Q1. What are the essentials of Fraud?

Essentials of fraud:
1) Making a false suggestion: There should be a false suggestion by a party who knows it to be false or the statement must have been made recklessly without caring to know its truthfulness. The false suggestion can be made by

party to whom it was made to act upon it by entering into a contract. 9) The party acting on the representation should have been deceived and suffered damage. The aggrieved party can not set aside the contract if he has not sustained damage. If one knows that he is going to be deceived later he cannot complain of being deceived by entering into contract. Silence whether fraud ? While active concealment of a

conduct of the party.

2) The representation must be of a fact. The false suggestion or representation must be of a fact and not of opinion or intention. Commendatory explanations as found in advertisements that a soap washes whiter than white do not constitute representations of fact. It is usual for a trader to praise his own

goods.
3) Active concealment of facts amounts to fraud: Instead of making a false representation a person may conceal a material fact which according to him, if stated, would be disadvantageous to him, such concealment of fact

amounts to suppression of truth.

4) A promise made without any intention of performing it: A promise includes a representation to the effect that the promisor has the intention of performing it. So if a party makes a promise without having any intention of performing it,

he commits fraud e.g., buying goods with no intention of paying for the same.
5) Any other act filled to decieve: Sec. 17 (4) brings within the purview of Sec. 17 all such acts which though apparently amount to misrepresentation of fact,

may amount to fraud considering the facts of the case. 6) Any act of ommission which the law specifically declares to be fraudulent.
7) Misrepresentation should be addressed to the party misled: The idea behind making misrepresentation should be that the other person must act upon it.

Once it is shown that the misrepresentation was addressed to him, it becomes fraud if the person acts upon it though the person making representation may say that he did not intend that the person to whom it was addressed, should act upon it. 8) The representation must induce the contract: The person to whom the representation is made should rely upon the same and should enter into a contract. A false representation is merely irrelevant if it has not induced the

material fact is fraud, silence is not fraud except under two circumstances. There is no general duty cast upon a party to a contract to disclose to the other party material facts within his knowledge, but are unknown to the other party. This principle is known as Caveat Emptor (let the buyer beware) in contracts of sale of goods. However, under the following two circumstances silence would amount to fraud:

the provisions of Section 21, 21 and 22. Coercion: (Sec. 15) coercion is the committing or threatening to commit any act forbidden

(a) Circumstances of the case cast a duty upon the person keeping silence to speak and (b) silence itself is equivalent to speech. Duty to speak arises when the parties to a contract are in a fiduciary relationships. Such contracts are known as uberrimae fide contracts, the most common examples being insurance contracts, contracts of suretyship, releases or compromises. When a person is under no duty to speak, he may become guilty of fraud by nondisclosure if he voluntarily discloses something and then stops half the way.

by the Indian penal code or the unlawful detaining or threatening to detain any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. It is immeterial whether the Indian Penal Code is or is not in force in the place where the coercion is employed. Under English Law coercion must be applied to ones person only whereas

Q2. When is consent not free? Explain

One of the essentials of a valid contract is free consent. Sec. 13 of the Act defines consent as Two or more persons are said to consent where they agree upon the thing in the same sense. There should be consensus ad idem or

identity of minds. The validity of a contract depends not only on consent of the parties but their
consent must also be free. According to Sec. 14 consent is said to be free when

it is not caused by (i) coercion as defined under Section 15, or (ii) undue influence as defined under Section 16, or (iii) fraud as defined under Section 17, or (iv) misrepresentation or defined under Section 18, or (v) mistake subject to

under Indian Law it can be ones person or property. So also under English law the subject of it must be the contracting party himself or his wife, parent, child or other near relative. Under Indian Law the act or threat may be against any person. It is to be noted that the act need not be committed in India itself. Unlawful detaining or threatening to detain any property is also coercion. While threat to sue does not amount to coercion threat to file a false suit amounts to coercion since such an act is forbidden by Indian Penal Code. Undue influence: n the words of Holland, undue influence refers to the unconscious use of power over another person, such power being obtained by virtue of a present or previously existing dominating control arising out of relationship between the parties. According Sec. 16 (1) A contract is said to be induced by undue influence where the relation subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. A person is deemed to be in a position to dominate the will of other
(a) Where he holds a real or apparent authority over the other or where he

