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Unit 4: Free Consent

Money lending transactions. In money lending transactions, the rate of interest being high, or Notes

that the borrower is in urgent need of money is not an evidence of undue influence. These two

facts do not by themselves show that there is undue influence. However, if the rate of interest is
so high that the court considers it unconscionable, then the burden of proving that there was no

undue influence lies on the creditor.
Example: A, being in debt to B, the money lender, contracts for a fresh loan at compound
interest of 25 percent the transaction may be held to be unconscionable and a reduced rate of
simple interest may be awarded.
4.4 Meaning of Fraud [Ss.17 and 19]

Fraud means and includes any of the following acts committed by a party to a contract with
an intent to deceive the other party thereto or to induce him to enter into a contract: (i) the
suggestion as a fact of that which is not true by one who does not believe it to be true; (ii) active
concealment of a fact by one having knowledge or belief of the fact; (iii) promise made without

any intention of performing it; (iv) any other act fitted to deceive; (v) any such act or omission as

the law specifically declares to be fraudulent.
Essential elements or conditions for a fraud to exist. For a fraud to exist the following are the
essential elements:
1. There must be a representation or assertion and it must be false. To constitute fraud there
must be an assertion of something false within the knowledge of the party asserting it.
Mere silence as to facts likely to affect the willingness of a person to enter into a contract is
not fraud. To constitute fraud ordinarily there must be active misstatement of fact as the
withholding of that which is not stated makes that is stated absolutely false.

2. The representation or assertion alleged to be false must be of a fact. A mere expression of

opinion, puffery or flourishing description does not constitute fraud.
3. The representation or statement must have been made (a) knowingly or (b) without belief
in its truth or (c) recklessly, carelessly whether it be true or false. In (a) and (b), there
seems to be no difficulty since fraud is proved when it is shown that a false representation

has been made knowingly or without belief in its truth. However, with regard to reckless

misstatement it may appear difficult to say whether it amounts to fraud because the person

making such statement does not himself definitely know that the statement is false. But if

we carefully look into it we find that it does amount to fraud. Though the person making
it is not sure of the truth of the statement yet he represents to the other party as if he is
absolutely certain about its truth.
4. The representation, statement, or assertion must have been made with the intention of
inducing the other party to act upon it. For fraud to exist the intention of misstating the
facts must be to cause the other party to enter into an agreement.
5. The representation must in fact deceive. It has been said that a deceit which does not
deceive is not a fraud. A fraud or misrepresentation, which does not cause the consent to a
contract of the party on whom such fraud is practised or to whom such misrepresentation
was made, does not render a contract voidable.
6. The party subjected to fraud must have suffered some loss. It is a common rule of law that
there is no fraud without damages. As such a fraud without damage does not give rise to
an action of deceit.

Example: A informs B fraudulently that A’s estate is free from encumbrance. B therefore
buys the estate. The estate in fact is subject to a mortgage. B may either avoid the contract or may
insist on its being carried out and the mortgage deed redeemed.

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