17. “Fraud” defined.
“Fraud” means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agents, with intent to deceive another party thereto his agent, or to induce him to enter into the contract-
(1) the suggestion as a fact, of that which is not true, by one who does not believe it to be true;
(2) the active concealment of a fact by one having knowledge or belief of the fact;
(3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be fraudulent.
Mere silence is no fraud.
Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech.
(a) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse’s unsoundness. This is not fraud in A.
(b) B is A’s daughter and has just come of age. Here the relation between the parties would make it A’s duty to tell B if the horse is unsound.
(c) B says to A- “If you do not deny it, I shall assume that the horse is sound”. A says nothing. Here, A’s silence is equivalent to speech.
(d) A and B, being traders, enter upon a contract, A has private information of a change in prices which would affect B’s willingness to proceed with the contract. A is not bound to inform B.
*A contracting party is not obliged to disclose each and everything to the other party.
Famous Case related to “Mere silence is no fraud” is Keates v The Earl of Cadogan (1851)
Keates v The Earl of Cadogan (1851)
Whether a landlord has a duty to inform a prospective tenant of the poor quality of the property let.
The defendant entered into an agreement with the claimant for the lease of a property for a term of three years. The claimant intended to reside in the property with his family. The property concerned was in an extremely poor structural condition and was likely to collapse at any stage. The defendant however, despite knowing of this condition, did not inform the claimant of it during the negotiations for the lease, nor did the defendant inform the claimant after the claimant had agreed the lease and begun to occupy the property with his family. Ultimately, a large part of the property collapsed and the claimant sought to rescind the contract, or alternatively commence action in tort for his losses.
The issue in this circumstance was whether a landlord has an obligation to inform a prospective tenant of the poor state of a property prior to entering into a lease with said tenant.
It was held that no obligation is placed on a landlord to inform a tenant as to the state of a property prior to entering into a lease. A claim will only arise for a tenant in these circumstances if the landlord gives an express warranty as to the condition of the property or where the landlord actively deceives the tenant as to the property’s condition. The court in this instance found in favour of the defendant.
Extra Read (outside of Bare Act)
Exceptions to mere silence is no fraud.
(a) Duty to speak-
If it is the duty of the person keeping silence to speak, keeping silence in such a case amounts to fraud.
(b) Contract of Good Faith (Uberrima fides)-
Contracts of good faith, in utmost good faith the party in whom good faith is reposed would make full disclosure and not keep silent. It is the duty of party to disclose the material facts.
Example of such contracts- Contract Of Insurance.
A Case related to this- P.J Chacko v LIC of India (Chairman)
In this case the insured had undergone an operation of thyroid. He had a major operation four years before the date he took insurance policy. He did not disclose this fact while obtaining the insurance policy. He took policy on 6th July 1987 and within six month on 21st February 1987 he died. The court held that insured did not disclose all material facts of contract so it is amounts to fraud.
(c) Marital Status-
Non disclosure of material facts relating to parties to marriage has been held to constitute fraud.
(d) Half Truth-
A person can choose to not disclose a fact but if he starts speaking he has to disclose the whole truth.
(e) When being silent creates Impression-
Sometime being silent as to certain facts may be capable of creating an impression as to existence of a certain situation. In such a case silent may amount to fraud.
(f) Change in Circumstances-
Sometime a representation is true when it is made, but it may after change in circumstances become false when it is actually acted upon by other party. In such circumstances, it is the duty of the person who made the representation to communicate the change of circumstances.