Fraud in Contract


Fraud in Contract


Fraud means and include, inter alia, the suggestion as a fact of that which is not true, by one who does not believe it to be true and the active concealment of a fact by one having knowledge or belief of fact.

The term fraud is generally applied to case where one person induces another to enter contact on a false representation. Fraud consists of a suggestion of a fact known to or believed by the person making it to be false, active concealment of a known or believe fact, promise made without intention of performing it. Any act fitted to deceive or any act or omission with intent to deceive another party or to induce him to enter into a contract would be deemed to be fraud in law. One may liable for fraud even though he has practiced  it not directly but with connivance or by his agent but mere silence unless it amounts to speak or where one has duty to speak, does not amount to fraud. Fraud is proved when it is shown that a false representation of a fact has been knowingly or without having belief in its truth or carelessly without ascertaining whether the facts is true or false materially inducing a person to act on false representation, and the person induced, does act accordingly and suffers damage thereby. Fraud may also be practiced by tricks, by cunning or unfair means.

Essential ingredients

Bad intention; mere interpolation, authorized or unauthorized. There can be no fraud without bad intention. Fraud depends upon state of mind of a person. Charge of fraud must be substantially proved and contract couldn’t be avoided only because there were certain corrections in body of agreement.” (1989. ALD 385 (2)).

False Representation of Facts

A person who makes false representation with knowledge that they were false is guilty of fraud. It follows that the mere fact that a false representation is made, is not sufficient to bring it within the definition of fraud, there must be evidence to show that their falsity was known to the makers of those representations. (AIR 1964 Kerala 109).

Active Concealment of Facts

Where a party to a contract actively conceal certain facts from the other party and the other party is ignorance of those facts enters into the contract, it is a voidable contract.

Thus the concealment of the true nature and effect of an arbitration agreement by the person who stands in a fiduciary position to another for obtaining the consent of the latter, it  amounts to fraud and renders the award given in the arbitration a nullity.

Promise made without Intention to Perform

Every breach of contact does not amount to fraud. To establish a case of fraud, a promise must be shown to have no intention of performing, at the time of making it thus where a man and a women went through a ceremony of marriage without the former ever having an intent to regard it as a real marriage. It was held that the consent of woman was ordained by fraud. (AIR 1952 Punj. 277).

Other acts of Deception

This clause converse any other act fitted to deceive. Thus where owner of a horse, in order to sell it, concealed cleverly by artificial means a crack in its hoof and rendered it difficult for anyone, except an expert, to discover the defect on ordinary inspection; it was held that there was fraud which entitled the purchaser ; to repudiate his bargain.

Fraud by Act or Omission

In answering the question whether in a given case a person was guilty of fraud or misrepresentation his acts or omission was the determining factor to ascertain his intention as the purpose which he wanted to accomplish through such acts and omissions because fraud is nothing which has direct nexus with the state of mind of person concerned and acts and omission of such person are always taken as expression of his intention.

Burden of Proof

Where fraud is alleged relating to execution of document, burden of proof of the execution of the document would be initially on the party who was relying on the document. One the onus was discharged, burden to prove factum of fraud or undue influence would shift to the party alleging the same. (1996 MLD 377)

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