According to Section 17, Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud. In other words, mere silence on the part to the contract about certain material facts relating to the subject matter of the contract does not generally amount to fraud. The general rule states that a party to the contract is under no legal obligation to disclose the whole truth to the other party or to give him the whole information in his possession. For example, A sells by auction to B, a horse which A knows to be unsound. A says nothing to B about the horse’s unsoundness. This is not a fraud.
There are two exceptions to the general rule where silence does amount to fraud, namely:
Where the circumstances of the case are such that, regards being had to them, it is the duty of the person keeping silence to speak: This duty to speak arises in the following cases:
- Fiduciary Relationship: When one party reposes trust and confidence in the other, the party must reveal the truth. For example, A sells by auction a horse to B, his daughter who has just come of age. Here, the relation between the parties are such that it becomes A’s duty to tell B about the unsoundness of the horse.
- Contracts of absolute good faith: Where one party has to depend upon the good faith of the other, the other party is bound to speak. For example, in all contracts of insurance, it is the duty of the proposer to make full disclosure of all material facts to the insurance company.
Where the silence is, in itself, equivalent to speech: In certain cases where the silence is treated as speech, the silence of a person amounts to fraud. For example, A is selling his horse to B, the horse appears to be sound. Even then B says to A, If you don’t deny it, I shall assume that the horse is sound A says nothing. Here A’s silence is equivalent to speech.