DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, A.P., INDIA

PROJECT TITLE
FRAUD AND UNDUE INFLUENCE

SUBJECT
LAW OF CONTRACTS

NAME OF THE FACULTY

PROF. SUNITA

NAME OF THE CANDIDATE

BURIDI DAALU RAJA ASHISH

ROLL NO &SEMESTER
19LLB027 & SEMESTER – II

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ACKNOWLEDGEMENT:-
I w0uld like t0 express my gratitude t0 “PROF. SUNITA” wh0 have given me the g0lden
0pp0rtunity t0 d0 this w0nderful pr0ject 0n the TOPIC “FRAUD AND UNDUE
INFLUNECE”, which als0 helped me in d0ing l0t 0f research and thr0ugh which I came t0
kn0w s0 many new things.

Sec0ndly, I w0uld als0 like t0 thank my friends wh0 als0 helped me a l0t in c0mpleti0n 0f
pr0ject within the limited time.

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TABLE OF CONTENTS:

1. ABSTRACT………………………………………………………………………………4

2. SYNOPSIS………………………………………………………………………………..5-6

3. FRAUD……………………………………………………………………………………7

4.

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ABSTRACT

There have to be two parties to a contract, who willingly and knowingly enter into an agreement.
But how does the law determine if the parties are both these things? This is where the concept of
free consent comes in.  In the Indian Contract Act, the definition of Consent is given in Section
13, which states that “it is when two or more persons agree upon the same thing and in the same
sense”. So, the two people must agree to something in the same sense as well.

Free Consent has been defined in Section 14 of the Act. The section says that consent is
considered free consent when it is not caused or affected by the following,

1. Coercion 2. Undue Influence 3. Fraud 4. Misrepresentation 5. Mistake

UNDUE INFLUENCE: Section 16 of the Act contains the definition of undue influence. It
states that when the relations between the two parties are such that one party is in a position to
dominate the other party, and uses such influence to obtain an unfair advantage of the other party
it will be undue influence.

FRAUD: Fraud means deceit by one of the parties, i.e. when one of the parties deliberately
makes false statements. So, the misrepresentation is done with full knowledge that it is not true,
or recklessly without checking for the trueness, this is said to be fraudulent. It absolutely impairs
free consent. Section 17 of the act deals with Fraud.

This Project explains regarding Undue Influence and Fraud which vitiates the Free consent in a
contract.

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 SYNOPSIS

SUBJECT: LAW OF CONTRACTS

TOPIC: FRAUD AND UNDUE INFLUENCE.

INTRODUCTION:
FRAUD:

Section 17 of the Contract Act 1950 is defined the word of ‘Fraud’, to include certain acts which
are committed with intent to induce another party to enter into a contract. Section 17 outlines
five different actions which may constitute fraud. As a general rule, it can be said that wherever a
person causes another person to act on false representation author himself does not believe to be
true, he is alleged to have a committed fraud.

UNDUE INFLUENCE:

The doctrine of ‘undue influence’ enshrined in section 16 of the Contract Act 1950:

‘Undue Influence’ is an equitable doctrine that involves one person taking advantage of a
position of power over another person. Undue influence differs from duress, which consist of the
intentional use of force to coerce another into a grossly unfair transaction. In particular and
without prejudice to the generality of the foregoing principle, a person is considered to be in a
position to dominate the will of another.

OBJECTIVE OF THE RESEARCH:

The aim of this research is to study and understand the topics like Fraud and Undue
influence with case laws related to the topics. To critically analyze them.

SCOPE OF THE RESEARCH:

The scope of the research limited to section16 and section 17, where the topics like
“Fraud” and “Undue Influence” are discussed.

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SIGNIFICANCE OF THE RESEARCH:

The research helps the researcher to understand the topics Fraud and Undue Influence

LITERATURE REVIEW:
The primary literatures which were reviewed while going through this research topic are
contract and specific relief by Avthar singh, Anson’s law of contracts and some web sources.

RESEARCH QUESTION:

1. Whether the contract obtained by fraud is Valid or void??

2. Whether the mere silence of the facts is Fraud or not??

3. Whether the contract obtained by Undue Influence is valid or not?

HYPOTHESIS:

Is to understand how the Fraud and Undue influence effects the validity of the contract made.

RESEARCH METHODOLOGY:

The research is doctrinal type of research as it relies mostly on books and web sources. The
method of Citation followed in this study is The Bluebook, 20th edition.

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 FRAUD

INTRODUCTION:

According to the section 17 of Indian contract act 1872, fraud means and includes of any of the
following acts committed by a party to a contract or with his connivance, or by his agent with
intend to deceive another party thereto or his agent, or to induce him to enter into the contract.  

Means that the act of fraud must have been committed within intention to deceive another party.
No course of action arises where fraud without damage and damage without fraud.

 Fraud was proved when it was shown that’s false representation has been made:

(1) Knowingly

(2) Without belief in its truth

(3) Recklessly whether it is true or false

  Recklessness means carelessness. If a person gives a statement without having information

whether it is true or false to the other party for believing such statement that is called
recklessness of contact. Statement made without belief in the truth would include statement made
recklessly.

 According to Section 17 of Indian contract act 1872, there are some essential of fraud:

 (1)  There should be false statement of fact by person who himself does not believe the
statement to be true.

(2)  The statement should be made with a wrongful intention of deceiving another party and
inducing them into enter into an contract.

(3)  The other party must have suffered the loss.

(4)  There must be any of the acts of fraud mention in section 17 be performed.

FALSE STATEMENT OF FACT

SECTION 17(1):

If the statement of fact is not true then it is amount to fraud.

