LAWS OF DECEIT IN LAW OF TORT

SUBMITTED BY:

MRANAL SHARMA

UID NUMBER:

SM0117030

FACULTY INCHARGE:

Ms MONMI GOHAIN

NATIONAL LAW UNIVERSITY AND JUDICIAL ACADEMY, ASSAM

 TABLE OF CONTENTS

1. Introduction
1.1 Research Question
1.2 Literature Review
1.3 Scope and Objectives
1.4 Research Methodology

2. Essentials of Tort of Deceit

2.1 False Statement of Fact
2.2 Knowledge about the Falsity of Statement
2.3 Intention to deceive the plaintiff
2.4 The plaintiff must be actually deceived

3. Negligent Misstatements

4. Innocent Misrepresentations

5. Conclusion

6. Bibliography

Chapter 1
 INTRODUCTION

Many laws address the flow of information between private parties. Familiar examples include
the torts of deceit, negligent misrepresentation, nondisclosure, and defamation; criminal fraud
statutes; securities law, which includes both disclosure duties and penalties for false statements.
Deceit is the intentional act of misleading a person of ordinary prudence by giving false
impression. When a person knowingly makes a false statement of fact making another person
to suffer loss by acting on the statement, it may amount to the tort of Deceit or Fraud. 1  The tort
of deceit is a common law action which provides compensation for persons who have suffered
injury as a result of dishonesty. More technically, deceit is made out where, as a result of the
false representation made by the defendant, the plaintiff has acted to his or her detriment, and
therefore suffered economic loss. Deceit can also be said as a fraudulent and
cheating misrepresentation, artifice, or device, used by one or more persons to deceive and
trick another, who is ignorant of the true facts, to the prejudice and damage of the party
imposed upon. Tortuous liability can be imposed on a person who falsely represents a fact with
the intention to make another person detrimentally rely and act upon it.

Historically, deceit has been found in a commercial context. The High Court case of Gould v.
Vaggelas is a typical example. In that case, the Goulds (through their company, Gould
Holdings Pty Ltd) purchased a tourist resort from a group of companies (including South Molle
Pty Ltd) for whom Mr Vaggelas acted. As part of the contract of sale, there was a mortgage
back to South Molle, for which the Goulds gave personal guarantees. Gould Holdings
defaulted on the mortgage and South Molle exercised its power of sale pursuant to the
mortgage. There was not enough money to cover the debt. South Molle sued the Goulds under
the guarantees. The Goulds counter-sued Mr Vaggelas, arguing that they had been induced to
purchase the tourist resort based on certain misrepresentations by Mr Vaggelas as to the
profitability of the resort. They successfully sued him for the tort of deceit.2

1.1RESEARCH QUESTION
2. What is tort of Deceit?
1
R.K. Bangia, The Law of Torts, Allahabad Law Agency, 23rd edn, 2013, p.462.
2
https://legalsoapbox.wordpress.com/category/tort-of-deceit/
3. What are the various essentials of tort of Deceit?
4. What is the meaning of Negligent Misstatements and Innocent Misrepresentations?

1.2 LITERATURE REVIEW

1. R.K. Bangia: The Law of Torts, Allahabad Law Agency, 23 rdedn ,

2013
This book contains a detailed account of the laws related to tortious acts. The chapter
on liability to persons includes the tort of deceit in a very comprehensive and elaborate
manner. Various case laws given in the book gives the reader a better understanding of
the topic as one can relate those cases to our everyday life.

2. The Law of Torts- A Lakshminath and M Sridhar

Ramaswamy Iyer’s The Law of Torts is a book on the basics of the law of torts.The
book presents a complete overview of the law. This book gives a detailed account of
the various laws related to the tort of deceit, negligent misstatements and innocent
misrepresentations. The book includes many judicial pronouncements, chapters on
emerging trends and concepts.

