Fraud or Deceit

In one line

Deceit is telling somebody a lie, knowing it to be false, so that he acts on it and loses by it.

In the wording a student can write in an exam: the tort of deceit is committed where the defendant makes a false representation of fact, knowing it to be false, or without belief in its truth, or recklessly not caring whether it be true or false, with the intention that the plaintiff should act on it, and the plaintiff does act on it and suffers damage; an honest belief in the truth of the statement, however unreasonable, is a complete defence, which is what separates deceit from negligent misstatement.

The five essentials

1. A representation of fact. A statement of existing fact, made by words or by conduct. A statement of opinion, of intention or of law is not ordinarily a representation of fact, though a statement of opinion may imply that the maker holds it, and a statement of intention may imply that he has it.

2. Falsity. The representation must be untrue. Silence is ordinarily not a representation, but there are three exceptions: where a half-truth misleads, where a statement true when made becomes false before it is acted on and is not corrected, and where the relationship is one requiring disclosure.

3. Knowledge of the falsity, or recklessness. The representation must be made knowingly, or without belief in its truth, or recklessly without caring whether it is true or false. This is the mental element that gives the tort its name and it is the whole of the difference between deceit and negligence.

4. Intention that the plaintiff act on it. The maker must have intended that the plaintiff, or a class including him, should act on the representation.

5. The plaintiff acted on it and suffered damage. Damage is essential; deceit is not actionable per se.

Honest belief is a complete defence

This is the proposition to state first in any answer.

A person who believes what he says is not liable in deceit, however careless he was in coming to that belief and however unreasonable the belief is. If his want of care caused loss to somebody who relied on him, the claim lies, if at all, in negligence and not in deceit. That is why an honest but stupid director escapes deceit while a knowing one does not.

Fraud in the Indian Contract Act 1872

Section 17 defines fraud, for the purposes of contract, as including the suggestion as a fact of that which is not true by one who does not believe it to be true; the active concealment of a fact by one having knowledge or belief of the fact; a promise made without any intention of performing it; any other act fitted to deceive; and any such act or omission as the law specially declares to be fraudulent. It adds that mere silence is not fraud unless the circumstances are such that it is the duty of the person keeping silence to speak, or unless his silence is in itself equivalent to speech.