What is Fraud in law?

The term ‘fraud’ includes all acts committed by a person with an intention to deceive another person. 

Definition : According to Section 17, ‘fraud means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent,. with intent to deceive or to induce another party thereto or his agent, to enter into the contract:

1. The suggestion that an act is true when it is not true by one who does not believe it to be true. Thus a false statement intentionally made is fraud. An absence of honest belief in the truth of the statement made is essential to constitute fraud. If a representor honestly believes his statement to be true, he cannot be liable in deceit no matter how ill-advised, stupid, or even negligent he may have been. In order to be called fraudulent representation the false statement must be made intentionally. Lord Herschell gave the definition of fraud in Derry vs Peep as, “a false statement made knowingly or without belief in its truth, or recklessly careless whether it be true or false.”

2. The active concealment of a fact by a person who has knowledge or belief of the act. Active concealment of a material fact is taken as much and as if the existence of such fact was expressly denied or the reverse of it expressly stated. Mere non­ disclosure is not fraud, where there is no duty to disclose. 

Caveat Emptor or ‘Buyer Beware’ is the principle in all contracts of sale of goods. As a rule the seller is not bound to disclose to the buyer the faults in the goods he is selling.

Illustrations

(a) A, a horse dealer sells a mare to B. A knows that the mare has a cracked hoof which he fills up in such a way as to defy detection or on enquiry from B, A affirms that the mare is sound. The defect is subsequently dis-covered by B. There is ‘fraud’ on the part of A and the agreement’ can be avoided by B as his consent has been obtained by. fraud.

(b) A, sells by auction, to B a horse, which he knows to be unsound. A says nothing to B about the horse’s unsoundness. This is not ‘fraud’ because A is under no duty to disclose the fact to B. the general rule of law being ‘let the buyer beware’ [Illustration (a) to Section 17].

3. A promise made without any intention of performing it. If a man while entering into a contract has no intention to person his promise, there is fraud on his part.

Illustrations

(a) X purchases certain goods from Y on credit without any intention of paying for them as he was in insolvent circumstances. It is a clear case of fraud from X’s side. Note that mere failure to pay, where there was no original dishonest intention, is not fraud.

(b) Where a man and a woman went throug a ceremony of marriage without any intention on the part of the husband to regard it as a real marriage, it was held that the consent of the wife was obtained by fraud and that the marriage was mere pretence. (Shireenl vs John J J. Taylor).

4. Any other act fitted to deceive. “the fertility of man’s invention in devising new schemes of fraud is so great that it would be difficult, if not impossible, to confine fraud within the limits of any exhaustive definition. All surprise, trick, cunning, dissembling and other unfair way that is used to cheat anyone is considered fraud and sub-section (4) is obviously intended to cover all those cases of fraud which cannot appropriately be covered by the other sub­sections.

5. Any such act or omission as the law specially declares to be fraudulent. This sub-section refers to the provisions in certain Acts which make it obligatory to disclose relevant facts. Thus, for instance under Section 55 of the Transfer of Property Act, the seller of immovable property is bound to disclose to the buyer all material defects in the property (e.g., the roof has a crack) or in the seller’s title (e.g., the property is mortgaged). An omission to make such a disclosure amounts to fraud.


Thus, in order to allege fraud, the act complained of must be brought within the scope of the acts enumerated above. A mere expression of opinion or commendatory express is not fraud. “The land is very fertile” is simply a statement of opinion or ‘fur products are the best in the market” is merely a commenda­tory expression. Such statements do not ordinarily amount to fraud.