3. The Law of Torts- Ratanlal and Dhirajlal

Ratanlal and Dhirajlal is a classic work on the Law of Torts. It is the most
authoritative, well-acknowledged and comprehensive commentary on the topic tort of
deceit. First published in 1897, this legal classic has withstood the test of time and
served the legal profession and everyone associated with it, for over a century. The
book covers the latest case laws as well as the legislative amendments that have come
about. This book is an invaluable reference for judges, lawyers and law firms
specializing in civil, criminal, consumer and environment laws.

4. P.S.A. Pillai, Law of Tort, Eastern Book Company, 9th edn, 2004
This book provides an accessible, thought-provoking and comprehensive account of
tort law. Tort law is a complex mix of statutory and common law principles. This book
 provides a fantastic flashlight to guide the reader through these principles. It has an
accessible writing style which allows the reader to quickly understand the principles. 

1.3 SCOPE AND OBJECTIVES

The scope of this project is limited to the study of the tort of Deceit and its
essentials. And, also to discuss the tort of Negligent Misstatements and innocent
misrepresentations.

The objective of this project is as follows:

 To know the liability for tort of deceit.
 To study the essentials required to prove an action for deceit.
 To discuss about Negligent Misstatements and Innocent Misrepresentations.

1.4RESEARCH METHODOLOGY

APPROACH TO RESEARCH
In this project, the researcher has adopted Doctrinal type of research. Doctrinal research is
a research in which secondary sources are used and it is essentially a library-based study,
which means that the materials collected by the researcher may be available in libraries,
archives and other data-bases.

SOURCES OF DATA COLLECTION

Data has been collected from secondary sources like web sources. No primary sources like
survey data or field data were collected by the researcher.
 Chapter 2

ESSENTIALS OF TORT OF DECEIT

In order to constitute the wrong of deceit the following essentials are required:

1.The defendant made a false statement or representation.

2. The defendant knew that the statement is false or at least did not honestly believe it to be
true.

3.The statement was made with an intention to deceive the plaintiff.

4.The plaintiff acted upon the statement and suffered damages as a consequence.

The representation may be oral or written or through conduct. Representation will include tacit
conduct, “No doubt conduct may amount to representation as clearly as words.” The term fact
is not limited to mere objective fact but would include all cases of subjective belief as well.3

4.1FALSE STATEMENT OF FACT

There must be a false statement of fact to make the defendant liable for fraud.
Generally, to constitute fraud, a positive statement of fact is required. A statement may
be made by word or conduct. Sometimes, a conduct of a person may lead another
person to believe that certain state of facts exist. In R. v. Barnard, a person put on a cap
and a gown without having a right to do so to create an impression that he was a
member of the university in order to obtain goods on credit. It was held that such
conduct had amounted to fraud.
Mere silence
To constitute fraud, the defendant should make a positive false statement or fact. A
mere non-disclosure of the truth or mere silence as to certain facts does not amount to
fraud. If I sell my horse which is unsound, I need not tell the buyer about the fact. Mere
non-disclosure of defects in the horse will not constitute fraud. In the following
exceptional cases, mere non-disclosure of the complete facts may constitute fraud:
1. When there is a duty to speak – Sometimes, there may be a duty to disclose full
facts. In such a situation, one is not supposed to be silent. If a person deliberately
3
P.S.A. Pillai, Law of Tort, Eastern Book Company, 9th edn, 2004, p.125.
 keeps silent in order to create a false impression in the mind of the other, it would
be fraud. For example, the contracts of insurance are contracts ‘uberrimae fidei’,
i.e., contracts of utmost good faith. The insured is under a duty to disclose all the
material facts concerning the contract of insurance. If he withholds some
information, it would be fraud.
2. If a person makes a statement believing the same to be true but subsequently
discovers that it was false, he has a duty to correct that statement. Similarly, when
the statement which was true when made, becomes false subsequently, a duty to
disclose the truth arises. If such a statement remains uncorrected and the plaintiff
suffers loss by acting upon it, the defendant would be liable for fraud.
3. Speaking only half-truth may be considered to be fraud as regards the other part in
respect of which there is non-disclosure. When a part of the facts are disclosed and
the other part withheld with a view to convey a false impression, the same is
actionable as fraud. Thus, “ if pretending to set out a report of a surveyor, you set
out two passages in his report and leave out a third passage which qualifies them,
that is an actual misstatement .
4. Active concealment of defects means a false statement regarding the defects which
are concealed. Thus, if defects in the goods sold are covered in a way that the buyer
is not able to detect them, this is equivalent to making a statement that those
defects are not there.4

