Whether Silence Amount to Fraud

Section 17 of the Contracts Act 1950 explains that “ 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”. 1 To put it in a simple words, mere silence is not fraud.

By simply keeping silence about a certain fact that could affect the

decision or willingness of another to enter into the contract, fraud is be committed.

We can see the explanation of this general rule under Illustration (d) from Contract

Act 1950 : “ 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”.2

From the above illustration, A remains silence although he knows some

information on the change of prices. The change of prices would affect B’ willingness

in entering into the contract. However, A’s silence is not fraud. The rule of caveat

emptor is applied when a seller does not have the duty to inform a buyer the

condition of the goods he is selling. The buyer himself needs to satisfy himself before

making a purchase.

Law requires a person to refrain from intentional or active concealments

as to facts. However it does not mean that all material defects of the contract to the

other party has to be disclosed by him. For instance, if a person is to sell his goods,

it is not compulsory for him to disclose the defects in his goods, but if an intentional

false statement as to the quality of his goods is made by him, it will amount to fraud

as under Section 17(1)..

1 Contract Act 1950, s172 Contract Act 1950, s17 Illustration (d)