Essentials of Valid Contract:

In order to constitute a valid contract, there are certain conditions (essential elements) which needs to be fulfilled. The essentials of a valid contract are defined under Section 10 of the Indian Contract Act, 1872[1] which are as follows:

• Free consent of both the parties
• Capacity (competency) to enter into contract
• Lawful consideration
• Lawful object
• Not expressly declared to be void

All agreements are contracts provided that all of the above mentioned essentials are fulfilled.

One of the most important essentials for a lawful (valid) contract is the free consent.

Section 13 of Indian Contract Act, 1872 defines consent as Two or more persons are said to consent when they agree upon the same thing in the same sense. It is also called as Consensus ad idem which means 'meeting of minds' (two mind with one intention). [2]

Illustration:
Suppose A intends to sell his black car to B and offers him the same. B perceived it as a white car and agreed to buy it. In this case, since there is no consensus ad idem i.e. A and B are not agreeing upon the same thing in same sense. Hence, in this agreement the element of 'consent' is missing which makes it an invalid contract.

Concept of Free Consent:

In order to make a valid contract, mere consent is not enough, the consent has to be freely given.

Free consent as per the Section 14 of Indian Contract Act, 1872 refers to Consent is said to be free when it is given without any (1) coercion, as defined in section 15, (2) undue influence, as defined in section 16, (3) fraud, as defined in section 17, (4) misrepresentation, as defined in section 18, (5) mistake, subject to provisions of sections 20, 21 and 22.[3]

Fraud:

Definition:
Intentional misrepresentation of facts, speaking broadly is called fraud.[4]

Sec. 17:

Fraud means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent[5], with intent to deceive another party thereto of his agent, or to induce him to enter into the contract:

1. The suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
2. The active concealment of a fact by one having knowledge or belief of the fact;
3. A promise made without any intention of performing it;
4. Any other act fitted to deceive;
5. Any such act or omission as the law specially declares to be fraudulent.[6]

Fraud in General:

Fraud is committed where one man causes another to act on a false belief by a representation which he does not himself believe to be true. He need not have definite knowledge or belief that it is not true.[7] When fraud produces damage it is generally a wrong entitling the person defrauded to bring a civil action. Under the Contract Act, we are concerned with the effect of the fraud only so far as consent to a contract is procured by it.[8] The section 17 would not apply for fraudulent acts during the course of performance of the contract.[9]

Fraud and Misrepresentation:

Definition of Misrepresentation:
Sec. 18: Misrepresentation means and includes:

1. The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true;
2. Any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or any one claiming under him; by misleading another to his prejudice, or to the prejudice of any one claiming under him;
3. Causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement.[10]

Principal Difference:

The principal difference between fraud and misrepresentation is that in the first case the person making the suggestion does not believe it to be true and in the other he believes it to be true, though in both the cases, it is a misstatement of fact which misleads the promisee.[11]

Elements of Fraud:

Assertion of Facts without belief in truth:
In English Law, fraud was defined in the well-known decision of the House of the Lords in Derry v. Peek.[12] Lord Herschell said:
Fraud is proved when it is shown that a false representation has been made:

1. Knowingly, or
2. Without belief in its truth, or
3. Recklessly careless whether it be true or false.[13]

Active Concealment:
Active concealment is something different from mere passive concealment.[14] Passive concealment means mere silence as to material facts. An active concealment of a material fact is a fraud; mere silence does not amount to fraud.

