Q1: Define fraud. Distinguish between fraud and misrepresentation.
Ans: According to section 10; free consent is an essential requirement of a contract. Section 14 defines free consent as follows:
Consent is said to be free when it is not caused by:
2) Undue influence
Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake. When consent is caused by any of these above mentioned factors, the agreement is a contract voidable at the option of the party whose consent was so caused. For e.g. if a person is induced to sign an agreement by fraud, he may uphold the contract or reject it. If he confirms it, the contract becomes binding on both the parties. It is a contract which is enforceable at the option of only one of the parties, namely the party whose consent was not free.
During negotiations, when one party makes a statement to another party with the intention of making the other party enter into the contract, it may be said that such a party has made a representation. Such a representation may be wrongly made innocently or with an intention to deceive the other party.
When such a representation is wrongly made innocently, it is said to be misrepresentation which is further explained below. If such a representation is made with the intention of deceiving the other party, it is said to be a frau. In terms of section 17 of the Act, fraud means and includes any of the following acts:
i. The suggestion of a fact by a person which in reality is not true. (Suggestio Falsi)
A prime example is that of the case of Derry v/s Peek. In this case a company’s prospectus contained a representation that the company had been authorized by a special act of the parliament to run trams by steam or mechanical power. The authority to use steam was in fact subject to the approval of...