Citation. 144 App. Cas. 337 (House of Lords, 1899)
Brief Fact Summary.
The defendant misrepresented to the plaintiff that the defendant’s company was authorized in moving its carriages to use steam power instead of horses, thus inducing the plaintiff to purchase shares in the defendant’s company. The company had been authorized by a special act of Parliament to build certain tramways.
Synopsis of Rule of Law.
To succeed on an action of deceit, a plaintiff must prove that a misrepresentation was fraudulent.
In February 1883, the defendant issued a prospectus on behalf of his company stating that the company had been granted the right to use steam or mechanical power instead of horses for its carriages due to a special act of Parliament. This made the plaintiff believe that the defendant had the absolute right to use such power, rather than the limited right on certain tramways, and caused him to obtain shares in the company. The company proceeded to make tramways, but the Board of Trade declined to consent to the use of steam except on certain portions of these tramways.
Is the defendant liable for the misrepresentation even if it was unintentional?
Yes. The misrepresentation was made fraudulently. The decision of the appellate court is reversed.
The court first notes that this is an action of deceit, which differs from an action on intentional misrepresentation of a material fact for the sake of obtaining rescission from a contract. An action of deceit requires a showing of additional elements on top of basic misrepresentation, though the court notes that these other elements are unclear. To succeed on an action of deceit, there must be proof of fraud, which is proven when a false representation has been made knowingly, without belief in its truth, or recklessly. If fraud is proven, the motive of the guilty party is immaterial.