Fraudulent misrepresentation

The tort of deceit dates in its modern development from Pasley v. Freeman. Here the defendant said that a third party was creditworthy to the claimant, knowing he was broke. The claimant loaned the third party money and lost it. He sued the defendant successfully.

Deceit occurs when a person makes a factual misrepresentation, knowing that it is false (or having no belief in its truth and being reckless as to whether it is true) and intending it to be relied on by the recipient, and the recipient acts to his or her detriment in reliance on it.

The leading case in English law is Derry v. Peek, which was decided before the development of the law on negligent misstatement. In Hedley Byrne & Co Ltd v. Heller & Partners Ltd it was decided that people who make statements which they ought to have known were untrue because they were negligent, can in some circumstances, to restricted groups of claimants be liable to make compensation for any loss flowing, despite the decision in Derry v Peek. This falls under the so-called "voluntary assumption of responsibility" test.

In Bradford Equitable B S. v Borders, it was held that in addition the maker of the statement must have intended for the claimant to have relied upon the statement.

Negligence and deceit differ with respect to remoteness of damages. In deceit the defendant is liable for all losses flowing directly from the tort, whether they were foreseeable or not. In Doyle v. Olby (Ironmongers) Ltd Lord Denning MR remarked, "it does not lie in the mouth of the fraudulent person to say that they could not reasonably have been foreseen." So where there is a sudden downturn in the property market, a person guilty of deceitful misrepresentation is liable for all the claimant's losses, even if they have been increased by such an unanticipated event. This is subject to a duty to mitigate the potential losses.

Contributory negligence is no defence in an action for deceit. However proving deceit is far more difficult than proving negligence, because of the requirement for intention.

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Wikipedia