Meaning:
The term ‘fraud’ includes all acts committed by a person with an intention to deceive another person.
Fraud is the willful representation made by a party to a contract with the intent to deceive the other party or to induce such party to enter into a contract. It means made knowingly or without belief in its truth or recklessly without caring whether is it true or false.
Definition:
According to Section 17, “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 or to induce another party thereto or his agent, to enter into the contract.”
1. The suggestion as a fact, of that which is not true, by one who does not believe it to be true.
2. The active concealment of a fact b one having knowledge or belief of the fact.
3. A promise made without any intention of performing it.
4. Any other act fitted to deceive.
5. Any such act or omission as the law specially declares to be fraudulent.
1. Suggestion Regarding Facts:
When a party to the contract makes a false statement intentionally, he would be liable for fraud. But if a person honestly believes his statement to be true, he cannot be held liable for fraud.
Example:
1. A tells B known to be false that his factory produce 500 pound of butter per day. On this suggestion, B agrees to buy the factory. A is guilty of fraud.
2. A known that his watch is made in Pakistan. In order to sell his watch he tells B that it is made in Japan. B buys the watch. A is guilty of fraud.
2. Active Concealment of Fact:
When the party to be contract conceals material facts, essential to the contract, which he is under an obligation to disclose to the other party before entering into a contract he is guilty of fraud. According to sale of goods act, the seller is bound to disclose to the buyer about the faults in the goods hi is selling.
3. Promise without Intention of Performing:
The initial intention into to perform the promise that is being made is a necessary element to constitute fraud. Thus, where a person enters into a contract and obtains possession of goods with the intention of not paying for them, he commits fraud.
Example:
1. X purchases certain good from Y on credit without any intention of paying for them as he was under insolvent circumstances. X is guilty of fraud.
2. A knowing that he has no money, takes a dinner in a hotel with an intention of slipping away. A is guilty of fraud.
4. Any act with Intension to Deceive:
This is general clause and includes all cases not falling within any of the other clauses provided the act is fitted to deceive. A person can adopt different methods to cheat the other party. It is therefore difficult to explain all the methods under the definition of the fraud.
Example:
A company issued prospectus containing statement which was true that company has paid divided between 2004 and 2005. In fact in these years the company suffered losses and paid dividend out of secret reserves.
5. Any Act or Omission:
According to this section it is obligatory to disclose relevant facts to the other party in certain cases. The seller is bound to disclose to the buyer all material defects about the property i.e. property is mortgaged etc. If some one omits to disclose facts he would be guilty of fraud.
A mere expression of opinion or commendatory expression is not fraud. For example if some one says tat land is very fertile or our products are best in the market.”
6. Contracts of Marriage Engagement:
Every material fact must be disclosed by both parties to a contract of marriage otherwise the other party is justified in breaking off the engagement.
Elements of Fraud
1. The fraud must have been committed by a party to the contract or with his connivance or by his agent. fraud by a stranger to contract does not affect its validity.2. There must be anyone of the above mentioned in last post in act of fraud.
3. The act of fraud must have been committed with the intent to deceive and must actually deceive. A deceit which does not deceive is not fraud. No cause of action arises where there is fraud without damage or damage without fraud. An action lies where these two occur together.
4. The representation must have been aimed at the other party ti contract or his agent or with a view to induce the other party to enter into the contract, Such representation must have been made before the conclusion of the contract.
5. The other party must have suffered a loss.
Distinction between Fraud and Misrepresentation:
The following are the points of distinction between the two:
FRAUD | MISREPRESENTATION |
Intention In case of fraud, the party makes a False statement with an intention to deceive the other party. | In case of misrepresentation there is no intention to deceive the other party. |
Belief In case of fraud, the person making the suggestion does not believe it to be true. | In case of misrepresentation the person making the suggestion believes it to be true. |
Damages In fraud, the aggrieved part can Claim damages in addition to the right of avoiding the contract | In misrepresentation entitles the party to avoid contract and there can be no suit for damages |
Offence Fraud may amount to an offence of cheating. It is a criminal act. | Misrepresentation does not amount to a Offence of cheating. It is not a criminal act. |
Truth In case of fraud, the aggrieved party can avoid contract even if it had the means of discover the truth with Ordinary diligence. | In case of misrepresentation aggrieved party cannot avoid the count if it had means to discover the truth ordinary diligence. |