INTRODUCTION
According to section-17 of the Indian Contract Act, 1872 mere silence which is likely to affect the decision of the party to whom the contract is made does not amount to fraud. The fraud being a broader term means an act of deliberate deception with the design of securing something by taking unfair advantage of another. Now as far as silence is considered it has 2 dimensions.
In one dimension mere silence can be considered as fraud but; that being an exception Indian Contract Act states that mere silence does not amount to fraud. As being silent is not considered a misrepresentation, it is clear that; it does not show any intention of the party to secure something by taking unjust advantage. A party to the contract is owing to no gratitude to disclose the whole truth to the other party. Whereas when a party has a duty to speak and he remains silent then the party is considered to be acting fraud. Therefore 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.
SECTION 17
In the Indian contract act, 1872 the section 17 defines fraud and; thus cleared that mere silence is to be or not to be considered as fraud. The Indian contract act, 1872 defines fraud[1] as 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:-
- the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
- the active concealment of a fact by one having knowledge or belief of the fact;
- a promise made without any intention of performing it
- any other act fitted to deceive;
- any such act or omission as the law specially declares to be fraudulent.
EXPLANATION AS PER THE STATUTE
As per the statute, primarily mere silence is no fraud, it explains that false impression is conveyed by misstatement of facts, therefore active concealment of material facts is equivalent to fraud. Active concealment and passive concealment are different expressions. Passive concealment amounts to mere silence or concealment of material facts. Except for a few cases, passive concealment does not amount to fraud. Even the concealment of material facts that might affect the willingness of the contracting party does not amount to fraud. For instance, a trader may keep silent about a change in prices in the product involved in the contract. The statute expresses that the contracting party is under no obligation to disclose the whole truth or to provide full information in his possession affecting the subject matter of the contract.
CASES WHERE SILENCE IS TO BE CONSIDERED AS FRAUD
Though mostly mere silence is not considered fraud there are social duties of disclosure in particular classes of contracts.
DUTY TO SPEAK (contracts uberrima fedes)
An act of mere silence can be fraud where the person is said to be under a duty to speak. Such duty arises when there is utmost trust and confidence in both the parties for each other. It is also stated that the duty to speak or disclose the truth in the party’s possession only arises when one party repose, and the other accepts, the confidence.[2] The duty to speak also arises when the contract is of an insurance nature. Therefore in this case it is the duty to speak of assured to put the insurer in possession of all the material facts affecting the risk covered. In the absence of any such relationship there is no duty to speak and mere silence even if it amounts to misrepresentation, will be no fraud.
SILENCE IS EQUIVALENT TO SPEECH
Silence sometimes becomes deceptive. When a person remains silent even after knowing that; his silence would be misleading for the other party, is no less guilty of fraud. Sometimes when the silence is deceptive and the party’s attitude remains unchanged it becomes equivalent to speech and; therefore the party becomes guilty of fraud. For example, B says to A – “If you do not deny it, I shall assume that; the product is totally fit for my company”. A says nothing. Here, A’s silence is equivalent to speech.
CHANGE OF CIRCUMSTANCES
Sometimes the true representations change due to certain circumstances. To be precise, sometimes the description is true when made but due to certain changes of circumstances, it might become false when it is acted upon by the other party. Under such cases, the person making the description has an obligation to convey or communicate the changes of circumstances.
HALF-TRUTHS
Even though the party is not under any obligation to disclose the whole truth in his possession but; it becomes his responsibility if he provides half of the information of what he wanted to conceal as it is to be considered fraudulent. A person wanting to conceal the material facts by keeping himself silent is his choice as mere silence does not amount to fraud but if the person voluntarily discloses the half information then he is considered to be under obligation to disclose the whole truth.
CONCLUSION
Under the Indian Contract Act, 1872 Section 17, the act defines fraud and; also explains all the aspects of mere silence to be considered as fraud or not. It explains that mere silence even to material facts which are likely to affect the interest of the contracting party is not fraud, unless:
- It is the duty of a person to keep silence to speak; that is the person entering into a contract and; the other party involved have utmost faith and confidence accepted towards each other.
- Unless the silence itself becomes equivalent to speech; that is when the party entering into a contract knows that his silence might mislead the other party involved is nothing but guilty of fraud.
- The presentation or representation is dynamic in nature; that is that when the representation or description when made is correct but being contingent might become false when acted upon by the other party.
- The person discloses the half-truth; that is it is expressed under Section 17 that even though the contracting party is under no obligation to disclose the whole information but; if the party voluntarily discloses half the facts and; then does not reveals the rest of the information, the act is to be considered fraudulent.
Conclusion
Thus, it can be concluded that; a party entering into a contract is under no compulsion to reveal any material facts; which might affect the subject matter or the willingness of the other party to enter into a contract. That means that according to the Indian Contract Act, 1872; Section 17 mere silence does not amount to fraud excepting some cases. To be precise, mere silence amounts to fraud only when the party has a duty to speak, silence becomes equivalent to speech, changes in circumstances, discloses half-truths.
[1] S.17 Indian Contract Act, 1872
[2] See, for example, Nursery Spg & Wug Co Ltd, re, ILR (1880) 5 Bom 92, Sri Alam v Newaires, (1994) 1 Current LJ 32 (Malaysia);
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