Ans.
Can
Silence be Fraudulent?
“Mere silence as to facts likely to affect the
willingness of a person to enter into a contract is not fraud, if 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". [Explanation to sec.
17]
Example I: H sold to W certain pigs. The pigs were suffering from fever and H
knew it. The pigs were sold "with all faults". H did not disclose the
fever to W. Held: There was no fraud [Ward
v. Hobbs (1878) A. C. 13].
Example II: A sells by auction to B, a horse which
A knows to unsound. A says nothing to B about the horse's unsoundness. This is
not fraud by A. Mere non-disclosure is not fraud. If there is no duty to speak.
Example III: 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.
From
the above, following rules can be deduced:
1. The general rule is that
mere silence is not fraud.
2. Silence is fraudulent, “if
the circumstances of the case are such that, regard being had to them, it is
the duty of the person keeping silence to speak". The duty to speak, i.e., disclose all facts exists where
there is a fiduciary relationship between the parties (such as in father and
son; guardian and ward, etc, and also in the insurance contracts, marriage
contracts, partnership contract etc which are contracts based on good faith [contracts of uberimae fidei]). The
duty to disclose may also be an obligation imposed by statute.
Example: A sells by auction to B, a horse which A
knows to be unsound. B is A's
daughter and has just come of age. Here the relation between parties would make
it A's duty to tell B if the
horse is unsound.
Silence is fraudulent where
the circumstances are such that "Silence is in itself equivalent to speech”.
Example: 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.
