Citation. 14 App. Cas. 337
Plaintiff detrimentally relied on prospectus that induced him to invest in defendant’s company. The company went bankrupt and plaintiff sued for fraudulent misrepresentation.
A party may not be held liable for fraudulent representation for statements that he or she honestly believed were true.
Sir Henry William Peek (plaintiff) read a prospectus issued by Plymouth, Devonport and District Tramways Company. The prospectus stated that the company would use vehicles on the tramways powered by steam or mechanical-powered locomotives instead of horses. The prospectus further stated that it fully expected that the Board of Trade would approve the use of steam or mechanical-powered locomotives. Peek invested in the company. In reality, the Board of Trade refused consent to the use of steam or mechanical-powered locomotives. The company was wound up and Peek sued the chairman, William Derry, and the directors of the company (defendants).
Whether a party may be liable for fraudulent representation for statements that he or she honestly believed were true?
No, a false statement is not fraudulent when the speaker possesses an honest belief that it was true. The judgment of the appellate court is reversed.
This is an action of deceit and to sustain this action there must be proof of fraud. Fraud is proved when a false representation is make (1) knowingly, (2) without belief in its truth, or (3) recklessly or carelessly whether it be true or false. Thus, for a statement not to constitute fraud, there must be an honest belief that it is true. Here, the fact that Peek and the Plymouth, Devonport, and District Tramways Company made the statements in the prospectus in good faith does not constitute fraudulent misrepresentation.