Deceit which does not deceive is no fraud: A party who at the time of agreement knows that the other is making a false representation and yet enters into agreement can have no grievance, because howsoever false and dishonest the intentions may be by which one man may induce another to the contract, it does not constitute fraud if that other knows the truth and sees through the dishonest intentions of the other party or could discover the truth by ordinary diligence. An attempt to deceive which does not deceive the party has no effect because there is no damage.
Supreme Court has held that where a person on whom, fraud is committed is in a position to discover the truth by due diligence, fraud is not proved. It is neither a case of suggestion falsi or supressio veri.
Negligence is no fraud: If an element of negligence or carelessness creeps in, it is not fraud.
In leading case on the point, Derry V Peek the directors of a Tramway Company issued a prospectus stating that by a Special Act of Parliament, the company had been authorized to use Steam power. Steam power could, however, be used with the consent of government authority. The directors honestly believed that the permission for the use of steam power would be granted. However, the Board of Trade refused the permission. It was held that the Board of Directors were not liable for fraud since in all good faith they believed that as the consent to make tramways was obtained, the consent to use steam power was merely a formality an therefore, would be granted. The directors were, however, held guilty of misrepresentation. It was held that fraud is established when a false representation is made knowingly or without belief in its truth or recklessly whether it be true or false.
Ignorance is not fraud: Where a party enters into a contract in ignorance of fraud, the contract is not voidable.
Waiver: Where a party deceived takes benefit of the contract or waives the fraud and gives his consent to it, the contract becomes valid.
Silence whether fraud?
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 his silence is, in itself , equivalent to speech.
B says to A: If you do not deny it, I shall assume that the horse is sound. A says nothing. Here A’s silence is equivalent to speech. Here, the relation between the parties would make it A’s duty to tell B if horse is unsound.
1). Mere silence without any duty to speak does not amount to fraud.
2). Mere silence as to facts likely to affect the willingness of a person to enter into a contract, is not fraud.
3) Silence is fraudulent where –
i) the circumstances of the case are such that regard being had to them, it the duty of the person keeping silence to speak; or
ii) silence is in itself equivalent to speech.
4) In cases where there is a duty to speak, non-disclosure amounts to breach of duty. If made with an intention to deceive, it is fraudulent; if it is made without such intention, it is misrepresentation.
For example, contracts of Uberrimae fidei, are contracts of utmost good faith, where is legal obligation to disclose all the facts like contracts of insurance, contracts for purchasing of shares in companies etc.
Duty to speak and disclose arises where one contracting party reposes trust and confidence in the other. Mere passive non-disclosure of the truth, howsoever, deceptive in fact, does not amount to fraud, unless there is duty to speak.
5) There is no duty to disclose facts which are within the knowledge of both the parties. Silence in such cases will not amount to fraud.
6) If consent is caused by fraudulent silence, the contract nevertheless is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence.