Fraud is a false representation of a material fact that is intended to deceive, and in fact deceives, another so that the individual will act upon it to his or her legal injury. Not all false statements are fraudulent, however. Only false statements that relate to material facts are fraudulent. Further, the false statement must also substantially affect a person’s decision to enter into a contract, purchase a house or product, or pursue a certain course of action.
A statement of belief is not a statement of fact and, as such, is not fraudulent. Thus, general statements of quality by a salesperson (sometimes referred to as "puffery"), for example, generally do not meet this requirement. Fraud must be proved by showing that the defendant’s actions involved five separate elements: (1) a false statement of material fact, (2) knowledge on the part of the defendant that the statement was untrue, (3) intent on the part of the defendant to deceive the intended victim, (4) reasonable reliance by the intended victim on the false statement, and (5) injury or harm to the intended victim as a result of this reliance.
A negligent misrepresentation, on the other hand, is made where there is no direct intent to lie, but a statement is made without having any reasonable reason for believing it to be true or untrue. The distinction between a fraudulent or negligent misrepresentation is essentially a matter of degree. A fraudulent misrepresentation requires knowledge that a statement is not true, whereas a negligent misrepresentation only requires that there be no reasonable ground to believe something is true or where the speaker should have known otherwise.