First Principles of Business Law

10. Deceit

10.1. Liability for intentionally misleading another person

Read the example below, and then answer the questions.

B wants to buy A's hairdressing business. B asks A what profits the business makes. A tells her that over the last five years there has been an average annual profit of $50,000. On the basis of this information B offers to pay $300,000 for the business. A accepts the offer. After running the business for a year, B makes a profit of only $5,000. Enquiries then reveal that A had never made more than $5,000 profit in any one year. Had she known this fact, B would have offered to pay only $30,000 for the business.

1. To succeed in an action for deceit, does B have to prove that A knew his statement was false AND that he intended B to rely and act on it?

2. If A had made the statement not to B directly, but to a business associate of B who had passed the information on to B, could A still be liable to B for deceit?

3. Must B be able to prove that she has suffered actual loss before she can claim damages on grounds of A's deceit?