinship between the parties; and (3) the extent to which one party entrusted the other with the handling of its business affairs. Yokel v. Hite, 348 Ill.App.3d 703 (5th Dist. 2004). A party seeking to show that a fiduciary relationship existed, must prove that such a fiduciary duty arose by clear and convincing evidence. Id. However, a fiduciary relationship does not exist where one party to a business contract trusts the other to do no more than fulfill its obligations under the contract. Id.

Informational Purposes Only: The content of this writing was prepared by Tamari & Blumenthal, LLC for informational purposes only. The content of this writing is not intended to constitute and does not constitute legal advice. Reading the content of this writing or communicating with our office staff or attorneys by telephone, fax or e-mail does not make you a client of Tamari & Blumenthal, LLC. To become a client, you must sign and return our governing engagement agreement. Persons reading the content of this writing should not act upon this information without contacting and speaking with an attorney. Do not issue or provide us with confidential information until an attorney-client relationship has been formally established with our firm.