Silence as to fact | T’s solicitor had an interview with G and his solicitor, to arrange for the compromise of an action. Just before… Is the compromise arranged in this circumstance binding?

Question: Silence as to fact | T’s solicitor had an interview with ‘G’ and his solicitor, to arrange for the compromise of an action. Just before the interview, T’s solicitor had heard the result of certain proceedings which materially affected the position of the parties, but he discreetly refrained from communicating this intimation to G’s solicitor.

Is the compromise arranged in this circumstance binding? Decide. [Punjab JS 1998]

Find the answer to the mains question only on Legal Bites. [Silence as to fact | T’s solicitor had an interview with G and his solicitor, to arrange for the compromise of an action. Just before… Is the compromise arranged in this circumstance binding?]

Answer

Silence as to facts, as the Explanation to Section 17 of The Contract Act,1872 lays down, is not per se fraud. Mere silence is not fraud unless there is a duty to speak, or unless it is equivalent to speech. 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. In such a case, the statement is false in substance, and the willful suppression which makes it so, is fraudulent.
• Secondly, a duty of disclosure of particular defects in goods sold, or the like, may be imposed by trade usage. In such a case, the omission to mention a defect of that kind is equivalent to express the assertion that it does not exist.

There is no duty upon parties to speak about facts likely to affect the other party’s consent to the contract and mere silence does not amount to fraud, unless the circumstances of the case show that there is a duty to speak, or silence is, in itself equivalent to speech. However, there is no general duty to disclose facts that are or might be equally within the means of knowledge of both parties.

In the case of Bell v. Lever Brothers, Limited [[1931] All ER Rep 1] 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 breaches 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.

“The principle that there is no duty to disclose in every contract appears to rest on the view that each party must obtain the necessary information for himself and cannot expect it to be, supplied by the other, even when that other is aware of his ignorance and could easily put him right”.

In, Banque Financière de la Cité SA v. Westgate Insurance Co Ltd [1989] 2 All ER 952] Slade J. said: The general principle that there is no obligation to speak within the context of negotiations for an ordinary commercial contract is one of the foundations of our law of contract, and must have been the basis of many decisions over the years. There are countless cases in which one party to a contract has in the course of negotiations failed to disclose a fact known to him which the other party would have regarded as highly material, if it had been revealed. However, our law leaves that other party entirely without a remedy.

Ordinarily, of course, mere silence is no fraud, even if its result is to conceal “facts likely to affect the willingness of a person to enter into a contract.” It is under this principle that a trader may keep silent about a change in prices.

The present facts at hand are only a case of Passive concealment which constitutes mere silence as to material facts. However, to fall under the purview of Fraud as under Section 17 of the act, it must be an active concealment on the part of the party. Since there is no legal duty to speak in the present case, it is clear that the compromise arranged between ‘T’ and G’s solicitors in this circumstance is binding upon ‘T’ and ‘G’.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X