The expression "any other act fitted to deceive" naturally means any act which is done with the obvious intention of committing fraud.[15] For example, a husband persuaded his illiterate wife to sign certain documents telling her that by them he was going to mortgage her two lands to secure his indebtedness and in fact mortgaged four lands belonging to her. This was an act done with the intention of deceiving her.[16]

Nature of Contract Made by Fraud:

Under Section 19 of the Indian Contract Act, when consent to an agreement is caused by fraud, the agreement is a contract voidable at the option of the party whose consent was so caused.[17]

Section 17 (5) of the Contract Act:

Clause 5 applies to a case where the disclosure of certain kinds of fact is expressly required by law, and non-compliance with the law is expressly declared to be fraud. Thus, under section 55 of the Transfer of Property Act, 1882 the seller of immovable property is required to disclose to the buyer "any material defect in the property or in the seller's title thereto of which the seller is, and the buyer is not, aware, and which the buyer could not with ordinary care discover."[18]

The buyer is required to disclose to the seller "any fact as to the nature or extent of the seller's interest in the property of which the buyer is aware, but of which he has reason to believe that the seller is not aware, and which materially increases the value of such interest," and "omission to make such disclosures is fraudulent," and it is so even if the omission is merely due to oversight.[19]

Role of Silence in Fraud:

Silence doesn't amount to fraud unless there is a duty to speak. The parties have no duty to speak about facts likely to affect the consent of the other party to the contract, and mere silence does not amount to fraud unless the circumstance of the case shows that there is a duty to speak or silence equivalent to speech.[20]

In the words of the Contract Act, as per the explanation given in Section 17, 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[21], or unless his silence is, in itself, equivalent to speech. [22]

Mere silence is not fraud unless there is a duty to speak, or unless it is equivalent to speech.[23] There are two qualifications to this rule. First, the suppression of part of the known facts may make the statement of the rest, though literally true so far as it goes, misleading as an actual falsehood.[24] In such a case, the statement is false in substance, and the wilful suppression which makes it so, is fraudulent.[25] Secondly, a duty of disclosure of particular defects in goods sold, or the like, may be imposed by trade usage. In such a case, omission to mention a defect of that kind is equivalent to express assertion that it does not exist.[26]

Where a vendor did not disclose to the purchaser of property about a material defect in the title that the property agreed to be sold was the subject matter of a pending litigation and attachment, the non-disclosure was held to be a fraudulent act and the purchaser was entitled to rescind the contract and claim back the earnest money.[27]

Where the lessor, knowing that two days after executing a lease in favour of her husband, she would cease to be the lessor and the lessee also knew the same, she executed the lease for a period subsequent to her ceasing to be the lessor, the transferee is not bound by such lease which was the outcome of a fraud.[28]

Where the vendor made an express recital in the sale deed about non-existence of mortgage, it was an active misstatement; and the exception to section 19 was not applicable.[29]
When a special condition restricting inquiries into title is inserted in a contract of sale, a purchaser has the right to assume that there has been a full and fair representation as to the title on the part of the vendor[30]

Duty to Speak: [31]

There is no general duty to disclose facts which are or might be equally within the means of knowledge of both parties.[32] In Bell v Lever Bros Ltd[33], the company agreed to pay large compensation to two employees, the subsidiary company directors, whose services were being dispensed with. After paying the money, the company discovered that the directors had committed breach of duty, which would have justified their dismissal without compensation. The House of Lords held that the directors had not these breaches in mind, and were under no duty to disclose them. When there is no duty to speak, if the plaintiff forms a belief without clarifying the same with the defendants, the defendants cannot be faulted for the same.[34]

The duty referred to in the explanation[35] is a legal duty and not merely a moral duty to speak.[36] However, there are special duties of disclosure in particular classes of contracts, [37] viz, in contracts between an insurer and insured,[38] or where one party stands in fiduciary relationship with the other.

1. Contract of utmost good faith (Uberrima fides): [39]
   Duty to speak arises where one contracting party reposes trust and confidence in the other. A father, for example, selling a horse to his son is bound to tell him if the horse is unsound, as the son is likely to rely upon his father. The duty to disclose the truth will arise in all cases where one party reposes, and the other accepts, confidence.[40]
   
   Duty to speak also arises where one of the parties is utterly without any means of discovering the truth and has to depend on the good sense of the other party. An insurance company, for example, knows nothing about the life or circumstances of the assured. It has to depend on the disclosures made by the assured. It is, therefore, the duty of the assured to put the insurer in possession of all the material facts affecting the risk covered. A contract of insurance is, for this reason, called a contract of utmost good faith, uberrima fides.[41]
   
   Examples:
   Where false answers as to the state of health were given in a proposal for life insurance, the policy was held to be voidable and it was not material that the medical officer of the corporation had certified the life assured as good.[42]
   
   Where a person got his motor vehicle insured in the evening, when in the morning, the vehicle had met with an accident, the policy was held to be not enforceable, the duty of the insurer to check the vehicle notwithstanding.[43]
   
   Burden of proof lies on the insurer to show that the fact misstated or suppressed was of material nature to the risk covered and that the same was done to cause misconception about the risk undertaken by the insurer.[44]
   
   In the absence of any such relationship there is no duty to speak and mere silence even if it amounts to misrepresentation, will be no fraud. For example, in Haji Ahmad Yar khan v. Abdul Gani Khan:[45]
   
   The plaintiff spent a sum of money to mark the engagement of his son.
   
   He then discovered that the girl suffered from epileptic fits and so broke off the engagement. He sued the other party to recover from them compensation for the loss which he had suffered on account of their deliberate suppression of a vital fact which amounted to fraud.
   
   The court relied upon the decision of the House of Lords in Nocton v Lord Ashburton[46], where it was pointed out that a mere passive non-disclosure of the truth, however deceptive in fact, does not amount to fraud, unless there is a duty to speak. Referring to the facts the court said that the law imposes no general duty on anyone to broadcast the blemishes of his female relations; not even to those who are contemplating matrimony with them. There was no fiduciary relation between the parties.
   
   The engagement was, however, held to be voidable by reason of the misrepresentation, but the plaintiff was not entitled to recover any compensation under Section 75 of the Contract Act.
    
2. Where Silence is deceptive: [47]
   Silence is sometimes itself equivalent to speech. A person who keeps silent, knowing that his silence is going to be deceptive, is no less guilty of fraud. Where, for example, the buyer knows more about the value of the property, which is the subject of sale, but prefers to keep the information from the seller, the latter may void the sale.[48]
    
3. Change of Circumstances:[49]
   Sometimes a representation is true when made, but, it may, on account of a change of circumstances, become false when it is actually acted upon by the other party. In such circumstances, it is the duty of the person who made the representation to communicate the change of circumstances. In an English case[50], for example:
   A medical practitioner represented to the plaintiff that 'his practice was worth £2000 a year'. The representation was true. But five months later when the plaintiff actually bought the practice, it had considerably gone down on account of the defendant's serious illness.
   
   It was held that the change of circumstances ought to have been communicated. Similarly, in a case before the Madras High Court:[51]
   
   "A company's prospectus represented that certain persons would be the directors of the company. This was true. But before the allotment took place, there were changes in the directorate, some directors having retired. It was held to be sufficient to entitle an allottee to avoid the allotment.
    
4.  Half-Truths: [52]
   Even when a person is under no duty to disclose a fact, he may become guilty of fraud by non-disclosure if he voluntarily discloses something and then stops half the way. A person may keep silence, but if he speaks, a duty arises to disclose the whole truth. "Everybody knows that sometimes half a truth is no better than a downright falsehood."[53] In a US case,[54] for example:
   
   The plaintiff purchased a tract of land. The contract of sale stated that the land was subject to a right of the Borough to open two streets within the area. But as a matter of fact the Borough had the right to open three streets. Holding that the plaintiff had the right of rescission, Cordozo CJ said: "We do not say that the seller was under a duty to mention the projected streets at all. That question is not here. What we say is merely this, that having undertaken or professed to mention them, he could not fairly stop halfway."
   As in misrepresentation, so in fraud by silence, if the plaintiff had means to discover the truth by ordinary diligence, he cannot obtain rescission.
   
