JAMIA MILLIA ISLAMIA

Faculty of law

Project

(Contract Laws)
DOES MERE SILENCE AMOUNT TO FRAUD OR NOT?

Submitted to:-
Ma’am Bhavna Sharma

Submitted by:-
Shabih Fatima
B.A.LLB (Self Financed) First year
Batch: 2019-2024

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 CONTENTS

1. Abstract 3

2. Introduction 3

3. Definition in the Indian Contract Act, 1872. 4

4. Essentials 5

5. Comparison Between Different Countries 7

6. Recent Case Laws 9

7. Conclusion 9

8. References 10

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 1. Abstract
A asks B to buy his car for Rs. 2, 00,000, this is a proposal made by A to B which when
accepted by B becomes a promise. This promise is called an agreement which is established
between A and B which when comprises of a lawful consideration, between two parties who are
competent to contract and thus their consents are free for a lawful object and therefore is
enforceable by law becomes a contract. This paper talks about one of the essentials of forming a
contract given in Sec.10 of Indian Contract Act, 1872, i.e., free consent. The introductory part of
this paper briefly explains the meaning Agreement, Contract and Promise. Further, this paper
explains how the consent can be free. For consent to be free it is important that it is not caused
by coercion, undue influence, fraud, misrepresentation and mistake. Thirdly, this paper provides
certain provisions which make the existence of these elements unlawful and then certain
exceptions that do not recognise these elements as unlawful. It essentially covers the field of
mere silence. In case of fraud, mere silence does not amount to fraud unless there is a duty to
speak on the part of the party or his silence itself amounts to speech. Moreover, this paper
provides the provisions related to different countries on how mere silence amounts to fraud and
also the recent case laws which deal with fraud.

2. Introduction
Sec 2(h) of Indian Contract Act, 1872 defines contract as,

“Any agreement enforceable by law”. Thus, for the formation of a contract there must be –
 An agreement
 The agreement should be enforceable by law

AGREEMENT + ENFORCEABLE BY LAW = CONTRACT

Agreement: Agreement is defined in Sec. 2 (d) of Indian Contract Act, 1872 as,
“Every promise and every set of promises forming the consideration for each other”

Promise: Sec. 2 (e) defines promise as,

“An accepted proposal”

Thus, a contract is an agreement; an agreement is a promise and a promise is an accepted

proposal.
Contract

Enforceable by law

Agreement

Promise

Accepted proposal

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An agreement is regarded as a contract when it is enforceable by law. The conditions of
enforceability are stated in Sec.10. According to this section, an agreement is a contract when it
is made for some consideration, between parties who are competent with their free consent and
for a lawful object.

Every contract is an agreement but every agreement is not a contract. An agreement becomes a
contract when the following conditions are satisfied:-
 There is some consideration for it [ Sec. 2(d) ]
 The parties are competent to contract [ Sec. 11&12]
 Their consent is free [Sec. 13-22]
 Their object is lawful [Sec. 23-30]

Free Consent:

According to Sec. 10 free consent is an essential requirement of a contract. Sec. 14 defines free
consent as, Consent is said to be free when it is not caused by,
 Coercion, as defined in Sec 15
 Undue Influence, as defined in Sec. 16
 Fraud, as defined in Sec. 17
 Misrepresentation, as defined in Sec. 18
 Mistake, subject to the provisions of Sec. 20, 21 and 22.

Consent is said to be caused when it would not have been given for but for the existence of such
coercion, undue influence, fraud, misrepresentation or mistake.

Fraud (Sec. 17):

Fraud is nothing but a misrepresentation of facts with intent to deceive a contracting party. Mere
silence does not amount to fraud unless there is a duty to speak on the part of the promisee or the
promisor or unless his silence is, in itself, equivalent to speech.

3. Definition in Indian Contract Act, 1972

Intentional Misrepresentation of facts, speaking broadly is called “fraud”.

According to Sec. 17: “FRAUD” means and includes any of the following acts committed by a
party to a contract, or with his connivance, 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;

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  Any such act or omission as the law specially declares to be fraudulent.

Illustrations

A. A sells, by auction, to B a horse which A knows to be unsound. A says nothing to

B about this unsoundness. This is not fraud.
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.

4. Essentials
Assertion of facts without belief in truth: In English Law fraud was defined in the well known
decision of the House of Lords in Derry v. Peek1, that “Fraud is proved when it shows that a
false representation has been made,

 Knowingly, or
 Without belief in its truth, or
 Recklessly careless whether it be true or false.”

A person making a false representation is not guilty of fraud if he honestly believes in its truth.
Thus intentional misrepresentation is of the essence of fraud. The first three clauses of Sec. 17
deal with this kind of fraud.

Active concealment: Active concealment is something different from mere passive

concealment. Passive concealment means mere silence as to material facts. An active
concealment of a material fact is a fraud; mere silence, excepting the few cases noted, does not
amount to fraud.