In the case, Ward v. Hobbs, the seller, knowing that the pigs which were being sold
by him were suffering from typhoid fever, did not disclose this defect to the buyer.
He however, mentioned that the pigs were being sold “with all faults”. The disease
was transmitted to the other pigs of the buyer also and many of them died due to
that. It was held that there was no false statement on which the buyer could be
deemed to have relied, and he had purchased the pigs “with all faults”, i.e., at his
own risk, and, therefore, the seller was not liable for fraud.

4.2KNOWLEDGE ABOUT THE FALSITY OF STATEMENT

To make the defendant liable, it has to be proved that the defendant either knew that
the statement is false or did not believe in its truth. An honest man cannot be

4
R.K. Bangia, The Law of Torts, Allahabad Law Agency, 23rd edn, 2013, p.464,465.
 considered to be fraudulent. Therefore, if the defendant honestly believes that the
statement is true, there can be no deceit. Mere negligence in making a false statement
will not make a person liable for deceit. The case Derry v. Peek, is an authority for this
proposition. In this case, the directors of the tramway company issued a prospectus
containing a statement that the company had been empowered to use steam power
instead of the animal power. Their right to use steam power instead of the animal
power was subject to the consent of the board of trade. Such a consent was no given
but the directors believed the same, being a mere formality, would be granted as a
matter of course. The board of trade refused to grant permission, with the result that the
company had to be wound up. The plaintiff, who had taken the shares on the faith of
the statement by the directors in the prospectus, brought an action against them for
fraud. The House of Lords held that the defendants could not be held liable for fraud
because they honestly believed in the truth of the statement made by them.5

4.3INTENTION TO DECEIVE THE PLAINTIFF

The plaintiff should prove that the defendant made a false representation with an intent
to defraud the plaintiff, intending that the plaintiff should act on it. The mere fact that
the plaintiff acted on the defendant’s representation will not be proof of deceit.
Otherwise, a man might sue his neighbour for having a conspicuous clock too slow,
since the plaintiff might be thereby prevented from attending to some duty or acquiring
some benefit. The statement may be communicated directly to the plaintiff or indirectly
through another.6 In Langridge v. Levy, the plaintiff’s father bought a gun for the use
of himself and the plaintiff and the seller who, with knowledge of that fact, falsely
represented it to be safe, was held liable to the plaintiff who was injured by acting on
the representation. However, if a representation was intended for a person other than
the plaintiff to act upon, the plaintiff cannot complain.

4.4THE PLAINTIFF MUST BE ACTUALLY DECEIVED

There is no fraud until the plaintiff has been actually mislead by acting on the
statement and has suffered damage. In Horsfall v. Thomas, the plaintiff sued the
defendant for the price of a gun which he had sold to the defendant after fraudulently
plugging a defect in it. The defendant refused to pay on the ground that he had been
5
R.K. Bangia, The Law of Torts, Allahabad Law Agency, 23rd edn, 2013, p.466.
6
A Lakshminath and M Sridhar, The Law of Torts, Butterworths Wadhwa, 10th edn, 2007, p.481.
 defrauded. It was held that there was no fraud because even though the plaintiff had
tried to deceive the defendant, the defendant had not examined the gun while
purchasing and he had not been misled by the plaintiff’s act.
Damage to the plaintiff has also got to be proved. Mere attempt to deceive is not
enough, it is necessary that the plaintiff must have suffered detriment in consequence
of his acting on the statement.7

Chapter 3
7
R.K. Bangia, The Law of Torts, Allahabad Law Agency, 23rd edn, 2013, p.467.
 NEGLIGENT MISSTATEMENTS

