Fraud may become important either for the purpose of giving the defrauded party a right to sue the fraudulent person for damages in an action of deceit, or its equivalent, or to enable the defrauded person to rescind the transaction. The requirements of the law for these two purposes are not always identical. It is undoubtedly true that wherever the circumstances are such as to warrant an action for deceit for inducing a person to enter into a contract, they will certainly warrant avoidance or rescission of the contract. The converse is not, however, true. There are cases where the belief of the deceived person is not due to such a positive or such a fraudulent misrepresentation as would justify an action of deceit;1 and a claim to relief if it exists must be based on the law governing mistake. The essential element of fraud that must exist in any case properly brought within that designation is a mistake of one party as to a material fact, induced by the other in order that it might be acted upon, or (in cases where there is a duty of disclosure) at least taken advantage of with knowledge of its falsity to secure action. Generally all of the requirements of the action of deceit will be found to exist. These are: (1) A false represents tion of material facts. (2) Knowledge of the falsity of the representations by the person making them.2 (3) Ignorance of the falsity on the part of the person to whom the representations were made. (4) Intent or at least reason to expect that the representations will be acted on by the person to whom they were made. (5) Action by such person to his damage.8 If the mistake of one party is induced by the other with neither knowledge of the error nor wilful indifference in regard to it there is misrepresentation but not fraud. And there is simply mistake if the erroneous belief was not induced by the other party.
1 In Peek v. Gurney, LR.6H. L. 377, 403, Lard Cairns said: "Mere nondisclosure of material facts, however morally censurable, however that nondisclosure might be a ground in a proper proceeding at a proper time for setting aside an allotment or a purchase of shares, would in my opinion form no ground for an action in the nature of an action for misrepresentation. There must, in my opinion, be some active misstatement of fact, or, at all events, such a partial and fragmentary statement of fact, as that the withholding of that which is not stated makes that which is stated absolutely false." And, in Deny v. Peek, 14 A. C. 337, 360, Lord Herschell said: "Where rescission
* is claimed it is only necessary to prove that there was misrepresentation; then, however honestly it may have been made, however free from blame the person who made it, the contract, having been obtained by misrepresentation, cannot stand. In an action of deceit, on the contrary, it is not enough to establish misrepresentation alone; it is conceded on all hands that something more must be proved to cast liability upon the defendant, though it has been a matter of controversy what additional elements are requisite. I lay stress upon this because observations made by learned judges in actions for rescission have been cited and much relied upon at the bar by counsel for the respondent. Care must obviously be observed in applying the language used in relation to such actions to an action of deceit."
2 This is not requisite in all jurisdictions. See irrfra, Sec. 1509.
3 Bigelow, Torts, Sec. 110.