   But in any other case the fraudulent party cannot say that the other could have discovered the truth. In a case, for example, before the Gujarat High Court:[55]
   False estimates of the costs of construction were given in a tender. The contractor agreed to some reduction on the belief that the estimate was correct. The court held that the representations contained in the tender were fraudulent and that it was no defence that the plaintiff could have discovered the true costs by reasonable effort.
    

Fraud in Marriage:

Non-disclosure of material facts relating to parties to the marriage has been held to constitute fraud within the meaning of section 17 of the Indian Contract Act, 1872.[56]

In Kiran Bala Asthana vs. Bhaire Prasad Srivastava[57], first marriage of the appellant, Kiran Bala, had been annulled on the ground that she was of unsound mind at the time of that marriage. She was married to the respondent, Bhaire Prasad Srivastava, the second time. The fact of the annulment of the first marriage on the ground that she was an idiot was not disclosed to the bridegroom either by the girl or her parents.

It was held that it was not the duty of the bridegroom to find out these facts, but it was the duty of the girl or her parents not to conceal these facts. Consent of the bridegroom was held to have been obtained by fraud, and the second marriage of the appellant with respondent was, therefore, annulled by a decree under section 12(1) (c) of the Hindu Marriage Act.

Exception to Section 19:
If such consent was caused by misrepresentation or by silence, fraudulent within the meaning of section 17, the contract, nevertheless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence. [58]

If the party alleging fraud had the facts before it or had the means to know them, it could not be said to have been defrauded, even if a false statement has been made. Further, a contract cannot be merely on a trivial and inconsequential misstatement or non-disclosure.[59]

In Janaki Amma v. Raveendra Menon,[60] where the plaintiff was aware of the contents of the Will of her father, the partition of property on the death of the father and mother was not set aside on the ground of fraud of not disclosing the contents of the Will; and no fresh partition was ordered.

In Shri Krishnan vs. Kurukshetra University[61], Shri Krishnan, a candidate for the L.L.B. part 1 examination of the university did not complete the prescribed number of lectures which could make him eligible for appearing in the examination. He, however, filled the examination form for appearing in the examination without mentioning the fact that his attendance was short. The university authorities could have discovered the truth by proper scrutiny.

The university wanted to cancel the candidature of the candidate on the ground of fraud. It was held that there was no fraud as the candidate has just kept silent as to certain facts and further, the university authorities could have discovered the truth with ordinary diligence.

Conclusion/Observations:
As discussed in the paper, firstly, it can be concluded that Silence doesn't amount to fraud unless there is a duty to speak. Upon studying the provisions regarding Fraud as mentioned in the Indian Contract Act 1872, an observation worth mentioning here is that the text of the statute are very simple, lucid and clear and there's no scope of misinterpretation of any of the sections relevant for understanding how law deals with cases relating to contracts made through fraud or misrepresentation.

But, one limitation exists which is beyond the statutory provisions, it is related to the proof i.e. finding evidences to establish that fraud was committed, this is the reason, at times, the aggrieved party in order to get compensation of the loss or damage incurred because of the fraud committed by the other party aren't able to give proof or necessary evidence itself, which in turn leads to dismissal of the case. Thus, in my opinion, this issue needs some consideration.

BIBLIOGRAPHY
Books Referred:

• Contract and Special Relief by Avtar Singh, 12th Edition, 2020
• The Indian Contract Act 1872 by Pollock & Mulla, 15th Edition [E-book]

Websites Referred:

• https://indiankanoon.org/
• https://blog.ipleaders.in/fraud-in-contracts-section-17-of-the-indian-contract-act/
• https://www.legalbites.in/contract-law-notes-fraud-misrepresentation-mistake/

End-Notes:

