Introduction
Fraud, under Section 17 of the Indian Contract Act, 1872, includes acts intended to deceive or to induce another party to enter into a contract. However, the law also provides that mere silence about facts does not amount to fraud, unless it falls within specific exceptions. This principle ensures that parties to a contract take reasonable responsibility for verifying facts, while also penalizing intentional deceit.
Main Body
Definition of Fraud (Section 17)
Fraud includes the following:
- False suggestion made knowingly
- Active concealment of facts
- Promises made without intention to perform
- Any other act fitted to deceive
- Any such act or omission as the law declares to be fraudulent
However, the explanation to Section 17 clearly states: “Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud.”
Why Mere Silence is Not Fraud
- Every contract does not require full disclosure of all material facts
- Each party is expected to use due diligence
- Silence does not amount to representation
Example: A sells a horse to B. The horse is unsound, but A says nothing. If B does not ask and A remains silent, there is no fraud.
Exceptions: When Silence Amounts to Fraud
1. Duty to Speak
If there is a fiduciary or special relationship where one party expects full disclosure, silence may amount to fraud.
Example: Between doctor and patient, lawyer and client, employer and employee.
2. Half Truth
If a party speaks partially and conceals other material facts, it becomes fraudulent.
Example: Telling a buyer that a product was recently serviced, while concealing that major repairs are still needed.
3. Change in Circumstances
If a true statement becomes false due to a change in circumstances before the contract is finalized, the party must inform the other.
4. Active Concealment
Intentionally hiding a defect or issue amounts to fraud.
Example: Painting over a cracked wall before showing the property to a buyer.
Judicial View
Case: Keates v. Cadogan
The landlord did not inform the tenant that the house was uninhabitable. The court held that silence did not amount to fraud.
Case: Derry v. Peek
False representation must involve knowledge of untruth or reckless disregard for the truth.
Precautionary Measures
- Ask specific questions about critical facts
- Conduct due diligence or inspection
- Include warranties or representations in the contract
Conclusion
While fraud involves deception and dishonesty, mere silence does not constitute fraud unless there is a duty to disclose, a half-truth, or active concealment. Understanding the distinction helps in safeguarding contractual interests and promoting fairness and accountability in commercial dealings.