Fraud or Deceit

Section 18 defines misrepresentation, which covers an innocent but false assertion, and section 19 makes an agreement caused by fraud or misrepresentation voidable at the option of the party deceived, who may also insist that the contract be performed and that he be put in the position in which he would have been if the representation made had been true.

So the same lie may give a contractual remedy of rescission under section 19 and a tortious remedy of damages in deceit, and a student should say both.

Fraud in the consumer law

Section 2 of the Consumer Protection Act 2019 defines an unfair trade practice to include the making of a false statement about the standard, quality, quantity, grade or composition of goods, false representations about services, and other deceptive practices, so a consumer misled by a seller has a third route, which chapter [Unfair and Restrictive Trade Practices] works out.

A worked example

A seller tells Nitin that a second-hand car has run 40,000 kilometres. Consider four versions.

One. He knows the true figure is 140,000. That is deceit: a false representation of fact made knowingly, intended to be acted on, acted on, and causing loss. It is also fraud under section 17 of the Indian Contract Act 1872, so the contract is voidable under section 19, and it is an unfair trade practice under section 2 of the Consumer Protection Act 2019.

Two. He read 40,000 on the odometer and believed it, though a careful seller would have checked the service book. That is not deceit, because he had an honest belief; the claim, if any, lies in negligent misstatement, and the consumer remedy may still be available for a defective good.

Three. He says nothing at all about the mileage. Silence is not ordinarily a representation, so there is no deceit, unless he made a half-true statement or the position was one requiring disclosure.

Four. He says "this car is a bargain". That is opinion, or sales talk, and no action lies on it.

Distinctions that carry marks

What it does NOT mean

Carelessness is not deceit. The tort requires knowledge or recklessness.

Silence is not ordinarily a representation. Three exceptions apply.

Sales talk is not a representation of fact. Puffing is not actionable.

Deceit is not actionable without damage. The plaintiff must have acted on the statement and lost by it.

Quick revision

1. Deceit: a false representation of fact, made knowingly or recklessly, intended to be acted on, acted on, and causing damage.
2. Honest belief, however unreasonable, is a complete defence.
3. Silence is not a representation except in three cases: a misleading half-truth, a statement that becomes false before it is acted on, and a relationship requiring disclosure.
4. Section 17 of the Indian Contract Act 1872 defines fraud for contracts and includes a promise made with no intention of performing it.
5. Section 18 covers innocent misrepresentation; section 19 makes the agreement voidable and allows the deceived party to insist on being put in the position the representation would have produced.
6. Section 2 of the Consumer Protection Act 2019 makes a false statement about goods or services an unfair trade practice.
7. One lie may give three remedies: damages in deceit, rescission in contract, and relief before a Consumer Commission.

Test yourself

1. State the essentials of the tort of deceit. Five. A representation of fact, by words or conduct, as distinct from a statement of opinion, intention or law. Its falsity, silence not ordinarily amounting to a representation except where a half-truth misleads, where a statement true when made becomes false and is not corrected, or where the relationship requires disclosure. Knowledge of the falsity, or absence of belief in the truth of the statement, or recklessness as to whether it is true or false. An intention that the plaintiff, or a class including him, should act on it. And action on it by the plaintiff resulting in damage, since deceit is not actionable per se. An honest belief in the truth of the statement, however unreasonable, is a complete defence.

2. Distinguish the tort of deceit from fraud under the Indian Contract Act 1872. The tort gives damages to anybody who was intended to act on the false statement and who acted on it to his loss, whether or not any contract resulted. Section 17 of the Indian Contract Act 1872 defines fraud for the purposes of a contract, and includes the suggestion as a fact of what is not true by one who does not believe it, the active concealment of a fact by one who knows it, a promise made with no intention of performing it, any other act fitted to deceive, and anything the law declares fraudulent, adding that mere silence is not fraud unless there is a duty to speak or silence is equivalent to speech. Its consequence is that the agreement is voidable at the option of the party deceived under section 19, who may rescind or may insist on being placed in the position in which he would have been if the representation had been true. The same lie may therefore support both a claim in tort and rescission in contract, and in India a third remedy before a Consumer Commission.

3. Is a careless false statement deceit? No. The mental element of deceit is knowledge that the statement is false, or absence of belief in its truth, or recklessness in the sense of not caring whether it is true or false. A defendant who honestly believed what he said is not liable in deceit however unreasonable that belief was, and however easily he could have checked. If his carelessness caused loss to a person who relied on him in circumstances where a duty of care existed, the claim lies in negligent misstatement, where honest belief is no defence but a duty of care must be established. The distinction matters because the defences, and the classes of person who may sue, are different.