1. See Indian Contract Act 182, s 10, https://indiankanoon.org/doc/447653/
2. See Indian Contract Act 1872, s 13, https://indiankanoon.org/doc/1463968/
3. See Indian Contract Act 1872, s 14, https://indiankanoon.org/doc/1728676/
4. Dr. Avtar Singh, Contract and Special Relief, (12th edn, EBC 2020) 210
5. See Indian Contract Act, s 238, https://indiankanoon.org/doc/1060416/
6. Indian Contract Act 1872, s 17, https://indiankanoon.org/doc/299780/
7. Evans v Edmonds, (1853) 13 CB 777, 93 RR 732.
8. Pollock & Mulla, The Indian Contract Act 1872, (15th edn, LexisNexis 2018) s 17.2
9. Jamsetji Nassarwanji v Hirjibhai Naoroji, (1913) 37 Bom 158; Fazal D Allana v Mangaldas M
   Pakvasa, (1921) 46 Bom 489 at 508, 66 IC 726 : AIR 1922 Bom 303
10. Indian Contract Act 1872, s 18, https://indiankanoon.org/doc/1270593/
11. Niaz Ahmed Khan v Parsottam Chandra 53 All 374, AIR 1931 All 154 ; Rattan Lal Ahluwalia v Jai Janinder Parshad, AIR 1976 P&H. 200 ; Avitel Post Studioz Ltd v HSBC PI (Holdings) Mauritius Ltd, 2014 SCC On Line Bom 929; VHBC Mumbai Value Homes Pvt Ltd v Laxman Bhoir, 2015 SCC OnLine Bom 8273 : (2015) 6 Mah LJ 385
12. (1889) LR 14 AC 337 at p. 374.
13. Dr. Avtar Singh, Contract and Special Relief, (12th edn, EBC 2020) 211
14. Gowrishankar v Joshi Amba Shankar Family Trust, (1996) 3 SCC 310: AIR 1996 SC 2202.
15. Dr. Avtar Singh, Contract and Special Relief, (12th edn, EBC 2020) 212
16. Ningawwa v Byrappa Shiddappa Hireknrabar, AIR 1968 SC 956, 958: (1968) 2 SCR 797
17. Indian Contract Act 1872, s 19, https://indiankanoon.org/doc/353998/
18. Pollock & Mulla, The Indian Contract Act 1872, (15th edn, LexisNexis 2018) s 17.9
19. Akhtar Jahan Begam v Hazari Lal, (1927) 25 All LJ 708, 103 IC 310 : AIR 1927 All 693
20. https://blog.ipleaders.in/fraud-in-contracts-section-17-of-the-indian-contract-act/
21. See Indian Contract Act 1872, s 143, https://indiankanoon.org/doc/14348/
22. Indian Contract Act 1872, s 17 (Explanation)
23. Chartered Bank of India, Australia and China v Imperial Bank of India 60 Cal 262 : AIR 1933 Cal 366 ARSP Subramanian Chetty v Official Assignee of Madras, AIR 1931 Mad. 603 , 133 IC 372; Niaz Ahmed Khan v Parsottam Chandra 53 All 374 : AIR 1931 All 154 ; Navichandra Jethbai v Moolchand Saderan Ginodiya, AIR 1966 Bom 111 , 1965 Mah LJ 519 ; Vibha Mehta v Hotel Marina, 2014 SCC OnLine Del 1333 : (2014) 142 DRJ 528 ; Bhai Sarabjit v Indumati Sabharwal, (2015) 152 DRJ 615 (DB); Orient Underwater Engineers Pvt Ltd v The Board of Trustees, Cochin Port Trust, 2017 SCC OnLine Ker 520.
24. Pollock & Mulla, The Indian Contract Act 1872, (15th edn, LexisNexis 2018) s 17.9.1
25. Peek v Gurney, (1873) LR 6 HL 377 at 403 : [1861–73] All ER Rep 116 ;R v Kylsant, [1932] 1 KB 442 : [1931] All ER Rep 179 ; ARSP Subramanian Chetty v Official Assignee of Madras, AIR 1931 Mad. 603, 133 IC 372; Jewson & Sons Ltd v Arcos Ltd, (1933) 39 Com Cas 59, (CA).
26. Jones v Bowden, (1813) 4 Taunt 847, 14 RR 683
27. Jaswant Rai v Abnash Kaur, (1974) 1 Del 689 at 705.
