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<p class="banner-heading-text-two-line"><span>Fraudulent Misrepresentation Versus Misrepresentation</span><br><span class="banner-sub-heading">Module I: Contract Law Essentials—Misrepresentation</span></p>
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<p><span class="padded-dropcap">I</span>n the following case of <em>William Derry </em>v. <em>Peek</em>, the directors issued a prospectus with a statement about the company’s right to use steam power instead of horses, which they believed to be true. However, they did not have the required consent from the Board of Trade. This statement turned out to be false, but the directors made it in the honest belief that it was true. This would amount to misrepresentation though not fraud under Indian law.</p>
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<h2 style="text-align: center;">[L.R.] 14 App. Cas. 337</h2>
<h2 style="text-align: center;">William Derry, J. C. Wakefield, M. M. Moore, J. Pethick, and S. J. Wilde v. Sir Henry William Peek, Baronet</h2>
<p>In an action of deceit the plaintiff must prove actual fraud. Fraud is proved when it is shown that a false representation has been made knowingly, or without belief in its truth, or recklessly, without caring whether it be true or false.</p>
<p>A false statement, made through carelessness and without reasonable ground for believing it to be true, may be evidence of fraud but does not necessarily amount to fraud. Such a statement, if made in the honest belief that it is true, is not fraudulent and does not render the person making it liable to an action of deceit.</p>
<p>A special Act incorporating a tramway company provided that the carriages might be moved by animal power, and, with the consent of the Board of Trade, by steam power. The directors issued a prospectus containing a statement that by their special Act the company had the right to use steam power instead of horses. The plaintiff took shares on the faith of this statement. The Board of Trade afterwards refused their consent to the use of steam power and the company was wound up. The plaintiff brought an action of deceit against the directors founded upon the false statement. Held, reversing the decision of the Court of Appeal and restoring the decision of Stirling J. (37 Ch. D. 541), that the defendants were not liable, the statement as to steam power having been made by them in the honest belief that it was true. The court defined fraudulent misrepresentation as a statement known to be false or made recklessly or carelessly as to the truth of the statement. On this basis, the plaintiff could not claim against the defendant company for dishonesty.</p>
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