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Silence as fraud

  • General rule: According to Sec. 17, “Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud.”
A person is not obliged to disclose the faults of goods he is going to sell. The buyer should satisfy himself before purchasing the goods regarding the quality or fitness of the things. Thus it for the buyer to do what is necessary in order to find out and ensure that the goods fit his purpose. Silence as to material facts does not constitute the act of fraud.



A and B, being traders, enter into 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 candidate for the LLB examination, who was short of attendance, did not mention the fact in his examination form. The university authorities did not properly scrutinize to discover the truth. Held, there was no fraud by the candidate.

Exceptions to the general rule

The general rule that silence does not amount to fraud has the following exceptions. In the following circumstances, silence is considered as fraud:
  • When there is a duty to speak, keeping silence is fraud
    Duty to speak arises in the following circumstances
    • Where parties stand in fiduciary relationship

      Example: Ram sells his old car, which he knew to have a defective engine, to his son Shyam. Ram said nothing to Shyam about the defects in the car’s engine. This amounts to fraud as the relation between the father and the son makes it the father’s duty to tell his son about the condition of the car’s engine.

    • Where a contract is of ubberimae fidei (contract of utmost faith)
      In some contracts, all material facts should be disclosed compulsorily, whether it is asked by the party or not. This kind of a contract, where all material information should be provided, is known as a contract of ubberimae fidei. In such contract any non disclosure of material facts would amount to fraud.
Examples of contract of ubberimae fidei
  • Contract of insurance - Insurance contracts are founded upon the principle of utmost good faith. The proposer (person applying for insurance), therefore, is under a duty to disclose all the facts known or ought to be known to him, which are likely to affect the acceptance of the proposal.
  • Contracts for sale of immovable property - Under Sec. 55 of transfer of Property Act In contracts of immoveable property, the seller is under a duty to disclose to the buyer to disclose all the materials facts. All materials facts with regard to defect or limitation in the title of the property and any charge or pledge in favor of the third party should be disclosed to the buyer.
  • Contracts of marriage - Every party in a marriage contract is under a duty to disclose all the material facts. For example in case of Haji Ahmed vs. Abdul Gani one of the parties to the contract did not disclosed the fact of the medical disorder suffered by her. Such non- disclosure in contracts of marriage amounts to fraud as contracts of marriage are ubberimae fidei
  • Contract of partnership - Partners to a partnership firm share a relation of mutual agency and the relationship of agency is a fiduciary relation. Hence all partners have a duty to consult and inform the other partners and they must be faithful to one another. Thus a partner making secret profits have to give it back to the firm as per the rules of agency because such act of making secret profit would constitute deceit.
  • Where silence is equivalent to speech: Sometimes, silence is equivalent to speech. In such cases, the silence of a person amounts to fraud where a person keeps silent, knowing that his silence is going to be deceptive, he is guilty of fraud.

X a buyer, saw the horse of Y, a seller. X’s first impression was that the horse was sound. He asked Y ”If you do not deny I will consider the horse sound”. Y kept silent. This is a fraud, because Y’s silence is equivalent to speech.

  • Half truth: Silence may amount to fraud when a person discloses only half-truth. Half-truth is worse than a blatant lie. Partially truthful disclosures may easily deceive the other party.

Prospectus of a Company disclosing only average dividend declared by the Company in the last 5 years instead of projecting an actual picture of declining dividends over that period is a glaring example of half-truth amounting to fraud.

Effects of fraud

Under Sec. 19, the effect of fraud is that it makes the contract voidable at the option of the party whose consent was obtained by fraud. Such party may rescind (put an end to) the contract or affirm (accept) the contract.



  • The aggrieved party can exercise his option either to rescind the contract or to affirm it, only once
  • In addition to the right to rescind the contract
  • The aggrieved party can also claim damages from the other party

Remedies available on account of fraud

The aggrieved party, i.e., the party whose consent was obtained by fraud has the following two remedies (or rights)
  • He may rescind (i.e., revoke or put an end to) the contract
  • He may expressly or impliedly affirm (i.e., accept) the contract
  • He may claim damages
  • He may file a suit for specific performance and insist on being restored to a position if the false statement made was true
Circumstances where a contract cannot be avoided under fraud
  • The party has entered into a contract in ignorance of fraud
  • The party has expressly or impliedly affirmed the contract
  • The party after having the knowledge of the fraud takes a benefit under the contract
  • Where the parties cannot be restored into their original position
  • Where a third party acquires a right in the property for consideration in good faith

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