Short notes on the Essentials of Fraud

1. There must be a false representation of fact:

It is necessary that the representation must be of a fact. It should not be of opinion.

Example:

A, a shopkeeper tells B that this goods are the best. This is A’s opinion and B is free to reject it, It will not amount to fraud.

If, on the other hand, the shopkeeper ways that the goods are imported and actually they turn out to be Indian. There is fraud, if he knew that the goods were not imported.

2. The representation must have been made by the party himself or with his knowledge or by his agent.

Example:

Directors of a company issued a prospectus containing false representation. On the faith of this prospectus, a person was induced to apply for the shares. This contract could be avoided by the shareholder as the directors are the agents of the company to issue the prospectus. [Reese River Silver Mining Co. v. Smith],

3. The representation must have been made knowingly that it is false or carelessly without ascertaining its truth:

In both the cases, the representation will amount to fraud.

Example:

Director of a company issued a prospectus inviting subscriptions for debentures, and stated that the objects of the issue were to complete alteration in the buildings of the company and purchase horses and vans; the real object was to enable the directors to pay off pressing liabilities. The statement as to the objects for which the money was wanted was held to be fraudulent. [ Edgington v. Fitzmaurice],

This statement was false and made knowingly. Similarly, where a statement is made not knowingly that it is false, but carelessly without ascertaining its truth, it will amount to fraud if it is proved false. A party making the statement is under an obligation to ascertain its truth. If it is doubtful, then the party should not make any statement saying it to be true, which later on proves to be wrong, otherwise the party will be guilty of fraud.

4. The representation must have been made with an intention to deceive and it must actually deceive:

A deceit which does not deceive is no fraud. The other party must have been induced to enter into an agreement because of the representation. If this is not so, then there is no fraud.

Example:

A, while selling an unsound horse, put up on the stable’s door a forged certificate from a veterinary surgeon that the horse was sound. B, a purchaser, did not notice the certificate and purchased the horse. B cannot avoid the contract on the ground of fraud. In this case, B was not in reality induced by the forged certificate to purchase .the horse as he had not seen the certificate.

5. The party complaining of fraud must have suffered damages due to fraud:

No damage, no fraud is the general rule. Fraud without damage or damage without fraud does not give rise to an action for deceit.