28. Hukum Chand v Hazra Begum, AIR 1982 All 215
29. Ganpat Ranglal Mahajan v Mangilal Hiralal, AIR 1962 MP 144.
30. Becker v Patridge, [1966] 2 QB 155: [1966] 2 WLR 803 at 813.
31. Pollock & Mulla, The Indian Contract Act 1872, (15th edn, LexisNexis 2018) s 17.9.2
32. Bell v Lever Bros, [1932] AC 161: [1931] All ER Rep 1.
33. Ibid
34. Bhai Sarabjit v Indumati Sabharwal, 2015 SCC OnLine Del 14462.
35. Indian Contract Act 1872, s 17 (Explanation)
36. Sher Khan v. Akhtar Din, AIR 1937 Lah 598.
37. Imperial Pressing Co v British Crown Assurance Corpn. Ltd, (1914) ILR 14 Cal 581, 21 IC 836, (contract of fire insurance); Also see Indian Contract Act 1872, s 143 (guarantee obtained by concealment of material facts
38. The Marine Insurance Act 1963, sections 19–20; Krishnawanti Puri v Life Insurance Corpn of India, AIR 1975 Del 19 .
39. Dr. Avtar Singh, Contract and Special Relief, (12th edn, EBC 2020) 213-15
40. See for example, Nursey Spg & Wvg Co Ltd, re, ILR (1880) 5 Bom 92, Sri Alam v. Newaires, (1994) 1 Current LJ 32 (Malaysia); Saroj Agarwal v. LIC, (2004) 4 CLT 490 (Jhar)
41. See Reuben Hasson, The Special Nature of the Insurance Contract: A Comparison of the American and English Law of Insurance, (1984) 47 Mod LR 523.
42. P. Sarojam v LIC, AIR 1986 Ker 201; P.J. Chacko v LIC, AIR 2008 SC 424, non-disclosure in insurance proposal that the insured had undergone operation for a thyroid adenoma; held, policy voidable, the insured was estopped from saying that even if that fact had been disclosed, it would not have affected the transaction
43. George P. Varghese v G. Daniel, AIR 1998 Ker 120; Rajesh Kumar Choudhary v United India Insurance Co Ltd, (2005) 3 CCC 64 (Gau), non-disclosure that an earlier proposal of insurance for the same property and on the same ground had been refused by the same company, held suppression of material fact. The subsequent insurance was obtained by suppressing that fact.
44. LIC v B. Kusuma T. Rai, (1989) 1 Kant LJ 52.
45. AIR 1937 Nag 270.
46. (1914) AC 932 (HL).
47. Dr. Avtar Singh, Contract and Special Relief, (12th edn, EBC 2020) 215
48. Indian Contract Act 1872, s 17 [Illustration (d)]
49. Dr. Avtar Singh, Contract and Special Relief, (12th edn, EBC 2020) 215
50. With v. O'Flanagan, 1936 Ch 575 (CA).
51. T.S. Rajagopala Iyer v South Indian Rubber Works Ltd, (1942) 2 MLJ 228.
52. Dr. Avtar Singh, Contract and Special Relief, (12th edn, EBC 2020) 215-16
53. Per Lord Macnaughtan in Gluckstein v Barnes, 1900 AC 240, 250.
54. Junius Construction Corpn v Cohen, (1931)257 NY 393. Facts and opinion collected from Thurston and Seavey, Cases of Torts, 677 (1942).
55. R.C. Thakkar v Bombay Housing Board, AIR 1973 Guj 34. Also, see M. Hassanji & Sons v
56. https://www.legalbites.in/contract-law-notes-fraud-misrepresentation-mistake/
57. AIR 1982 All 242
58. Indian Contract Act 1872, s 19 (Exception)
59. https://blog.ipleaders.in/fraud-in-contracts-section-17-of-the-indian-contract-act/
60. AIR 1981 Ker 205
61. AIR 1976 SC 376: (1976) 1 SCC 311: 1976 (8) UJ 15 SC