Promise made without intention of performing: To tie up a person to a promise with no

intention of performing from one’s side and with the intention of only preventing the other from
dealing with others, is an example of a promise made without the intention of performing it. This
is the third type of fraud included in the definition in Sec. 17. A purchase of goods without any
intention of paying the price is a fraud of this species.

Any other act fitted to deceive: The fourth kind of fraud defined under Sec. 17 is any act
which is fitted to deceive. Fraud has been defined in Section 17 of the Indian Contract Act,
1872. As per the interpretation of the statute, two kinds of fraud are mentioned, (i) actual or
positive fraud which includes cases of intentional and successful employment of any cunning,
deception, or artifice, used to circumvent, cheat or deceive another; (ii) constructive or legal
fraud not originating in any actual evil design or contrivance to perpetrate a fraud yet, by their
1
(1889) 14 AC 337.

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tendency to deceive or mislead others, or to violate private or public confidence, are prohibited
by law.
Any act of omission specially declares to be fraudulent: The last category includes cases in
which the law specially declares an act or omission to be fraudulent.

Mere Silence Does Not Amount To Fraud

False impression is ordinarily conveyed by deliberate misstatement of facts. But it may also be
done by active concealment of material facts. Ordinarily mere silence is no fraud, even if its
result is to conceal “facts likely to affect the willingness of a person to enter into contract”. A
contracting party is under no obligation to disclose the whole truth to the other party or to give to
him the whole information in his possession affecting the subject-matter of the contract.

Examples:

 A trader may keep silent about a change in prices.

 A seller who puts forth and unsound horse for sale, but says nothing about its quality,
commits no fraud.
 Ina case before the Supreme Court, a candidate, who had full knowledge of the fact that
he was short of attendance, did not mention this fact in his examination form. This was
held to be no fraud.

When Silence is Fraud

i. Duty to speak (contracts ubberima fides)

The first such case is when the person keeping silence has a duty to speak. Duty to speak arises
when one contracting party reposes trust and confidence in the other. A, a father, for example,
selling a horse to his son must tell him if the horse is of unsound mind, as son is likely to rely
upon his father.

The duty to disclose the truth will arise in all cases where one party reposes, and the other
accepts, confidence. Duty to speak also arises where one of the parties is utterly without any
means of discovering the truth and has to depend upon the good sense of the other party.

An insurance company, for example, knows nothing about the life or the circumstances of the
assured. It has to depend upon the disclosures made by the assured. It is, therefore, the duty of
the assured to put the insurer in possession of all the material facts affecting the risks covered.

In Haji Ahmad Yarkhan v. Abdul Ghani Khan2, the plaintiff spent a lot of money to mark the
engagement of his son but later the girl was discovered to be suffering from epileptic fits and so
the engagement was broken. He died the defendants for the compensation for the loss that he
suffered because of their concealment of this vital fact. The court relied upon the decision in the
case of “Nocton v. Lord Ashburton3” where it was pointed out that mere passive non disclosure

2
AIR 1937 Nag 270.
3
(1914) AC 932 (HL).

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of a fact does not amounts to fraud no matter how deceptive it may be, unless there is a duty to
speak.

ii. Where silence is deceptive

Silence is sometimes itself equivalent to speech. A person, who keeps silent, knowing that his
silence is going to be deceptive, is no less guilty of fraud. Where, for example, the buyer knows
more about the value of the property, which is the subject of ale, but prefers to keep the
information from the seller, the latter may void the sale.

 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.

iii. Change in circumstances

Sometimes a representation is true when made, but it may on account of a change of

circumstances, become false when it is actually acted upon by the other party. In such cases, it is
the duty of the person who made the representation to communicate the change of circumstances.

 A company’s prospectus represented that certain persons would be the directors of the
company. This was true. But before the allotment took place, there were changes in the
directorate, some directors having retired. This was held to be sufficient to entitle an
allottee to avoid the allotment.

iv. Half truths

Even when a person is under no duty to disclose a fact, he may become guilty of fraud by non-
disclosure if he voluntarily discloses something and then stops halfway. A person may keep
silence, but if he speaks, a duty arises to disclose the whole truth.

 The plaintiff purchases a land from the defendant who informs him that the Borough may
open two streets within the area. But as a matter of fact the Borough has a right to open
three streets in that area. It was held that the defendant was under no obligation to tell that
the streets are to be opened but if he did he cannot tell the half truth.

5. Provisions Of Different Countries

5.1 United States of America

Typical elements of a fraud case in the United States are that:

 Somebody misrepresents a material fact in order to obtain action or forbearance by

another person;

 The other person relies upon the misrepresentation; and

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  The other person suffers injury as a result of the act or forbearance taken in reliance upon
the misrepresentation.