or undue influence depends upon the facts of each case. Sec. 16 (i) provides that two important elements must be present. The first one is that the relations subsisting between the parties to a contract are such that one of them is in a position to dominate the will of the other. Secondly, he uses that
position to obtain unfair advantage over the other. In other words, unlike coercion

stands in a fiduciary relation to the other; or

(b) Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or

undue influence must come from a party to the contract and not a stranger to it. Where the parties are not in equal footing or there is trust and

bodily distress;
(c) Where a person who is in a position to dominate the will of another, enters into a contract with him and the transaction appears to be unconscionable. The burden of proving that such contract was not induced by undue influence

shall lie upon the person in a position to dominate the will of the other. Both coercion and undue influence are closely related. What contributes coercion

confidence between the parties, one party may be able to dominate the will of the other and use that position to obtain an unfair advantage. However, where there is no relationship shown to exist from which undue influence is presumed, that influence must be proved. Presumptions as to undue influence: types of Sec. 16 (2) mentions certain

ignorance, infirmity or impaired bargaining power. Such contracts are known as unconscionable contracts. Sec. 16 (3) lays down that in the case of unconscionable bargain the onus of proof that the transaction was not induced by undue influence is on the person who is in a dominating position in relation to the other party to the contract. A pardanashin woman is one Coercion and undue influence distinguished: 1) In the case of coercion contract is obtained by committing or treatening to commit an act punishable under Indian Penal Code.
When a dominant party enters into

relationships which give rise to presumptions of undue influence. They are (i) parent and child (ii) guardian and ward (iii) trustee and beneficiary (iv) religious advisor and disciple (v) doctor and patient (vi) solicitor and client (vii) fiance and fiancee. The presumption about undue influence is rebuttable one by proving that (a) the person complaining of undue influence had independent advice. (b) Full disclosure of facts was made to him and he understood the same. (c) There was no undue influence and adequate consideration was there. As regards the relationship between debtor and creditor, landlord and tenants, mother and daughter, husband and wife, grandson and grand/father there exists no presumption of undue influence. The party avoiding the contract must prove the existence of undue influence. Contracts with pardanashin women: who
according to the customs of her community lives in complete seclusion. The law presumes undue influence in the case of a contract with a pardanashin women.

Ordinary presumption is that a person who signs a document understands its contents. But as regards a pardanashin woman this presumption does not hold good. The burden of proof lies on the other party to show that there was no undue influence, that the party understood the contents and the effects of the document upon her interests.
Unconscionable or catching bargains:

In the case of undue

contract with a weaker party he may take undue advantage or that others

influence the consent is obtained by dominating the will of the other. 2) Coercion involves physical force. Undue influence involves moral force. 3) Coercion may proceed from a stranger and may be directed against a stranger. Undue influence must proceed from a party to the contract.
4) There is no presumption as regards coercion. On the other hand law

disclose. 3) A promise made without any intention of performing it. 4) Any other act fitted to deceive. The fertility of mans invention in devising new
schemes of fraud is so great that it would be

presumes undue influence in certain circumstances.

5) The offence may be committed in or outside India in order to render it

coercion. Undue influence must be exercised in India.

6) Coercion affects provisions of Indian Penal Code. There is no criminal liability

for undue influence. 7) The party avoiding a contract under coercion has to restore any benefit he received under the contract to the other party. Under undue influence the party avoiding the contract may or may not be directed by the court to do so. Fraud: A false statement made knowingly or without belief in its truth or recklessly careless whether it be true or false is called fraud. Sec. 17 of the Act instead of defining fraud, gives various acts which amount to fraud. Sec. 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 to induce him to enter into contract: 1) The suggestion that a fact is true when it is not true by one who does not believe it to be true. A false statement intentionally made is fraud. An absence of honest belief in the truth of the statement made is essential to constitute fraud. The false statement must be made intentionally. 2) The active concealment of a fact by a person who has knowledge or belief of the fact. Mere non-disclosure is not fraud where there is no duty to

difficult to confine fraud within

the limits of any exhaustive definition. 5) Any such act or omission as the law specially declares to be fraudulent. Misrepresentation :

Before entering into a contract the parties will make certain statements inducing
the contract. Such statements are called representation. A representation is a statement of fact made by one party to the other at the time of entering into contract with an intention of inducing the other party to enter into the contract. If the representation is false or misleading it is known as misrepresentation. A

misrepresentation may

be

innocent

or

intentional.

