‘CONSENT’ DEFINED
Two or more persons are said to consent when they agree upon the same thing in the same sense.
FREE CONSENT : Consent is said to be free when it is not caused by:
1. COERCION (SECTION 15)
2. UNDUE INFLUENCE (SECTION 16)
3. FRAUD (SECTION 17)
4. MISREPRESENTATION (SECTION 18)
5. MISTAKE (SUBJECT TO PROVISION OF SECTION 20, 21 & 22)
FREE CONSENT SECTION (14)
When there is no consent, there is no contract. It is one of essentials of a valid contract. Parties to the contract should enter into the contract with free consent. Free consent is mentioned in sec-14. If the consent of one of parties is not free, it is no contract. If one of the above stated factors causes consent, the contract is not a valid contract. If consent in an agreement is caused by
(a) coercion or
(b)undue influence or
(c)fraud or
(d)misrepresentation,
The agreement is a contract voidable at the option of party whose consent was so caused. If the consent is caused by mistake, the contract is void.
FRAUD (SECTION 17)
The definition of fraud has been defined under SECTION 17 of Indian Contract Act, 1872 as, “FRAUD means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agents, with intent to deceive another party thereto his agent, or to induce him to enter into a contract.”
- the suggestion as a fact, of that which is not true, by one who does not believe it to be true;
- the active concealment of a fact by one having knowledge or belief of the fact;
- a promise made without any intention of performing it;
- any other act fitted to deceive;
- any such act or omission as the law specially declares to be fraudulent.
Thus, the above-mentioned act committed by any party to the contract amounts to fraud, and such contracts are voidable in nature at the option of another party who has been deceived.
Mere silence as to facts is not a fraud unless the circumstances are such that it is duty of person to speak or his silence is itself equivalent to speech.
ILLUSTRATION:
- A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse’s unsoundness. This This would amount to fraud.
- B says to A - “If you do not deny it, I shall assume that the horse is sound”. A says nothing. Here, A’s silence is equivalent to speech.
- A and B, being traders, enter upon a contract A has private information of a change in prices which would affect B’s willingness to proceed with the contract. A is not bound to inform B.
ESSENTIALS OF FRAUD
1. THERE SHOULD BE A SUGGESTION AS A FACT
First of all, one of the parties should make suggestions a relevant fact to the other party concerning the contract. Such, facts in the contract should not be known to the other party.
2. THE SUGGESTED FACT SHOULD NOT BE TRUE
The suggestion made concerning the fact should not be true and should not be known to the other party.
3. ACTIVE CONCEALMENT OF FACT
The active concealment of fact means if any party to the contract hides the material fact from the other party which should be known to the contracting party.
FOR EXAMPLE, A enters into contract with B for purchase of C’s property who is father of B. B by his acts made A to believe that C is dead and B has authority to sale the property.
4. PROMISE SHOULD BE MADE WITHOUT THE INTENTION OF PERFORMING IT
The one-party makes a promise to perform the contract, but he has the intention not to perform the contract agreed with the other party. Entering into a contract without the intention of performing it amounts to fraud.
FOR EXAMPLE, A takes a loan from the bank without any intention to repay the loan. The act of A is fraud.
5. THE SUGGESTION SHOULD BE MADE TO DECEIVE THE OTHER PARTY
Any suggestion made by one party to another in contract, to deceive the other party, makes the false suggestion of fact about the contract.
MERE SILENCE DOES NOT AMOUNT TO FRAUD
To constitute a fraud there should be representation of untrue facts. Active concealment also amounts to fraud because there is a positive effort to hide the truth and create an untrue impression on the mind of other. Mere silence as to fact is no fraud. A contracting party is not responsible to disclose every thing to other party. If a person sells his goods, he is under no duty to disclose defects in his goods. If a person sells, his goods by making a false statement about quality of his goods that would amount to fraud but mere silence is no fraud.
In case of SALE OF GOODS, the rule is "Caveat Emptor" which means let the buyer beware that it is duty of buyer to be careful while purchasing goods.
FOR EXAMPLE "A" sells a horse to "B". "A" knows that horse is of unsound mind. "A" does not disclose any thing about mental condition of horse to "B" and "B" enters into contract with A to buy the horse. The act of A would not amount to fraud.
In DERRY V. PEEK 1889, company issued a prospectus, stating that company is authorized by a special act of parliament to run Trams by steam or mechanical power. But the sanctioning authority, the Board of Trade refused the permission and there fore company was wound up. The plaintiff a shareholder who bought some shares brought an action against the directors for fraud. It was held that the directors are not liable because they honestly believed that once the parliament has authorized the use of steam to run the Trams and the consent of the board of Directors will be given to it. It was held that there was no fault on behalf of the candidate. The court found that the candidate has just kept silent as to certain facts and this
In SHRI KRISHAN V/S KURUKSHETRA UNIVERSITY, 1976, Shri Krishan was a law student pursuing in LL.B. 1st year and has no regular attendance in the class. He did not mention his short attendance in the admission form of the examination. Later, before the examination, the law department found that Shri Krishan has short attendance and the university wanted to cancel the candidature of the candidate to appear in the examination on the ground of fraud.
In SHRI KRISHNA V. K.U., a candidate who had full knowledge of the fact that he was short of attendance, did not mention this fact to the university in his examination form. It was held that it is not a fraud. It is the duty of the university to scrutinize and call for verification or information in case of doubt. Hence, university was stopped from canceling the examination of the candidate.
THERE ARE TWO EXCEPTIONS WHERE MERE SILENCE DOES NOT AMOUNT TO FRAUD:-
- Where his/her duty is to speak keeping silence is fraud.
- Where keeping silence is equivalent to speech. Such silence is fraud.
EXCEPTIONS
1. DUTY TO SPEAK
There is no legal provision which states that every person has a duty to disclose all the facts which are known to him. But, we can say it is a general duty of a person to disclose facts that are not or might not be known to the other party.
In a contract, if one party does not disclose material facts relating to the contract to the other party and this affects loss to the other party or failure in the performance of the contract then it would be amount to fraud.
So, here keeping silent will amount to fraud.
2. WHEN SILENCE IS EQUIVALENT TO SPEECH
Sometimes keeping silent or hiding certain facts may be capable of creating an impression as to the existence of a certain situation. In this case, keeping silent amounts to fraud.
EFFECT OF FRAUD
According to SECTION 19 of the Indian Contract Act, 1872, if any consent to the contract is obtained by fraud, then the contract is voidable at the option of the party whose consent has been obtained using fraud.
The deceived party has the option to make this contract either valid or void.
DIFFERENCE BETWEEN FRAUD & MISREPRESENTATION
