Fraud, in the Oxford Dictionary of Law, is dishonestly making a false (untrue or misleading) representation with a view to gain or with intent to cause loss. In simple terms, fraud is the active voluntariness to carried out acts, by a person, or his agent, to deceive or induce another party or their agent into forming an agreement. In Section 17 of the Contracts Act 1950, fraud is defined as either, a suggestion to a fact which is not true by a person who believes it not to be true; an active concealment of fact having known the facts; a promise to do something without the intention of carrying out the promise; any act fitted to deceive, or any act or omission which is declared fraudulent by law, that is carried out by a party of a contract, or with his connivance, or agent, with the intention to deceive the other party or the other parties’ agent, or to induce the other party into a contract.
Misrepresentation, on the other hand in the Oxford Dictionary of Law, is defined as an false statement of fact, made by a party to another person in the contract negotiation that induces the other party to enter into the contract. Misrepresentation is given its circumstance under Section 18 of the CA 1950 which includes a positive assertion which the person giving such information is not warranted or aware that the assertion is false, although he believes it to be true; or a breach of duty, without the intention of deceiving another party, by giving an advantage to the person deceiving or a person claiming under him, but mislead the other to his prejudice, or to the prejudice of any other person claiming under the other; or causing a party to the agreement into a mistake as to the subject of the agreement no matter how innocent the party leading such a mistake is. As referring to the Contracts Act 1950, it is clear that intention is not a major factor for misrepresentation as compared to fraud. The wording used under Section 18(a), (b) and (c) such as not warranted, without an intent to deceive or however innocently clearly indicates the difference between fraud and misrepresentation. As for the effect of a contract after it had been declared as fraudulent or misrepresented, generally, according to Section 19, the innocent party has the option to either rescind or reaffirm the contract that has been fraught or misrepresented to him. Therefore, when a statement is made during negotiation leading to a contract is deemed not a term of the contract or a warranty collateral to the contract, it is a ‘representation’. Such pre-collateral statements, though not intended to have contractual effect, may have seriously affected the inclination of one party to enter into a contract. If the representation is false, the party misled cannot claim damages for breach of contract, as no term of the contract has been broken.
However, the party misled may claim relief accorded by the law for misrepresentation for fraud.