Deceit / Fraud

When a person intentionally and knowingly deceives another person into an action that damages them, it is a type of legal injury that occurs. Deceit specifically requires the tort-feasor to make a factual representation very well knowing of the fact that it is false, or indifferent or reckless about its truthfulness, intending that the other person relies on it, and then acts in reliance on it, to his own harm.

Under section 421 of the IPC or the Indian Penal Code and 17 of the Indian Contract Act (ICA), fraud is defined.

In Dr. Vimla v. Delhi Administration, it was held that fraud is an intention to deceive involving deceit and injury to another person as its two elements.

In Ram Chandra Singh v. Savitri Devi, it was held that deceit was a fraudulent misrepresentation that consisted of leading a man into damage by recklessly and willfully causing him to believe and trust an act according to it.

Essential Elements for Deceit

A claimant in deceit must prove the following elements:-

1. False statement of a Fact
2. Knowledge about the falsity of the statement
3. Intention to deceive the plaintiff

4. The plaintiff must be actually deceived

1. False statement of a Fact

There must be a false statement of fact to make the defendant liable for fraud.

In Pasley v. Freeman–

The plaintiff was dealing in cochineal at the time when the cause of action arose and had a large stock at hand which he anxiously wanted to dispose of learning this the defendant said the plaintiff that he knew a buyer who would purchase the stock of cochineal. The plaintiff asked: “Is he a respectable and substantial person?” “Certainly he is” was the defendant’s reply, knowing well that he was not. The plaintiff on his representations faith gave that purchaser 16 cochineal bags on credit worth around 3,000 sterling pounds. When the bill became due, it turned out that the purchaser was insolvent and the plaintiff was unable to recover his money from the purchaser, the defendant was sued for making a false representation to him by compensating him. The defendant was held liable to the plaintiff as far as he had suffered as a result of the former’s false statement about that buyer’s credit and character.

2. Knowledge about the falsity of the statement

The defendant must know that the representation was false, or at least had no genuine belief that it was true.

In Derry v. Peek–

An act incorporating a tram company provided that, with the consent of the Board of Trade, carriages could be moved by animal power, by steam power. The directors issued a prospectus stating that the company was entitled to use steam power instead of horses under the Act.  The complainant took shares in this statement’s faith. An act incorporating a tram company provided that, with the consent of the Board of Trade, carriages could be moved by animal power, by steam power. The trading board declined their consent to use steam power and the company was wound up. In an action against the directors for a false statement, they were held not to be liable for the misrepresentation as they honestly believed that the statement was true even though they were guilty of some carelessness in making it.

3. Intention to deceive the plaintiff –

The defendant made the representation with the intent that the plaintiff should act upon it.

 In Langridge v. Levy–

 The defendant sold a gun for use by himself and his sons to the plaintiff’s father, representing that the gun was made by a well-known manufacturer and safe to use, the son used the gun that exploded wounding his hand.  It was held that the defendant was liable to the son because there was a contract between them, not on his warranty, but for deceit.

4. The plaintiff must be actually deceived

That the plaintiff acted in reliance on the statement and suffered damage as a consequence. No action will lie for a false statement unless the plaintiff, in fact, relies upon it.

In  Denton v. G.N. Ry. Co–.

A train that had been taken off was announced as still running in a railway company’s current timetable. This was a misrepresentation and a person had missed an appointment by relying on it and the loss incurred was held to have a deceit action.

Negligent Misstatements

When the defendant has deliberately made a false statement and caused loss to the plaintiff, who relied and acted on the statement, the defendant would be liable for fraud.

Essential Elements

• the defendant must make a representation as to a past or existing material fact, the representation must  be untrue,
• the representation should be without any reasonable ground (regardless of the defendant’s actual belief)  for believing it to be true,
• it must be made with the intent to induce the plaintiff to rely and trust upon it,
• the plaintiff must be unaware of the falsity of the representation, and thus acting in reliance upon the truth of the representation and must be justified in doing so, as a result, damages must have occurred and sustained by the plaintiff.

In Le Lievere v. Gould it was held that there could be no action for mere negligence. An action could lie if there was a fraud.

In Hedley Bryne and Co. Ltd. v. Heller and Partners held that there was a duty to take care in making the statement and there would be a breach of duty if the same were done negligently.

INNOCENT MISREPRESENTATIONS

When a person makes false statements but there is neither an intention to deceive, nor any negligence in making the statement, there is no liability for such a statement under the law of torts because in such a case an action cannot lie either for “Fraud”, or for “Negligent Misstatements”.

The act does not create any liability for a false statement if there is no contract on the basis of the false representations. In Hedley v. Heller’s case, if the statement is made negligently when there is no contract between parties, liability can still arise.

References

1.  https://blog.ipleaders.in/fraud-deceit-misrepresentation-torts/

2. https://www.jstor.org/stable/1089196

3. R.K. Bangia Law of Torts, 26th Edition 2021 by Allahabad Law Agency

4. . M.N. Shukla The Law of Torts 18th Edition Central Law Agency

5. THE LAW OF TORTS by Dhirajlal & Ratanlal 28th Edition LexisNexis Publication

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