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Mere Silence As Fraud: Exploring The Ambit Of Half-Truths And Actionable Misrepresentation

Section 17 of the Indian Contract Act, 1872 gives a clear explanation of 'Fraud' and the elements that constitute it. In a contract, where a party has a duty to convey certain important and valuable information that may affect the willingness of the other party, or in a situation when silence has the same effect as the speech of a party. Such a duty arises when a party poses his faith and confidence in the other party and depends on his good faith. The duty to speak is referred to as uberrima fides.

There are four ingredients that constitute this relevant section, they are: first, a suggestion of a fact is made which is untrue by an individual who is aware of such false nature. Second, there has to be deliberate hiding of a fact by one who possesses that particular information. Third, a promise has to be made with no intention of fulfilling it. Fourth, an activity that aims to defraud and misguide. And lastly, performance or non – performance of an act as the law conveys to be fraudulent.

The concept of 'Fraud' was explained clearly in the renowned decision of the House of Lords in [1]Derry v Peek. In this case, a company's prospectus said that it had been authorised by a special Act of Parliament to run trams by steam or mechanical power. This authority was however subject to the permission of the Board of Trade, but this was nowhere mentioned. The consent was refused by the Board and the company was caught up due to this.

The plaintiff who had bought some shares sued the directors for fraud. But they were not held liable. They were not guilty as they sincerely believed that once Parliament had authorised the use of steam, the consent of the Board was dismissed. Thus, one becomes liable for fraud in a case when the act is misguiding and not when he truly thinks it to be correct to the best of his/her knowledge.

FRAUD AND ACTIONABLE MISREPRESENTATION
The claims for Misrepresentation receive their power from the Common Law and the Misrepresentation Act, 1967. In some cases, it may be required or vital to plead fraudulent misrepresentation. In this, it is the absence of true confidence in a statement's truth that makes it fraudulent. The assertions for misguided misrepresentation must be reinforced by fool-proof backing.

In a case of Fraud, one has been falsely induced to go ahead on an action say in a contract based on false claims and leads to loss of the party as there was a lack of complete knowledge. Where the misrepresentation was not made with dishonest intention, damages cannot be sought if the one who made the claim had an appropriate reason for thinking that the representation was true.

[3] Misrepresentation further is of the following types and each one is explained in brief:
Fraudulent misrepresentation: in which a dishonest depiction is made with intent or with the absence of trust of the correctness of the same.

Negligent misrepresentation: a representation made without due care and in breach of duty owed by one Party to another Party to take reasonable care that the representation is accurate.
Innocent misrepresentation: a representation that does not deceive or misguide.

[4]Misrepresentation and fraud amount to a contact resulting in a voidable nature. There is false representation in both cases and the consent is obtained in a fraudulent manner. [5]The fraud may also arise due to 'Silence' observed but in such a case “means of discovering by ordinary diligence” is considered to be a good defense.

The case [6]Royscot Trust Ltd v Rogerson, a British Contract Law case, in this, [7]The C finance company was falsely made to enter into a hire-purchase transaction with Mr. Rogerson as a result of a misrepresentation by the D car dealers. Ds falsely stated that the car price was £8,000 when the cost of it was £7,600 but the customer paid £1,600 deposit instead of £1,200 which was the rightful amount. Later it was discovered that D was not dishonest. So, the Cs had the power to gain back their real deprivation as a result of misrepresentation, whether or not that loss could be predicted by a reasonable individual.

Fraud conversely is more on the side of being a dishonest wrong-doing on purpose, while, Misrepresentation is understood to be in nature. Furthermore, Fraud in addition to rendering a contract voidable even raises a cause of action in Tort of Damages. [8]Both Misrepresentation and fraud lead to contact becoming 'voidable.' There is false representation in both cases and the consent is obtained in a fraudulent manner. [9] The fraud may also arise due to 'Silence' observed but in such a case “means of discovering by ordinary diligence” is considered to be a good defense.

The case [10]Royscot Trust Ltd v Rogerson, is an English Contract Law case based on Misrepresentation. In the case, [11] The C finance company was induced to enter into a hire-purchase transaction with Mr. Rogerson as a result of a misrepresentation by the D car dealers. Ds falsely stated that the car price was £8,000 when it was £7,600 and the customer paid a £1,600 deposit instead of £1,200 (20% of the car price).

However, it was held that Ds were not fraudulent for making this change. The COA held that the damages under s. 2(1) were to be assessed if the Ds were fraudulent, that was not the case here. So, the Cs were entitled to recover their actual loss directly flowing from misrepresentation, whether or not that loss was reasonably foreseeable.