The tort of negligent misstatement is defined as an “inaccurate statement made honestly

but carelessly usually in the form of advice given by a party with special
skill/knowledge to a party that doesn’t possess this skill or knowledge”.8
A statement of opinion may be treated as a statement of fact if it carries the implication
that the person making it has reasonable grounds for his opinion. A negligent
misstatement is only actionable in tort if there has been breach of a duty to take care in
making the statement that has caused damage to the claimant. There is no general duty
of care in making statements, particularly in relation to statements on financial matters.
Responsibility for negligent misstatements is imposed only if they were made in
circumstances that made it reasonable to rely on them. If a negligent misstatement
induces the person to whom it was made to enter into a contract with the maker of the
statement, the statement may be actionable as a term of the contract if the parties
intended it to be a term or it may give rise to damages or rescission.9
The House of Lords, in the case of Hedley Byrne & Co. Ltd. v. Heller and Partners
Ltd., ruled that a duty of care not to make a negligent misstatement could exist apart
from contract or fiduciary relationship. The facts of this case were that the plaintiffs
who were advertising agents had entered into various advertising contracts on behalf of
a company Easipower Ltd. The plaintiffs were anxious to know the financial position of
Easipower Ltd. to decide whether they could give credit to that company. The plaintiffs
with this object sought Banker’s references about Easipower Ltd. The references were
expressly given by the defendants “without responsibility”. In their claim for damages,
the plaintiff contended that the defendant’s replies regarding Easipower’s credit
worthiness’ were given in breach of their duty of care. The trial judge dismissed the
claim holding that the defendants owed no duty to the plaintiff although they were
careless in giving the replies about Easipower’s standing.10
The duty of care in giving professional advice maybe owed not only to the recipient of
the advice but in some cases also to his dependants. Thus, solicitors maybe liable for
negligence in preparation of a will which deprives the dependants of the estate which
they would have got had there been no negligence. If the advice or report by

8
https://www.lawteacher.net/free-law-essays/contract-law/tort-of-negligent-misstatement-contract-law-essay.php.
9
http://www.oxfordreference.com/view/10.1093/oi/authority.20110810105454835.
10
Ratanlal and Dhirajlal, The Law of Torts, LexisNexis, 26th edn, 2010, p.635.
 professional persons is to be statutorily used by the recipient for the benefit of a third
person, such a third person may have a cause of action against the professional person
concerned and the recipient of the advice may also be held vicariously liable.11
In 1932, liability for negligence was explained in Donoghue v. Stevenson, by the House
of Lords. After this decision, it was argued in some cases that now the position had
changed and there could be as much liability for negligent words as for negligent deeds.
This plea was rejected, and it was held that the position remained the same in spite of
the decision in Donoghue v. Stevenson. In Candler v. Crane, Christmas and Co., it was
stated that the case of Donoghue v. Stevenson stated the duty of care only in respect of
dangerous chattels and that duty did not govern cases of negligent misstatements. It was
also stated that false statements which were made carelessly by one person and acted
upon by another to his disadvantage could not be actionable unless there was
contractual or fiduciary relationship between the parties.12

Chapter 4
INNOCENT MISREPRESENTATION

11
Ratanlal and Dhirajlal, The Law of Torts, LexisNexis, 26th edn, 2010, p.640.
12
P.S.A. Pillai, Law of Tort, Eastern Book Company, 9 th edn, 2004, p.129.
 When a party makes a representation that he or she honestly believes to be true, and
there is no negligence in the formation of this belief, yet the misrepresentation actually
falsely represents material facts, the misrepresenting party is only liable for an innocent
misrepresentation, not a fraudulent or negligent one. If such an innocent
misrepresentation occurs, the aggrieved party can rescind the contract or transaction as
well as seek restitution, but the party cannot ordinarily recover damages. In an innocent
misrepresentation case, there is no requirement of fault, intentional or careless, at all;
rather, the plaintiff merely needs to demonstrate that a false representation was made
with an intent to induce the plaintiff’s reliance thereon, and that the plaintiff did in fact
justifiably rely on the information to his or her detriment.

