EFFECT OF FRAUD
INTRODUCTION
When a person willingly makes a statement which is not true then it
amounts to fraud . Fraud has a wider meaning than what is written in the
act . if we see the varieties of fraud they are infinite. Effect of fraud van
be seen anywhere .Effect of fraud can be seen in many types , it affects
emotionally legally and economically but in this project we are mainly
dealing with its legal effects .fraud affects many fields but most evidently
it can be seen in insurance , marriages , banking and in many type of
contracts .it is the fraud that calls for interposition of fraud not the
manner . person can have intention to deceive but it is not necessary that
intention is to injure or to cheat . fraud is not act per se , the plaintiff has
to prove that he has acted upon a fraud statement and he has sustained
damages by doing so , if he fails to do so then the question of intention or
motive is immaterial . Intentionally misrepresented facts are known as
fraud and they are treated under section 17 of Indian Contract Act ,
however , unintentional misrepresented facts come under section 18 of
Indian Contract Act which is dealt under section 18 of the Indian Contract
Act. In this project we will deal with what is fraud according to the statute
and what are it’s legal effects .
FRAUD AS PER THE STATUTE
This Explanation states a very important proposition of law. According to
Explanation to Section 17 – the mere silence as to a fact likely to affect
the willingness of a person to enter into a contract is not fraud. However,
such silence is to be held as fraud , if the circumstances of the case that –
It is the duty of the person keeping silence – to speak
That his silence in itself is equivalent to speech.
Essentials of Fraud
Analyzing the definition of fraud under Section 17 , we get the following
essential elements of fraud –
Party to the contract –
The Act of fraud must be done –
By the party to the contract himself
With his connivance
Or by his agent
There must be a false representation or assertion – Section 17 (1)
To constitute fraud there must be conjugation of 2 things –
A representation or assertion of a fact which is not true and
The person making such representation or assertion of fact does not
believe it to be true.
This is what is meant by suggestion of falsehood coupled with the
knowledge of its falsity.
There must be active concealment of fact – Section 17 (3)
By active concealment of certain facts there is an effort to see that the
other party is not able to know or discover the truth. He is made to
believe something is true whereas that is false. This is known as
SUPPRESIO VERI or suppression of fact purposefully.The implication of
such active concealment is more grave where it is the duty of the person
to disclose – fiduciary relationship.
Illustration -
B having discovered a vein of iron ore in the estate of A adopts means to
conceal and is successful to conceal the existence of the ore from A.
through A’s ignorance he buys that estate at an under value.It is a
voidable contract under Section 2(1) of the Act. So A may cancel the
contract because it is a fraud committed against him by B. the fraud is a
fraud of concealment of fact.When a person makes a promise made
without the intention of performing it – Section 17(3) promise then it is
deemed to be an undertaking by him that he will perform the promise.
According to Section 17(3) if there is no such intention to perform the
contract, at the time when the contract was made, it amounts to fraud.
Any other Act fitted or designed to deceive – Section 17(4)
This provision is general in nature and is intended to include other means
of trick and unfair means intended to deceive any one other than by
means of suggestio falsi, suppresio veri or a promise made without the
intention to perform it. Under this Section, any such acts will amount to
fraud.Any such acts of omission as the law specially declares to be
fraudulent – Section 17(5)
According to Section 17(5) fraud includes any such acts of omission which
specially declares it to be fraudulent. For instance under the TP Act 1882,
under Section 55 , the seller of immovable property is bound to disclose
to the buyer all material latent defects in the property. Not doing so will
amount to fraud.
Representation must relate to a fact-
The representation, assertion, intention or suggestion under Section
17(1) must relate to a material fact.
Any superfluous opinion or exaggerated statement or flourishing
description are not regarded as representation of facts.
Illustration –
A while selling rings to B says – ” the rings are as good as that of Y.” this
is a mere statement of opinion which cannot be regarded as amounting to
fraud.
Wrongful intention –To constitute a fraud it is necessary that a person
should intentionally make a false statement to deceive another party and
thereby induce him to enter into a contract. If the intention to deceive the
party is absent, there is no fraud – vide case of DERRY vs. PEEK.
The acts must have in fact, deceived the party –A mere attempt to
deceive the party is not fraud under the ICA unless the party is actually
deceived. Fraudulent misrepresentation must have been made with an
intention to deceive. According to the Explanation appended to Section 29
of the Act, deceit which does not deceive does not amount to fraud and
cannot hence make the contract voidable.
The other party must suffer loss – To constitute a fraud, under the ICA, it
is necessary that the other party must have suffered some material loss
as a consequence of the deceit. Hence, there is no fraud without damage.
Mere silence / non-disclosure vis-a-vis Fraud
According to Section 11, in order to constitute fraud there must be a false
representation or assertion of a fact – vide Section 17(1). In other words,
there could be suggestio falsi coupled with the knowledge of its falsity.
Active concealment of a fact has also been considered as amounting to
fraud because in that case there is a positive effort to conceal the truth
from the other party. He is made to believe as true that fact which false.
This is what is known as suppresio veri – vide Section 17(2).
At the same time it may be mentioned here that Explanation to Section
17 lays down that mere silence as to facts does not amount to fraud. It
states that – mere silence as to facts does not amount o fraud unless it is
the duty of the person keeping silence to speak or when his silence is
equivalent to speech. Thus a person is required by law to refrain from
intentional or active concealments as to facts. But it does not mean that
he is to disclose all material defects of the contract to the other party. A
contracting party is under no compulsion or obligation to point out the
defects as to the subject matter of the contract to the other party.
Consequences of fraud
According to Section 19 where a consent to an agreement is caused by
fraud , the agreement to a contract is voidable at the option of the party
whose consent was so caused by fraud. Until such time it is avoided, the
contract is valid.
The party defrauded has the following specific remedies –
To rescind the contract
To affirm it
·Rescind and claim for damages
Enforce principle of restitution
·Sue for specific performance
If he chooses to rescind the contract he must do so within
reasonable time. When the contract is rescinded it becomes void
and unenforceable.
However, if the party chooses, he may affirm it , then the question
of rescinding the contract does not arise and the principle of
estoppel will be revoked against him.
Fraud is a tort. Thus, the aggrieved party can in a case of fraud ,
apart from rescinding the contract, can file a suit to claim
damages.
He may enforce the principle of restitution against the other party
– under Section 64 of ICA.
He may insist for a decree of specific performance of the contract
minus the element of fraud.
LITERATURE REVIEW
1.1DUTT on contract- in the case of 2T.suryandra rao it has been held
that fraud vitiates every solemn act . fraud and justice never dwell
together , fraud is conduct either by letter or words which includes the
other person or authority to take a definitive determinative step
1
H.K.Sharay. (2013). dutt on contract. eastern law house.
2 State of A.P. v. T. Suryachandra Rao (2005)6 SCC 149