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Ex: if a person who is aged over 60 years and thus beyond insurable age, deliberately makes a
false statement that his age is 48 years in order to take out an insurance policy, it amounts to
fraud and the insurer is entitled to avoid the policy.

MERE SILENCE IS NO FRAUD    

 Mere silence as to fact likely to affect the willingness of a person to enter into a contract is not a
fraud. Unless the circumstances of the case are such that, regard being had to, it is the duty of the
person keeping silence to speak or unless his silence is in itself equivalent to speech.

 A contracting party is not obliged to disclose each and everything to the other party.

 KEATES V. LORD CADOGAN

 In this case A let his house to B which is knew was in ruinous condition. He also knew that the
house is going to be occupied by B immediately. A did not disclose the condition of house to B.
it was held that he had committed no fraud.

 EXCEPTION OF MERE SILENCE IS NO FRAUD

 (1)    DUTY TO SPEAK: If it is the duty of the person keeping silence to speak, keeping
silence in such a case amounts to fraud. Where there is a duty to disclose facts, one should do so
rather than to remain silent by remaining silent, one may be responsible for creating a false
impression in the mind of other.

 CONTRACT OF GOOD FAITH (UBERIMA FIDES): Contracts of good faith, in utmost

good faith the party in whom good faith is reposed would make full disclosure and not keep
silent. It is the duty of party to disclose the material facts.

 EX: contract of insurance.

 P.J.CHACKO V. CHAIRMAN LIC OF INDIA

 In this case the insured had undergone an operation for thyroid, a major operations four years
prior to the date of proposal made him without disclosing the fact while obtaining the insurance
policy. He took policy on 6th July 1987 and within six month on 21st February 1987 he died. Then
court held that insured does not disclose the all material fact of contract so it is amount to fraud.

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(1) MARITAL STATUS:

Nondisclosure of material facts relating to parties to marriage has been held to constitute fraud.

 (2)    CHANGE OF CIRCUMSTANCES:

 Sometime a representation is true when it is made, but it may an account of a change

circumstances, become false when it is actually acted upon by other party. In such
circumstances, it is the duty of the person who made the representation to communicate the
change of circumstances.

 (3). SILENT BEING EQUIVALENT TO SPEECH:

Sometime keeping silent as to certain Facts may be capable of creating an impression as to

existence of certain situation. In such a case silent amount to fraud.

 EX: if B say to A “if you do not deny it, is hall assume that horse is sound”. A says nothing here
A’s silence is equivalent to speech.

 (4). HALF TRUTH:

Even when a person is under no duty to disclose a fact, he may become guilty of fraud by
nondisclosure if he voluntarily disclose something and then stop half the way. Court said that a
person keep silence, but if he speaks a duty arises to disclose the whole truth.

SECTION 17(2): ACTIVE CONCEALMENT OF A FACT BY ONE HAVING

KNOWLEDGE OR BELIEF OF THE FACT:

 When there is active concealment of a fact by one having knowledge or belief of the fact that
Amount to a fraud.

SECTION 17(3): PROMISE MADE WITHOUT ANY INTENTION TO PERFORM IT:

When a person makes a promise, there deemed to be an undertaking by him to perform. If there
is no such intention when contract being made, it amount to fraud.

EX: Man takes a loan without any intention to repay it.

SECTION 17(4): ANY OTHER ACT FITTED TO DECEIVE.

 Any other act fitted to deceive is also fraud. It include such cases of fraud which would not
come in purview the earlier three clauses.

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SECTION 17(5): ANY ACT OR OMISSION AS THE LAW SPECIALLY DECLARES
TO BE FRAUDULENT:

 Fraud also includes any such act or omission as the law specially declare to be fraudulent. In
some cases law requires certain duties to be performed, failure to do which is expressly declared
as fraud.

 WRONGFUL INTENTION

 In order to constitute fraud it is necessary that a person should intentionally.

 DERRY V. PEEK

          In this case director of company issued a prospectus stating that they had got the authority
to run tramways with steam or mechanical power instead of animal power. Director honestly
believed that the board of trade, who had to accord its sanction for the same would do so as a
matter of course. But the board refused the sanction and company had to wound up .who taken
share in the company brought an action for the tort of fraud. It was held by the court that since
statement had not been made with intention to deceive. So there was no fraud.

IF A PERSON MIND HAS NOT BEEN INFLUENCED BY THE FALSE STATEMENT

WHEN HE ENTER INTO THE CONTRACT IS NO FRAUD:

 SMITH V. CHADWICK:

In this case it was held that if the prospectus of a company contains a false statement that a
particular person would be on the board of director, but the plaintiffs mind is not influenced by
the state he cannot claim relief.

EFFECT:

 In the case of fraud the contract was voidable at the option of the party whose consent has been
so obtained. According to the section 19 of Indian contract act 1872 when consent to an
agreement caused by fraud, then the agreement is voidable at the options of other party whose
consent was so caused.    

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The term 'fraud' has not been defined in the Indian Penal Code (IPC). Nevertheless, Section 25 of
the IPC does attempt to define the word 'fraudulently' by saying that there can be no fraud unless
there is an intention to defraud. In general, fraud is committed in three different ways:

 To deprive a person of his/her right/s, either by obtaining something by deception or by

taking something wrongfully without the knowledge or consent of the owner;

 To withhold wrongfully from another what is due to him/her, or to wrongfully prevent a

person from obtaining what he/she may claim first, and;

 To defeat or frustrate wrongfully another person's right to property.

 Whenever the words 'fraud', 'intent to defraud' and 'fraudulently' occur in the definition of
a crime under the IPC, two elements are essential to the commission of that crime:

 Deceit or an intention to deceive, and;

 Either actual injury or possible injury or an intent to expose some person to actual or
possible injury.

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