To establish a civil claim of fraud, most jurisdictions in the United States require that each
element of a fraud claim be pleaded with particularity and be proved by a preponderance of the
evidence, meaning that it is more likely than not that the fraud occurred. Some jurisdictions
impose a higher evidentiary standard, such as Washington State's requirement that the elements
of fraud be proved with clear, cogent, and convincing evidence (very probable evidence), or
Pennsylvania's requirement that common law fraud be proved by clear and convincing evidence.

5.2 Canada

As per the provisions of Canada, Everyone who, by deceit, falsehood or other fraudulent means,
whether or not it is a false pretence within the meaning of this Act, defrauds the public or any
person, whether ascertained or not, of any property, money or valuable security or any service,
 is guilty of an indictable offence and liable to a term of imprisonment not exceeding
fourteen years, where the subject-matter of the offence is a testamentary instrument or the
value of the subject-matter of the offence exceeds five thousand dollars; or
 is guilty of an indictable offence and is liable to imprisonment for a term not exceeding
two years, or
 Of an offence punishable on summary conviction, where the value of the subject-matter
of the offence does not exceed five thousand dollars.

5.3 Britain

According to the constitution of Britain, the main fraud offences are contained in the Fraud Act
2006 (Fraud Act) and the Theft Act 1968 (Theft Act). Additional offences exist in specific
statutes such as companies and tax legislation.

5.3.1 Fraud Act offences

The Fraud Act contains three main fraud offences:
 Fraud by false representation4. A representation may be express or implied. It is false if it
is untrue or misleading and the person making it knows that this is, or might be, the case.
 Fraud by failing to disclose information where there is a legal duty to disclose it5.
 Fraud by abuse of position6. Abuse of position applies where a person occupies a position
in which he is expected to safeguard, or not to act against, the financial interests of another
person. A person may abuse that position through an act or omission.

Common to all three Fraud Act offences is the requirement that the person act dishonestly,
intending to make a gain for himself or another or to cause loss to another (or expose another to a
risk of loss).

4
The Fraud Act, 2006, s. 2.
5
The Fraud Act, 2006, s.3.
6
The Fraud Act, 2006, s.4.

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The Fraud Act contains additional offences relating to the possession, manufacture or supply of
articles for use in frauds7 and obtaining services dishonestly8.

6. Recent Case Laws

6.1 Prachi v. Shailendra Kr.9

The plaintiff pleaded that the marriage of the plaintiff and the defendant was solemnized by
fraud committed by the parents of the defendant (Prachi Kr.). It was argued that defendant is
unable to do the work of the household. The plaintiff pleaded that the fact that defendant cannot
hear without a hearing aid was concealed by her parents and was not revealed before marriage or
even at the time of marriage. The plaintiff demanded the nullity of the marriage on the ground of
fraud committed by the parents of the defendant.

The High Court of Allahabad held that it was the duty of the parents to disclose these facts to the
other party and hence the marriage was solemnised on the basis of fraud.

6.2 Parsvnath Developers Limited v. Kiran Industries & Investment Company and
Another Defendants10

The plaintiff had a business of making society, housing and residential areas. The plaintiff
entered into an agreement with the representative of the defendant to buy to buy a land which
was free of any interference by any authority and solely belonged to the defendant itself. The
plaintiff’s attorney and the defendant’s representative signed a MoU in which it was stated that
the defendant will provide all the documents of the land to the plaintiff. The MoU included the
terms that the plaintiff will be provided with the ownership and a clear marketable title qua of the
subject land. The defendants failed to do so by concealing and misrepresenting facts relating to
their land.

It was held that, the defendants were guilty of fraud. The consent of the plaintiff was thus not
taken freely as it was obtained by falsehood and silence on the part of the defendant which
constituted fraud.

7. Conclusion
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 the regard being bad to them it is the
duty of the person keeping silence to speak, or unless silence is equivalent to speech. In certain
contracts, the law requires the parties to make fullest disclosure of material facts. Failure to
disclosure of such facts would make the contract void or voidable as the case may be. Such
contracts are called Uberrimae fidei, i.e., contracts requiring utmost good faith. In such contracts,
party having any information regarding the subject matter which is likely to affect the
willingness of another party to enter into transactions is bound to disclose the information.
7
The Fraud Act, 2006, ss. 6, 7.
8
The Fraud Act, 2006, s. 11.
9
Delivered on September 13, 2019 at Allahabad High Court.
10
Delivered on May 06, 2019 at Delhi High Court.

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 8. REFERENCES

I. Primary Sources:

Statutes

 The Indian Contract Act, 1872.

 The Fraud Act, 2006.

 The Theft Act, 1968.

II. Secondary Sources:

Books

 R.K. Bangia, Law of Contract Part I, 6 th Edn, Allahabad Law Agency

(Faridabad), 2009.

 Avtar Singh, Contract & Specific Relief, 10th Edn., Eastern Book Company

(Lucknow), 2008.

Webliography

 www.legalcrystal.com

 www.indiankanoon.com

 www.casemine.com

 www.legitquest.com

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