CAN A PRINCIPAL BE LIABLE FOR FRAUD FOR THE MISREPRESENTATION OF HIS AGENT WHEN HE HAD KNOWLEDGE OF THE FALSITY OF THE REPRESENTATION?.
It has been widely recognized in English law that you cannot establish the mens rea for fraud by putting together to innocent states of mind. There is some authority starting with the case of Cornfoot v Fowke which states that when an innocent agent who lacks the necessary dishonesty makes a misrepresentation to a third party and the principal know that this statement is false there won’t be a finding of fraud on the part of the principal. The reasoning behind this is that the agent was innocent in making the misrepresentation and the principal had not authorized it or did not know that the statement was being made since in such case there was nothing the principal could do to prevent the agent from making that statement. ( See Cornfoot v Fowke (1840) 6 M.& W. 358) This principal was reiterated in the case of Armstrong v . Strain, 1952. In other words we have no wrongful act being made eg. the misrepresentation was made innocently and at the time of the making of that act a state of mind with knowledge of the said act which could be prevented or stopped by the principal or another agent is actually missing. This knowledge may be proved through authorization or under the circumstances knowledge that the statement was being made. In that sense a second agent or the principal fraudulently allows the misrepresentation to be made or he just stood by it. This is an extract from the case of Cornfoot v Fowke which demonstrates the difficulties concerning such a case ” [Parke, B. The difficulty here is, that under this plea you are to make out fraud in the plaintiff or his agent; but it is not shewn that the agent knew of the existence of this objection to the house and the plaintiff did not know and the plaintiff did not make the representation or know of its having been made If you could make out that the plaintiff knew that Clarke was ignorant of it, and had employed him on purpose that he might make that answer, then it might have been a fraud in the plaintiff . At first it may seem unjust not to find fraud in a principal who has not disclosed a material fact to his agent as it seems that he can escape fraud with impunity but this seeming injustice is masterfully explained by ROLFE B in Cornfoot v Fowke in paragraph 370 of the judgment by reference to the case of Pickering v. Dawson, 4 Taunt 779 where he states that since all the facts were consistent with the hypothesis that the plaintiff innocently gave no directions whatever on the subject, supposing that the intended tenant would make the necessary inquiries for himself, or even with the stronger supposition that he expressly desired Clarke not to make any representations at all on the subject. If the plaintiff knowing of the nuisance expressly authorized Clarke to state that it did not exist , or to make any statement of similar import or if he purposely employed an agent ignorant of the truth in order that such agent might innocently make a false statement believing it to be true and might so deceive the party to whom he was dealing; in either of this cases he would be guilty of fraud”. Therefore considering the above scenario if the principal had authorized the statement or information of similar import or had even known that the agent was making the false statement to the third party and he possessed the required fraudulent mind or even if a second agent or principal stood by while knowing that the false representation was being made and that it was false then again the principal or company will be liable in fraud. ( knowledge of the falsity or recklessness combined with a dishonest state of mind) ( see London County Freehold v Berkeley Property Co Ltd [1936] 2 All E.R. 1039). Moreover if the principal has authorized, procured, approved or encouraged the making of a false representation by the agent who was unaware it was false the principal’s guilty knowledge will be sufficient to attract liability in deceit. All these acts show knowledge that a misrepresentastion is being made and when he had knowledge of the misrepresentation or he was reckless as to its truth then the principal will be liable for fraud. DOES THE SAME APPLY TO NON DISCLOSURE? Let’s suppose that the principal has not authorized a certain statement or encouraged it but he deliberately concealed facts from the agent intending the representee to be misled. In this case he will be equally liable for fraud or if he was reckless as to whether he may be misled. ( see para18-23, chapter 18-deceit, Clerk and Lindsell on Torts and also para 18-28 – Representation must be intended to be acted on by the claimant ” It seems that intent, for these purposes, includes not only the case where the defendant actually desires the claimant to rely in what he says, but also where he appreciates that in the absence of some unforseen intervention he will actually do so”. More importantly, the same applies to non disclosure by a principal to the agent of certain facts rather than authorizing a positive representation. THE REVERSE IS ALSO POSSIBLE. So the same principles will apply when the principal makes a represenation and the agent knows the statement to be true and does not intervene to correct it while the principal makes the represenation innocently.