In England, the Misrepresentation Act, 1967, however, permits the award of

compensation for such innocent false statements. The compensation under the act is
awarded when there is misrepresentation and the parties make a contract on that basis.
The Act stipulates the right to claim compensation in case of non-fraudulent
representation in the same way as would have been there if there had been fraud.
According to section 2(1):
“Where a person has entered into a contract after a misrepresentation had been made to
him by another party thereto and a result thereof, he has suffered a loss, then, if the
person making the misrepresentation would be liable to damages in respect thereof,
had the misrepresentation been made fraudently, that person shall be so liable
notwithstanding that the misrepresentation was not made fraudently, unless he proves
that he had reasonable grounds to believe and did believe up to the time the contract
was made that the facts represented were true.”
The Act does not create any liablity for a false statement if there is no contract on the
basis of the false representations. In case of false statements, when there is no contract
between the parties, the liability as stated in Hedley v. Byrne’s case can still arise if the
statement is negligently made.
The Act also permits award of damages in lieu of recession of contract, in case of non-
fraudulent misrepresentations.13

13
R.K. Bangia, The Law of Torts, Allahabad Law Agency, 23rd edn, 2013, p.470, 471.
 The nature of the liability pursuant to the innocent misrepresentation theory is often
described as appearing very close to the contract action of breach of an express
warranty, the tort theory of strict liability, or even the contract doctrine of mutual
mistake. Though, “it would be easy to dismiss the question of whether the liability was
tort or contract, were it not for the fact that there are some issues that will be affected by
the theory upon which recovery is allowed, such as damages, the proper limitations
period, and defences of one kind or another.” Regardless of the confusing nature of the
innocent misrepresentation theory, and its blurring of the line demarcating contract and
tort, one point is clear that the law does allow rescission and restitution for an innocent
misrepresentation, even in the business context of employment misrepresentation.14

CONCLUSION

In this study, the researcher has tried to expose and unravel a paradox associated with the tort
of deceit. The researcher began by exploring the precise role of, and justification for, the

14
http://scholarship.law.campbell.edu/cgi/viewcontent.cgi?article=1328&context=clr.
reliance requirement in deceit. It allowed us to understand the relationship between deceit, on
the one hand, and the tort of causing loss by unlawful means, on the other.

Deceit is the intentional act of misleading a person of ordinary prudence by giving false
impression. More technically, deceit is made out where, as a result of the false representation
made by the defendant, the plaintiff has acted to his or her detriment, and therefore suffered
economic loss. Damage to the plaintiff has also got to be proved. Mere attempt to deceive is
not enough, it is necessary that the plaintiff must have suffered detriment in consequence of his
acting on the statement.

A negligent misstatement is a claim which is brought by one party against another at common
law in tort. This duty of care is not to cause such harm which was suffered by their negligent
misstatement, further that they breached the duty of care owed and that the Claimant has
indeed suffered loss.

When a party makes a representation that he or she honestly believes to be true, and there is no
negligence in the formation of this belief, yet the misrepresentation actually falsely represents
material facts, the misrepresenting party is only liable for an innocent misrepresentation, not a
fraudulent or negligent one.

BIBLIOGRAPHY
BOOKS

R.K. Bangia, The Law of Torts, Allahabad Law Agency, 23rd edn, 2013.

Ratanlal and Dhirajlal, The Law of Torts, LexisNexis, 26th edn, 2010.

P.S.A. Pillai, Law of Tort, Eastern Book Company, 9th edn, 2004.

A Lakshminath and M Sridhar, The Law of Torts, Butterworths Wadhwa, 10th edn, 2007.

WEBSITES

http://scholarship.law.campbell.edu/cgi/viewcontent.cgi?article=1328&context=clr.

https://www.lawteacher.net/free-law-essays/contract-law/tort-of-negligent-misstatement-
contract-law-essay.php.

http://www.oxfordreference.com/view/10.1093/oi/authority.20110810105454835.

https://legalsoapbox.wordpress.com/category/tort-of-deceit/.