Fraud

Introduction

Fraud occurs when a party deceives another to induce them into a contract. Contracts entered into by fraud are voidable, as the consent of the deceived party is not genuine. The law aims to prevent dishonest practices and protect free consent.

Meaning / Definition

Section 17 of the Indian Contract Act, 1872 defines fraud as acts committed by a party or their agent with intent to deceive another party or induce them to enter a contract, including:

Suggesting something as a fact which is untrue and not believed to be true.
Active concealment of a fact (suppresio veri).
Promising without intending to perform.
Any other act fitted to deceive.
Any act or omission specially declared by law as fraudulent.

Explanation: Mere silence is not fraud unless there is a duty to speak or silence is equivalent to speech.

Modes or Types

False Statement of Fact

Must be an untrue statement of fact, not opinion.
Example: A person over 60 claims to be 48 to obtain insurance.

Mere Silence

Silence is not fraud unless there is a duty to disclose or silence creates a false impression.

Duty to Speak (Contracts of Uberrimae Fide)

Contracts requiring utmost good faith, e.g., insurance contracts.
Parties must disclose facts known only to them.

Silence Equivalent to Speech

Silence can be treated as fraud if it misleads the other party.
Illustration: If B remains silent when asked about a horse’s condition, creating an impression it is sound, it may amount to fraud.

Active Concealment (Suppresio Veri)

Deliberately hiding facts known to the party to mislead the other party.
Example: Concealing prior sale of property while selling it again.

Promise Made Without Intention to Perform

Making a promise with no intention to fulfill it amounts to fraud.
Example: Taking a loan or buying goods on credit with no intention to repay.

Other Acts Fitted to Deceive

Any act capable of misleading the other party not covered by previous categories.

Acts Declared Fraudulent by Law

Law may specifically declare certain omissions or acts as fraudulent.
Example: Selling property already sold to another party without disclosure (Akhtar Jahan Begam v. Hazarilal).

Important Case Law

Edington v. Fitzmaurice: Directors misrepresented the purpose of debenture funds. Held to be fraud.
Keates v. Lord Cadogan: Mere silence about a ruinous house was not fraud.
Srinivasa Pillai v. LIC of India: Insurance contracts require disclosure of facts; non-disclosure of material facts can constitute fraud.
Akhtar Jahan Begam v. Hazarilal: Concealment of prior sale of property amounted to fraud.

Practical Example

A company issues shares claiming a project will be funded, but the project does not exist. Investors buy shares based on false statements. This is fraud.
A person purchases property without disclosing it is already sold to another buyer. This is active concealment and fraud.

Summary

Fraud is intentional deception to induce another party to contract.

Key forms: false statements, active concealment, promises without intent to perform, acts fitted to deceive, acts declared fraudulent by law.

Mere silence is not fraud unless there is a duty to speak or silence misleads.

Contracts requiring utmost good faith (insurance) have special disclosure duties.

Contracts induced by fraud are voidable, and the injured party can claim rescission or damages.

Important cases: Edington v. Fitzmaurice, Keates v. Lord Cadogan, Srinivasa Pillai v. LIC of India, Akhtar Jahan Begam v. Hazarilal.

Remedies include rescission, damages, and consequential losses, with obligation to mitigate loss.