An

intentional misrepresentation is called fraud and is covered under Section 17. Sec. 18 deals with an innocent misrepresentation. Sec. 18 misrepresentation means and includes (i) the positive assertion in a manner not warranted by the information of the person making it, of that which is not true, though he believed it to be true. (ii) any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, by misleading another to his prejudice. (iii) by causing however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement.

Q3. Define agreement. Are all agreements, contracts? Explain Agreement: Agreement is defined as every promise and every set of promises
forming consideration for each other . A promise is defined as an accepted proposal. Thus, every agreement in its ultimate analysis is made of a proposal from one side and its acceptance by the other. To become a contract an agreement must be enforceable by law. Sec. 10 of the Act lays down the condition of enforceability. An agreement becomes enforceable only when it is coupled with obligation. An obligation is the legal bond, which binds the parties to a contract. The obligations springing from agreements should be legal obligations and not moral, social or religious obligations.

All contracts are agreements but all agreements need not be contracts. The agreements that create legal obligations only are contracts. The validity of an enforceable agreement depends upon whether the agreement satisfies the essential requirements laid down in the Act. Section 10 lays down that all the agreements are contracts if they are made by the free consent of the parties competent to contract for a lawful object and are not hereby expressly declared to be void.

The following are the essentials: a) Agreement : An agreement which is preliminary to every contract is the

outcome of offer and acceptance. An offer to do or not to do a particular act is made by one party and is accepted by the other to whom the offer is made. Then we say that there is a meeting of the minds of the parties. Such a

position is known as consensus ad idem.

b) Free consent : The parties should agree upon the same thing in the same sense and their consent should be free from all sorts of pressure. In other words it should not be caused by coercion, undue influence,

misrepresentation, fraud or mistake.

c) Contractual capacity: The parties entering into an agreement must have legal competence. In other words, they must have attained the age of majority, should be of sound mind and should not be disqualified under the law of the land. A contract entered into between the parties having no legal

capacity is nullity in the eyes of law.

d) Lawful consideration: There must be consideration supporting every contract. Consideration means something in return for something. It is the price for the promise. An agreement not supported by consideration becomes a nudum pactum i.e., naked agreement. The consideration should be lawful

and adequate. However, there are certain exceptions to this rule.

e) Lawful object : The object or purpose of an agreement must be lawful. It

should not be forbidden by law, should not be fraudulent, should not cause injury to the person or property of another, should not be immoral or against public policy. f) Not expressly declared void: The statute should not declare an agreement void. The Act itself has declared certain types of agreements as void. E.g.,
agreements in restraint of marriage, trade, legal proceedings. In such cases

the aggrieved party cant seek any relief from the court of law. g) Possibility of performance: The agreement should be capable of being performed. e.g., Mr. A agrees with Mr. B to discover treasure by magic. Mr. B cant seek redressal of the grievance if Mr. A fails to perform the promise. h) Certainty of terms: The terms of the agreement should be certain. E.g.,

Mr. A. agrees to sell 100 tons of oil. The agreement is vague as it does not

mention the types of oil agreed to be sold. i) Intention to create legal obligation: Though Sec. 10 is silent about this,

under English law this happens to be an important ingredient. Therefore, Indian courts also recognise this ingredient. An agreement creating social obligation cant be enforced. j) Legal formalities: Indian Contract Act deals with a simple contract supported by consideration. Agreements made in India may be oral or written. However, Sec. 10 states that where the statute states that the contract should be in writing and should be witnessed or should be registered, the same must be observed. Otherwise, the agreement cant be enforced e.g., Under Indian Companies Act the Memorandum of Association and Articles of Association must be registered.