Fraud For Contracts

TABLE OF CONTENTS

• Key takeaways
• Introduction
• Definition under Section 17 of Contract Law
• Constituents of Fraud

1. Active Concealment
2. Promise without the intention of keeping it
3. Establishing facts without being convinced of it’s accuracy
4. Ambiguous Statement
5. Reckless statement

• Silence as Fraud
• Conclusion

KEY TAKEAWAYS

• Section 17 of Indian Contract Act,187 describes what is fraud in terms of a contract.
• The key contrast between fraud and misrepresentation is that, in the former, the person making the statement does not think it to be real, while in the latter, he does.
• Active concealment is the practise of a party when, in spite of a legal requirement to do so, the party refuses to reveal important contract information.
• To establish a case of fraud, it must be shown that the party making the statements knew their claims to be false.
• Section 19 explains the voidability of contracts in the absence of free consent.

A fault in consent is connected to fraud, deception, and duress, which will eventually lead to the contracts' relative invalidity. Indian Contract Act,1872 which governs all the contracts of India blatantly lays out that for a contract to be valid there should be “free consent”.

Fraud is specific consent defect where one of the contractual party is deceived into the contract by the another party. A fraud may occur from the activity of a third person, but the law lays out that for a action of fraud The action must be deliberate and should be via the contractual parties.

In this article we will be discussing the meaning and the constituents of fraud.

DEFINATION

In today’s world authenticity is slowly becoming endangered, we’ve to acknowledge the factthat all of us in some aspects of life have been subjected to fraud, Section 17 of Indian Contract Act,187 describes what is fraud in terms of a contract.

Fraud is implied by and includes any of the following actions that a contracting party, his accomplice, or his agent engages in with the intention of deceiving or inducing another party, or his agent, to enter into the agreement.

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 by 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.

Now that we are clear that any representation made under these circumstance are fraud, a major question arises what is no statement of facts are there but the intention to fraud is still intact, will that amount to fraud?

To answer this, mere silence in regard to those facts which has a very slight or no possibility of affecting the willingness of a party to enter a contract isn’t counted as fraud. the circumstance of the case is such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence, in itself is, equivalent to speech.

The ways mentioned here is just the literal definition of fraud, further we will explore the various constituents and aspects of fraudulent activities.

DIFFRENCE BETWEEN MISREPRESNTATION AND FRAUD

The key contrast between fraud and misrepresentation is that, in the former, the person making the proposal does not think it to be real, while in the latter, he does, even though in both situations the promisee is deceived by a misrepresentation of the truth.

CONSTITUENTS OF FRAUD

1. ACTIVE CONCEALMENT

Active concealment is the practise of a party when, in spite of a legal requirement to do so, the party refuses to reveal important contract information. It requires more than just ineffective concealment; it requires a purposeful act of concealment. It's essential to comprehend how silence relates to the unresistant caching. The law states that while simple silence does not amount to fraud, it may do so when the individual should be speaking or when silence is equivalent to speech.

2. PROMISE WITHOUT INTENTION OF EXECUTING IT

A promise is automatically considered false, when there is no intention of keeping it. For a claim to be successful under this Section its essential for the peomisee to prove that the peomise made to them by the promisor never had the intention to carry it, since any after conduct or representation isn't taken into account.

3. ESTABLISHING FACTS WITHOUT BEING CONVINCED OF THEIR ACCURACY

To establish a case of fraud, it must be shown that the party making the statements knew their claims to be false. The claim must be factually and substantively untrue. Positive falsity knowledge is not a requirement. Fraud requires that the statement be made with knowledge of its falsity or without belief in its veracity by the person in question

Even mere ignorance as to the truth or falsehood of material assertion, which, however, turns out to be untrue, is deemed equivalent to the knowledge of its untruth, as also where the representor suspected that his statement might be inaccurate, or that he neglected to inquire into its accuracy

a. Jewson & Sons Ltd v. Arcos Ltd

It must be established that the claims were false in order to demonstrate that a claim was made knowingly by the person making it. The claim must be untrue on both a substantive and factual level.

4. RECKLESS STATEMENT

Whether the representation is made recklessly or intentionally, the existence of fraud can be established with only the proof of absence of an actual and honest belief; the representor's indifference or recklessness regarding the truth or falsity of the representation only provides an example of such absence. Statements made carelessly would include those stated without a conviction in the veracity of the assertion.

5. AMBIGUOUS STATEMENTS

The individual to whom the representer makes an ambiguous statement must establish that he interpreted it to mean that it was in reality untrue. If the statement was meant to be perceived in that way, the representor will be found guilty of fraud rather than if he honestly thinks it to be true but the person depending on it interprets it otherwise. The exemption in section 19 is useless after it is determined that the representation was fraudulent under this paragraph, and it makes no difference whether the person who is alleging fraud had the resources to find the truth with reasonable effort or not.

WHEN IS SILENCE CONSIDERED AS A FRAUD

Silence to those facts where there is absolutely no obligation to speak or when it’s equal to an expression doesn’t amount to fraud.

However, the standard rule here has two aspects attached to it

1. suppressing portion of the known facts may mislead the assertion of the remainder, although literally true as far as it goes. In such a case, the declaration is substantially incorrect, and fraudulent is the willing rejection that makes it so
2. Secondly, commercial use may impose a obligation to disclose specific flaws in products sold or the like. In such a situation, failure to mention such a defect is equal to an statement that there is no such defect.

It should be noted that mere silence doesn’t amount to a fraud, but if silence factin a particular situation, it may amount to misrepresentation.

Section 19 explains the voidability of contracts in the absence of free consent. The first exception of this section explains that if a party gave consent to the terms of the contract by silence or by misrepresentation, the contract would not be voidable if the party could have discovered the truth by ordinary diligence. Here, the silence or the misrepresentation must fall under the ambit of fraud as mentioned under Section 17.

CONCLUSION

A desperate financial need may be the cause of frauds prevalent all across the globe. Today the courts are are willing to engage with various factual circumstances to ensure that parties’ intentions are upheld, prudence is always key to reducing the commercial risks and potential litigation in the formulation of contracts.