This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
A breach of contract is ordinarily not fraud.1 Between persons in confidential relations, if the contract is one of the means whereby the particular confidence is obtained and the breach the means whereby it is betrayed, it may amount to fraud.2 Thus if property is conveyed by a principal to an agent for use under his agency,3 a breach of the contract of agency may be treated as a constructive fraud. So if A delivers money to B under a contract whereby B agrees to pay a judgment against A, and B does not pay such judgment, but allows A's property to be sold on execution and buys it in, using A's money and some of B's money for that purpose, B acquires no title to such property as against A.4 A mere breach of contract by B to buy for A at a judicial sale is held not to be fraud.5 A breach of contract may amount to fraud as between parties in the confidential relation of husband and wife, "independent of any element of actual fraud."6 Thus if a husband conveys to his wife to avoid making a will, so that she may enjoy the property in case of his death, and she has agreed to reconvey whenever he wishes, a breach of such contract is constructive fraud.7 So if a husband agrees to hold realty for his wife's brothers, and thus induces her not to make a will leaving such realty to them, his breach of such contract is constructive fraud.8 So between parties in relations of actual, though not technical, trust and confidence, a breach of a contract induced by such trust, as of a contract to reconvey, whereby the promisee was induced to convey to the promisor,9 may amount to fraud. An action of tort may be brought by one who has been misled by statements of opinion of one in confidential relations upon whose opinion he has a right to rely.10 The practical importance of this question arises out of the fact that in most of cases the contract itself is unenforceable for some reason, often because of the statute of frauds; while if breach of the contract is treated as fraud, the party in default can be held as trustee under a constructive trust.
8Cassilly v. Cassilly, 57 O. S. 582, 40 N. E. 795.
1See Sec. 295.
2Holmes v. Holmes, 106 Ga. 858, 33 S. E. 216.
3Kimball v. Tripp, 136 Cal. 631, 69 Pac. 428.
4Everly v. Harrison, 167 Pa. St. 355, 31 Atl. 668.
5Whiting v. Dyer, 21 R. I. 278, 43 Atl. 181.
6Brison v. Brison, 90 Cal. 323, 27
Pac. 186; same case, Brison v. Brison, 75 Cal. 525, 7 Am. St. Rep. 189, 17 Pac. 689; Stone v. Wood, 85 111. 603; Basye v. Basye, 152 Ind. 172, 52 N. E. 797; Bartlett v. Bartlett, 15 Neb. 593, 19 N. W. 691.
7 Brison v. Brison, 90 Cal. 323. 27 Pac. 186; same case, Brison v. Brison, 75 Cal. 525, 7 Am. St. Rep. 189, 17 Pac. 689.
8Ransdel v. Moore, 153 Ind. 393, 53 L. R. A. 753, 53 N. E. 767.