Question

Fraud is___________________________________________________________________________________________

Answer

a. a positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true.

b. any breach of duty which, without an intent to deceive, gives an advantage to the person committing it by misleading another to his prejudice.

c. the suggestion, as to a fact, of that which is not true by one who does not believe it to be true.

d. all of the above

Answer 1

Correct answer is Option C.

Fraud: Definition by Book: Fraud’ means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract.

Explanation: It is basically a False Misrepresentation of the facts. As in any "Fact" which is key in decision making is incorrectly told to the other party in order to deceive them. And this is done willfully by the wrong doer mostly to induce the other party to get into an agreement with the wrong doer. The purpose of the person who is committing fraud is to deceive the other party in order to gain something valuable.

Lets take an example: Mr Ben buys a camera from Amazon worth $ 200. The very next day he tells his neighbor that he imported the camera from Korea for $ 100 but he is ready to sell it for $ 800 now. His neighbor Mr Henry really likes the idea and buys the camera at a negotiated price of $ 750.

This is a fraud committed by Mr Ben (as he uses the false premise that the camera is an imported product). Mr Ben induces Mr Henry to get into an agreement of buying the camera. Also Mr Ben does it willfully in order to earn profit from (and deceive) his neighbor as his neighbor, Mr Henry is not aware of the actual cost of the camera. Had Mr Henry known about the actual cost of the camera, he might not have agreed to buy it in the first place.

In order to constitute Fraud it is necessary that there is;

(i) Factual statement which is based on false facts.

(ii) The Statement should be made by the wrong doer with an intention to commit a fraud.

Misrepresentation - This also includes any false statement but it should be made innocently without any intention to deceive the other party.

Difference between Fraud and Misrepresentation:

Basis	Fraud	Misrepresentation
Explanation	It is a willful misrepresentation or concealment of the fact with an intention to deceive	Innocent misstatement made to induce the other party to get into an agreement
Intention	There is an Intention to cheat	There is no intention to deceive
Belief	The Party believes that the fact is not true	The Party believes that the fact is true

Now, lets look at the options available in the question:

a. a positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true - This is not an example of a Fraud, the reason being the person making the statement does believe it to be true. Even though he has not done any sort of research on the statement and the statement itself is false, the fact that he himself believes it to be true does not amount to Fraud rather it is a misrepresentation of the Facts. For ex. Mr A believes that the Gold price is going to go up in the next few months and tells this to his friend Mr B. Upon hearing this Mr B buys 2 kg of Gold and in the next 2 months the Gold price actually falls. This case would not amount to fraud by Mr A, as he truly believed that the Gold Prices would go up. This is a case of misrepresentation.

b. any breach of duty which, without an intent to deceive, gives an advantage to the person committing it by misleading another to his prejudice.- This is also not a fraud. The reason being although there is a beach of duty and there is also presence of undue advantage for the party over the other party here, the intent was not to deceive the other party hence it is misrepresentation and not Fraud.

c. the suggestion, as to a fact, of that which is not true by one who does not believe it to be true. - This is a case of Fraud. Take the example of Mister Ben who tricked Mr Henry into buying the Cheap camera at a higher price. Mister Ben told Mr Henry that the camera was an imported one even though he knew that the camera was not imported and it was a cheap camera from Amazon. His suggestion to the fact (that the camera was imported) was NOT True and he also believed that the suggestion was not true because he was fully aware of the original price of the camera and knew that it was not imported. Hence, we can say that option c is the right answer as there is a false tapotement made with an intention to deceive.

d. all of the above - This is not the correct answer as the first two options are the cases of misrepresentation and the option c is the correct answer