Derry v Peek (1889)

Contract I · Free Consent

Facts.

Company directors stated in a prospectus that the company had the right to use steam trams, honestly believing government consent would follow. Consent was refused, shareholders lost money and sued the directors for fraud.

Issue.

Is an honestly believed but false statement fraud?

Held.

No. Fraud requires a false statement made (i) knowingly, (ii) without belief in its truth, or (iii) recklessly, not caring whether it is true or false. An honest, even if careless, belief in the statement is not fraud (it may be misrepresentation).

Why it matters.

It fixes the mental element of fraud and the crucial line between fraud (dishonest → damages) and innocent misrepresentation (honest → rescission only).

📄 Full Contract I notes + Question Bank (₹249) — every topic in depth, model answers to all past KSLU questions, in one printable PDF. Get the bundle · All landmark cases · All Contract-I topics