Fraud or Deceit in Torts

Introduction

While the exact definitions and necessities of confirmation differ among purviews, the imperative components of fraud as a tort, for the most part, are the intentional misrepresentation or covering of a significant certainty whereupon the casualty is intended to depend, and in reality depends, to the mischief of the person in question.

The Tort of deceit means “Intentional misrepresentation or concealing the existing fact with the knowledge of it and manufacturing misinformation by one person to another, to benefit from the injury or damage arises to the other person.”

The term Fraud means “Maliciously stealing or obtaining money or other things using deception tactics.”  The term Fraud is defined under Section 421 of The Indian Penal Code and Section 17 of The Indian Contract Act.

Essentials of Fraud or Deceit

To prove that fraud or deceit has been committed by a person it should satisfy the following elements.

  1. The defendant made a false representation or statement.
  2. The defendant must have known that the statement is false or believed it to be not true.
  3. The defendant must have made the statement intending to deceive the plaintiff.
  4. The plaintiff must have suffered damage in consequence of the false statement.

False representation or statement of fact(s)

To prove that the defendant is liable for fraud, there must be false statements of fact.To constitute a fraud; a statement may be made either by words or conduct.

In the case of R. v. Barnard 1, a buyer impersonating as a member of the university by wearing the university cap and gown to get good on credit was held liable as this conduct amounted as Fraud.

In the case of Idrees v. Director of Public Prosecutions2, a person impersonating as someone else took the driving test. The court held this as false representation amounts to fraud.

Mere Silence

Now we know that to make the defendant liable for fraud there must be a false statement or representation. But there are certain cases where mere silence as to certain facts does not amount to fraud.

Illustration: If A (seller) sells his cow which is unsound, A need not tell B (buyer) about the fact. Mere non-disclosure of defects in the cow will not constitute fraud.  

In the case of Sri Krishna v. Kurukshetra University 3, the candidate Sri Krishna did not mention the fact that he had a shortage of attendance to write the university LL.B examination. And the university did not make proper scrutiny of the forms filled by the candidates appearing for the examination. So the Supreme Court held that there was no fraud committed by Sri Krishna.

Exception cases where mere silence or non-disclosure of facts may constitute fraud:

1. When there is a duty to speak

There are certain situations where one should not be silent and should disclose all the facts and not intentionally or knowingly suppress or hide the facts.

Illustration i): If a person is an insurance agent, he must disclose all the facts without any concealment. If he did conceal any facts to create a false impression it would amount to fraud. In insurance, the contracts are made of uberrimae fidei, i.e., utmost good faith. So mere silence would amount to fraud.

In marriage, all the facts about the parties must be fully disclosed, if not it would constitute fraud and it will amount to a ground for divorce.

Illustration ii): If A is of unsound mind and is getting married to B, it is the duty of the A or her family to disclose this face to B. If not it constitutes fraud.

In the case of Kiran Bala v. B.P. Srivastava 4, not disclosing the fact that the appellant’s first marriage was annulled on the ground of unsoundness of mind at the time of marriage to the respondent, the respondent married the girl the second time. So the court annulled the marriage on the ground of fraud by a decree of nullity under Section 12(1) (c) of the Hindu Marriage Act.

2. In circumstances where a person makes a statement believing it to be true at that time but in course of time if the person comes to know that it was a false statement, he/she has to disclose the true statement to the concerned person.

3. If the statement then said was true but subsequently, it becomes a false one, the person has to disclose the truth. If not it amounts to fraud.

4. If a person discloses only half the truth and conceals the other half i.e., Half-truth, it constitutes fraud.       

“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”5

Knowledge about the falsity of the statement

So, to prove that the defendant is liable; the plaintiff must prove that the defendant knew the statement made by him was false (false statement) or the defendant itself did not believe the originality of the statement made by him.

 There can be no deceit if there involves mere negligence by the defendant while making a false statement. In the case of Derry v. Peek 6 the directors of a Tramway Company distributed prospectus containing statements that they have the authority to use steam power instead of animal power, the directors believed that they’ll get the consent of the Board of Trade. But the Board rejected this and the plaintiff who believed the statement in the prospectus and bought shares in the company sued for fraud. The House of Lords held that the directors of the tramway company could not be held liable because they honestly believed in the statement they made in the prospectus.

Lord Herschel observed 7: “To sustain an action of deceit, there must be proof of fraud, and nothing short of that will suffice….fraud is proved when it is shown that false representation has been made:

1) Knowingly, or

2)  Without belief in its truth, or

3)  Recklessly or carelessly whether it is true or false.

To prevent a false statement being fraudulent, there must I think, always be an honest belief in its truth.”

Intention to deceive the plaintiff

The person making the false statement must know that to whom it was made will rely upon the statement and act according to it. So if the defendant knows that the false statement or representation made by him will be used by the plaintiff upon someone (B), then the defendant will be liable to B.

In the case of Langridge v. Levy 8, the father of the plaintiff purchased a gun from the defendant for himself and his son. The defendant while selling the gun stated that it was manufactured by an acknowledged manufacturer and it was a safe one. Later on, while firing the gun by the plaintiff it busts out and the plaintiff got injured. It was held that even though the false statement was made to the plaintiff’s father, the plaintiff was able to sue the defendant for fraud.

The plaintiff must be deceived

There is no fraud or deceit committed by the defendant unless the plaintiff has acted upon the statement made by the defendant and incurred damage. In the case of Horsfall v. Thomas 9, it was held that the defendant was not liable because the plaintiff had the opportunity to examine the gun sold by the defendant to the plaintiff by himself but he didn’t do it, hence he was not liable for fraud.

In the words of Bramwell, B 10, “The defendant never examined the gun, and, therefore, it is impossible to conceal the defect that could have any operation on his mind or conduct. If the plug, which it was said was put in to conceal the defect, had never been there, his position would have been the same, for, as he did not examine the gun or form any opinion as to whether it was sound, its condition did not affect him.”   

Conclusion

The important element to constitute fraud or deceit is the defendant must make a false statement and repercussions would be suffered by the plaintiff. Legally, the concepts of Fraud and Deceit are much more complex and specific torts that require proof of specific wrongful acts to achieve an appropriate remedy.

Frequently asked questions

  • Question 1 What is Fraud and what is Deceit?
  • Question 2 What is the difference between fraud and misrepresentation?
  • Question 3 how do you prove fraud on the contract?
  • Question 4 What is an innocent misrepresentation?

Reference

  1. (1837) 7 C. & P. 784.
  2. (2011) EWHC 624.
  3. A.I.R 1976 S.C. 376.
  4. A.I.R 1982 All. 242.
  5. Arkwright v. Newbold, (1881)
  6. (1889) 14 A.C. 337
  7. (1889) 14 A.C. 337, at 374.
  8. (1837) 2 M & W. 519: 46 R.R 689.
  9. (1862) 1 H. & C. 20; 130 R.R. 394.
  10.  (1862) 1 H. & C. 90, at 99; 130 R.R. 394, at 401     

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