The remoteness rule applicable was that derived from the tort of deceit, not the tort of negligence. It was argued that there was no breach in the chain of causation between the misrepresentation and the loss and Cs were entitled to recover damages.

On the other hand, 'Fraud' is more on the side of being an intentional wrong, whereas, Misrepresentation may be quite innocent in nature. Furthermore, Fraud in addition to rendering a contract voidable, it even raises a cause of action in Tort of Damages.

Half-Truths Leading To Fraud Even In Absence Of Duty To Disclose A Fact, As In Case Of Silence

Half-Truth is when a statement made is not wholly true or is a small section of the whole truth or has a misguiding element with an intent to deceive or misrepresent the truth. In which instances is one held responsible for speaking half-truths, statements that are literally true but mislead by omitting some material fact. Such statements lead to the omission of certain facts and silence is observed in relation to those. [12]

In the case of Half-truths, one is not liable to convey facts but one becomes liable for fraud when one by his own will discloses certain information and stop halfway and does not convey the entire information. In this instance, responsibility is formed to unravel the completely true facts in totality.

In the case [13]Gluckstein v Barnes, the case is as follows: Promoters of a company gained a property with an intention to resell it by selling the shares. By this, the original directors made a good earning which they did not make public even in the case that it could have known with due efforts. The company became robbed of its assets and investors sought repayment of the hidden profit. In the end, the action succeeded. As promoters, they had a duty to make open declarations of the profits already made. Thus, here concealment of certain facts that led to the loss of the other party involved amounted to be fraudulent and the affected party was accordingly and duly rewarded.

To further state an example case, in [14]Schneider v. Heath, finding fraud where defendants had changed the place of a ship and anchored it in the water so that the plaintiffs could not take notice of the defects on the lower part of the boat. Half-truths are thus semi-true statements that deceive one and end up leading to some substantial and significant loss. This happens due to the non-conveyance of certain valuable information as silence is observed and results in a case of fraud.

The hiding certain facts while conveying partial truth is good as keeping the individual in the gory dark as in some cases it may end up doing more harm than good as well.

Mere Silence as Fraud explores cases where silence on part of a party becomes deceptive to the plaintiff due to the fraudulency of the defendant. In such a case, the principle of uberimma fides applies when a person observing silence is under the duty to speak. It further depicts how silence in certain cases may be deceptive or having the same effect and impact as the speech itself which conveys a crystal-clear message.

Also, due to change in circumstances from where the contract has first signed a representation made may become false when the other party acts upon it or in a case where Half-truth is delivered when halfway the duty to inform completely arises. Another arena covered is when a promise is made without the intent to perform it or preventing the other from dealing with others. The above sum up the essence of 'Mere Silence as Fraud' and the instances when it occurs and the special conditions that make this possible between parties.

Thus, Silence observed by a party does not always amount to a case of fraud but it does when it is dishonest and fraudulent in its nature and leads to a certain loss of the other concerned party. In the main body, with the aim of answering the two research questions appropriately and aptly several case laws have been stated and explained. They have helped to explain the concepts much better, especially that of Misrepresentation, Fraud, Half-Truths in particular.

End-Notes
  1. Derry v Peek (1989) LR 14 AC 337
  2. https://www.lexisnexis.com/uk/lexispsl/disputeresolution/document/393747/567M-26H1-F18B-71BK-00000-00/Actionable_misrepresentation_and_negligent_misstatement_overview
  3. https://uk.practicallaw.thomsonreuters.com/9-107-6848?transitionType=Default&contextData=(sc.Default)&firstPage=true
  4. https://indiankanoon.org/doc/1731913/
  5. Contract & Specific Relief by Avatar Singh Twelfth Edition
  6. Royscot Trust Ltd v Rogerson, (1991) 2 QB 297: (1991) 3 WLR 57 (CA).
  7. https://simplestudying.com/royscott-trust-ltd-v-rogerson-1991/
  8. https://indiankanoon.org/doc/1731913/
  9. Contract & Specific Relief by Avatar Singh Twelfth Edition
  10. Royscot Trust Ltd v Rogerson, (1991) 2 QB 297: (1991) 3 WLR 57 (CA
  11. https://simplestudying.com/royscott-trust-ltd-v-rogerson-1991/
  12. http://users.wfu.edu/palmitar/Courses/SecReg-Palmiter/Handout/Articles/Langevoort-Half-Truths.html
  13. https://swarb.co.uk/gluckstein-v-barnes-re-olympia-ltd-ex-parte-gluckstein-hl-1900/ Per Lord MACNAUGHTAN in Gluckstein v Barnes, 1900 AC 240, 250.
  14. Schneider v Heath (1813) 3 Camp 506

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