What is Fraud? According to section 17 of The Contract Act, “Fraud” means and includes the following acts committed by a party to a contract or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract.
The suggestion as to 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.
From the above definition, we find that fraud is a false representation of fact, made with a knowledge of its falsehood recklessly without belief in its truth, with the intention that it would be acted upon by the other party and actually inducing him to act upon it. The frauds must have been committed by a party to the contract or by his agent, with the intention to deceive another party thereto or his agent, to induce him to enter into the contract.
Illustration (i) A sells his goat to B which A knows to unsound. But A says to B that goat is quite sound. B believes and purchases it. This is a fraud committed by A.
Illustration (ii): A sells a goat to B, which A known to be unsound. A says nothing to B about the goat’s unsoundness. This is not a fraud in A.
Illustration (iii): In the above Illustration, if B is the son of A, then it is the duty of A to tell about the unsoundness of goat to B. if he does not disclose it to him, it would am to frauds.
ACTS OF FRAUD
The acts of fraud include the following:
1. SUGGESTION ABOUT FACT
When a person himself knows that a fact is not true but he gives suggestion to another person that the fact is true, it amounts to frauds. But when he honestly believes that the statement is true but actually it is not true, it cannot be considered as frauds. In short, when a false statement is intentionally made, it is said to be fraud.
Illustration: A the manager of B’s factory tells to C that B’s factory produces 500 units of product daily. But A knows that factory produces only 400 units daily, C purchases the Bis factory on A’s suggestion. so it is a fraud committed by C.
2. ACTIVE CONCEALMENT OF A FACT:
The active concealment of a material fact when a person has its knowledge but he does not disclose it on the inquiry of another party it is a -fraud.
Illustration: A bolts his horse to B, A knows that the horse is unsound, gut on the inquiry by B about the soundness of A remains silent, It is an active concealment of the foci and it amounts to be a fraud.
3. PROMISE MADE WITHOUT INTENTION TO PERFORM
When a person enters into a contract with the intention that he will not perform is a fraud on his side.
Illustration: A sells 500 units of his product at a lower rate than the market to B with the intention that he will not perform the contract, He also gets Rs. 1000 from B, it is a fraud committed by A with B.
4. ANY ACT FITTED TO DECEIVE:
When one person performs any act, the main purpose of which is to deceive the other party, it is also considered as frauds, It was difficult to explain all the methods of frauds in the definition, so it has been explained that any act committed to deceive another party is a fraud.
5. ACT OR OMISSION:
Any act or omission which is specialty declared as fraudulent by any law applicable in Pakistan is also considered as frauds.
Illustration: A sells his piece of land to B and gets RS. 10000, which he has already sold to C, is also an act of frauds committed by A
ESSENTIAL ELEMENTS OF FRAUD
The following are the essential elements of fraud:
(1) There is a false statement or active concealment related to the material fact of the contract.
(2) This false statement is given with the knowledge of its faishood.
(3) The purpose of false statement or active concealment is to induce the other party to enter into a contract
(4) The main purpose is to deceive the other party and the other party must have actually been deceived.
(5) The act of fraud must have been committed by a party to the contract or by his agent.
(6) Any promise made without the intention of not performing it.
(7) Any act or omission specially declared by law as fraudulent
EFFECT OF FRAUD
When the consent of any of the contracting parties is caused by fraud, the contract is voidable at the option of the party who consent is caused by fraud. He may avoid the contract or may withhold or he can claim for damages.
Illustration: A who knows that his horse is unsound, declares it to be sound to B and sells him. It is fraud committed by A with B. So the contract is voidable at the option of B and not of A.
WHEN SILENCE AMOUNT TO FRAUD
According to section 17, the mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them and it is the duty of the person keeping silence to speak or unless his silence is, in itself, equivalent to speech.
Illustration: A is a son of B and sells B’s horse in the presence of B to C. at the time of delivery, B refuses to perform the contract on the ground that he had not allowed A to sell his horse. Here B’s silence at the time of contract will be amounted to be fraud.