Preface
Fraud is a misrepresentation that is made recklessly without belief in its truth to induce another person to act.
Relevant Provisions
Sections 17 and 19 of the Contract Act, of 1872 deal with fraud.
Definition of Fraud
According to Section 17 of the Contract Act, Fraud is defined as
Fraud means and includes any of the following acts committed by a party to a contract or with his connivance, or by his agent with intent to deceive another party thereto or his agent or to induce him to enter into a contract.
Ingredients of Fraud
The ingredients of fraud are the following.
1. Intention to deceive
Fraud includes acts that are committed with intent to deceive i.e. to mislead somebody. Fraud is committed by a party to the contract. Fraud can be committed through connivance or by an agent.
2. Active Concealment of facts
Fraud is committed to induce somebody to enter into a contract. Deceptively inducing somebody to enter into a contract that would lead to his legal injury is also included in fraud.
Concealment of Facts
It is fraud where a party to a contract actively conceals certain facts from the other party and the other party in ignorance of those facts enters into the contract.
Active Concealment: It is done when the person has knowledge of a fact and also the effect of that fact on the contract if the other party came to know of it.
Passive Concealment: Passive concealment means mere silence as to material facts.
A) Mere Silence is no Fraud
Ordinarily, mere silence is no fraud even if its result is to conceal facts likely to affect the willingness of a person to enter into to contract. A contracting party is under no obligation to disclose the whole truth to the other party or to give him the whole information in his possession affecting the subject matter of the contract.
B) When Does Silence amount to Fraud?
Following are the case where silence amounts to fraud.
i) Duty to Speak
The duty to speak arises in relationships of trust and confidence. It arises when the other party’s trust and confidence are in the first party’s statements. It arises when the other party is acting without any means of discovering the truth but for the statements made by this party. In fiduciary relationships, a duty to speak exists.
ii) Where Silence is Deceptive
A person who keeps silent knowing that his silence is going to be deceptive is guilty of fraud.
Example: A, the buyer knows more about the value of the property which is subject to sale. But he prefers to keep the information from the seller, the latter may avoid the contract.
iii) Change of Circumstances
Sometimes a representation when made is true but due to some change in circumstances becomes false when actually acted upon by the other party. In such cases, it is the duty of the person making representations to communicate such a change of circumstances.
iv) Half-Truth
A person who is under no duty to disclose a fact, by mistake discloses half of it and does not mention the rest of it, creates a duty to speak and if he does not do it, it amounts to fraud. Everybody knows that sometimes half a truth is no better than a falsehood.
v) No Intention to Perform
If a person ties up another in a promise only to prevent the other from forming other contracts, it constitutes fraud. To bring the case within the boundaries of Section 17(3), it must be proved that the promisor had no intention of performing it.
Example: A marries ‘B’ without any intention of regarding the marriage as real; it would be held that ‘B’s consent was taken under fraud.
vi) Fraud by Act or Omission
The acts or omissions are the determining factors of the intention of a person. Where it is obligatory to disclose a fact, an omission to do so would constitute fraud.
Effects of Fraud on Agreement
Under Section 19 of the contract act, of 1872, when the consent of an agreement is caused by coercion, fraud, or misrepresentation, the agreement is voidable at the option of the aggrieved party. Thus if fraud is committed, the agreement is voidable at the option of the aggrieved party.
Exception
The contract is not voidable at the option of the aggrieved party if he had the means to discover the truth for himself with ordinary diligence.
Burden of Proof
The burden of proof lies on the party who alleges that fraud had been committed against him. Fraud cannot be directly proved; it has to be inferred from the surrounding circumstances and conduct of the parties.
Final Note
In fraud, one of the parties deceives the other party. It may be due to the fiduciary relationship between the parties in which one party holds a dominant position and affects the opinion of the other party.
REFERENCES
- The Contract Act, 1872
- N-Series by M.A. Chaudhary
- Law of Contract by Avtar Singh
