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Essentials elements of fraud

  • The fraudulent act must be committed with an intention to deceive: An act which constitutes fraud must be committed by a party to a contract with the intention to deceive the other party and induce him to enter into the contract. Mere bluffing like ‘this product is the best in the market’ is not fraud. Such statements of puffery would not amount to fraud. Statements of opinion are not fraud as they are suggestion of a party from his stand point and are a mere opinion on subject matter.

    Example: A, intending to deceive B, falsely represented that 1000 shirts was manufactured daily in his factory and thereby induced B to buy the factory. In fact, the production was 600 shirts per day. The contract is voidable at the option of B as his consent is obtained by fraud.

  • The fraudulent representation or statement must have been made with the knowledge of its falsity: When a party makes false statement/representation with knowledge of its falsity it amounts to fraud. Such purposeful attempt to deceive the other party with false statement/representation though having the knowledge of truth would be considered as an act of fraud. A person making a false statement/representation is not guilty of fraud if he honestly believes in its truthfulness.
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  • The fraudulent act must have been committed by a party to the contract: The fraud must have been committed only by a party to the contract or his authorised agent. A fraud committed by a stranger (i.e. by a person who is not a party to the contract), does not affect the validity of the contract.
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  • The fraudulent act must have actually deceived the other party: The party, induced by fraud must have relied upon the fraudulent statement or act and must have been actually deceived. If one party has committed an act to deceive the other party but the other party has not been actually deceived, it will not amount to fraud.
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  • The representation must relate to material facts: The statement by a person must be an assertion of a fact and not of an opinion, statement of expression or intention. The false representation should be in respect to a fact essential to the contract. A declaration of intention or a mere expression of opinion will not amount to fraud.

    Example: X says to Y that his horse is worth ₹ 5,000. Y buys the horse. Later on, Y comes to know that X has purchased the horse only for ₹ 2,500. Y cannot set the contract aside because the statement was made by a mere expression of opinion and cannot be taken as fraud.


    Note: Stating the value or worth of a commodity is a mere statement of opinion and does not constitute fraud. Only a wrong representation of material facts would amount to fraud.

  • Sufferance of loss- it is understood as a rule that there is no fraud without damages. Occurrence of loss by the party not at fault is essential to claim damages under fraud. If the party not at fault suffers no loss then there is no ground for action for fraud.

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