Important essentials or rules relating to fraud are listed below:
1. The fraudulent act must be committed with an intention to deceive:
It is an important and essential element of a fraud. The act, which constitutes fraud, must be committed by a party, to a contract, with the intention to deceive the other party. This essential element has been emphasised in Sec17 of the Indian Contract Act.
It provides that fraud means and includes any act committed by a party, to a contract, with the intention to deceive another party or to induce him to enter into the contract. Thus, there must be intention to deceive the other party, or the intention to induce him to enter into a contract.
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2. The fraudulent act must be committed with knowledge of its falsity:
It is also an essential element of fraud that the party committing the fraudulent act must be aware that his act is false. In other words, the fraudulent act must have been made with the knowledge of its falsity (i.e. without belief in its truth). A person making a false statement is not guilty of fraud if he honestly believes in its truthfulness.
3. The fraudulent act must have been committed by a party to the contract:
This essential elements has been emphasised in Section 17 of the Indian Contract Act, according to which, the fraud must have been committed only by the party to the contract or his authorised agent.
It may be noted that a fraud committed by a stranger (i.e., by a person who is not a party to the contract), does not affect the validity of the contract. [Reese Vs Smith (1869)]
4. The fraudulent act must have been committed upon the party to the contract or his agent:
It is also an essential element of fraud, that it must have been committed upon the party to the contract. If it is committed on a stranger, then it will not amount to fraud, and a contract shall not be voidable on account of fraud.
5. The fraudulent act has actually deceived the other party:
The party, induced by fraud must have relied upon the fraudulent statement and must have been actually deceived. In other words, fraud must have induced the other party to enter into a contract.
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This essential element has been emphasised in the Explanation to Sec 19 of the Indian Contract Act, which provides that a contract is not voidable if the party is not actually deceived by the fraud, i.e., such a fraud is not effective.