Deceit is a false statement of fact made by A, knowingly or recklessly, with intent that it shall be acted upon by B, who does act upon it and, thereby, suffers damage (Winfeild).
In Peasley v. Freeman: The principle of Deceit was extended from contracts to torts. The defendant assured that X was trustworthy to give a credit of some money. It was false, p gave credit and suffered a loss and sued D. Held, D liable.
Essentials of Deceit
- Representation as fact, of that which is false.
- Knowledge or Recklessness that it is false.
- Intention that the plaintiff could act upon the statements.
- The plaintiff should sustain damage
1. False Statement of Fact: By silent representations: A cow with some infection or disease was sold in the market. P sued D. it was held that D is not liable if he did not know the disease at the time of selling. In a case the court held mere silence did not amount to deceit.
2. Promises: Mere promise will not amount to deceit. Scores of promises are made which are never kept up.
3. Mis-statement of fact: The Edginton V. Fitzmaurice, the company raised debentures. It stated in the prospectus that the debentures money was to be utilised to purchase vans. But in reality the money was used to pay off outstanding loans. Held : Deceit.
4. Opinions: Mere opinions do not amount to deceit. These must have been made with knowledge that the statement is false, or, the statement must have been made with carelessness.
Derry V. Peek: A company was running trams using animals. Directors issued a prospectus stating that the company had powers to use steam in propelling their trams. In fact the grant to use steam was subject to the consent of a Board of Trade. Company had believed that the consent of Board of Trade was merely a formality. But the Board refused to give its consent. The company went into liquidation. Some shareholders sued the company. Held: No deceit. There was an honest mistake in viewing that the consent of Board was a formal procedure. A false statement made carelessly and without reason to believe to be not true was “not fraud”. This decision is criticised by judges and Jurists.
Candler V. Crane: The defendant, an Accountant prepared accounts of the Company and induced the plaintiff to invest money. B invested money. The company had given a misleading picture, but the Court held that it was a mere careless misstatement. Hence P failed. It was held that mere careless statements were not actionable unless there was a contractual or fiduciary relationship.
Nacton V. Lord Ashburton: The error in Derry V. Peek was exposed in this case. Here circumstances showed a duty to be careful. In the particular circumstance of Derry V. Peek there was no duty to be careful. In this case, Solicitor, negligently but without any fraud induced his client to release part of Mortgage security. Security became insufficient and the plaintiff suffered. He sued the solicitor. Solicitor was held liable.
Exceptions: Derry V. Peek is not applicable to:
- Statutory provisions as in Companies Act. E.g.: in respect of prospectus, directors and auditors are liable.
- Cases of Estoppel.
- Cases where there is a contractual duty to take care.
- Cases where there is an Implied warranty of another in agency.
Rule in Hadley Byrne:
As regards liability for careless statements the leading case is:
Hadley Byrne and Co. Ltd., V. Heller and partners Ltd.,
P, an advertising agency, wanted to know the trustworthiness of Easipower Company. It asked its bankers about this. The Bankers referred to Easipower company’s bankers. “Heller and partners Ltd”, who gave favourable reports. They had written as “Confidential. For your private use without responsibility on the bank or its officials”. This was passed on to Hadley Byrne, who relied on and allowed credits and suffered heavily when Easipower Company went into liquidation.
Held: The Bank was not liable. The bank did not know to whom the information would be passed on. Further, it had taken no responsibility whatsoever. Hence, not liable. There was no deliberate misstatement to make it a deceit.