Q.
Melvin is a quick tempered person. He makes decision fast. The day he saw the house advertised by you as an agent, he straight away liked it. Edmund who is the house owner is a shrewd businessman. In order for him to sell the house at a higher price, he claimed that it had been renovated recently and he spent lavishly to perfect the house. Melvin trusted what he saw when he walked through the house with Edmund. Edmund kept silence on the many defects that is seen apparent despite the hefty renovation as claimed. On one occasion, Melvin asked if the flooring had foundation for the extended car park, Edmund kept silence.
Melvin bought the house at 15% above market value, and moved in. After a month has passed, he shouted at you as the agent, that the car park has cracks! He demanded compensation to the damage as there was indeed no foundation for the extended car park.
Advice Melvin and Edmund.
A.
Is silence an acceptance to a contract?
Melvin is claiming against Edmund for misrepresentation or fraud. The non-disclosure of flooring without foundation of the extended car park was issue of dispute.
The issue at hand is whether Edmund having maintained silence on the question of foundation of extended car park, is wrong in law. If such silence is wrong, Melvin can claim against Edmund the misrepresentation or fraud.
Fraud (s.17 CA50) and misrepresentation (s.18 CA50) are factors that could render the contract voidable by the party who is disadvantaged. Melvin, who is in such position, would want to claim that the contract was voidable in the presence of fraud or misrepresentation.
If such claim is successful, the contract of sale of the house would be void. Thus, Edmund has to return the money to Melvin and the transaction becomes null and void.
Section 19 (2) further provides an avenue for silence in fraud. How it applies here is that Melvin can choose to insist that the contract shall be performed, and that the representation made (that there is foundation for the extended car park) is true. Thus, Edmund would have to restore the foundation for the extended car park to make good the cracks.
S.19 (2) A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representations made had been true.
However, if the silence on fraud is not voidable, as explained by exception above, the contract was fit and not voidable. Hence, Edmund does not need to compensate Melvin. Furthermore, the silence on the foundation issue was ordinary diligence for Melvin to find out. Being inspecting the house himself, Melvin cannot blame others for not telling him every single minute thing about the house. Owing to this, he cannot later say it was fraud because Edmund was silent on the issue of foundation. See below on s.19 Exceptions.
S.19 Exceptions -
...is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence.
On the other hand, if the contract is voidable (meaning there is indeed fraud despite silence is not fraud), Melvin claims against Edmund that there is a voidable contract - that there is fraud in the consent process of the contract. Section 66 is relevant.
66. When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under the agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.
Therefore, Edmund who has received high price based on the interpretation of hefty renovation should restore it, or make compensation for it, to Melvin from whom he received the benefit.
On the issue of silence, statute Contracts Act 1950, section 17 has the following explanation.
Explanation—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, or unless his silence is, in itself, equivalent to speech.
Thus, the mere silence of Edmund on the question asked on foundation did not render the contract voidable by fraud. Mere silence to affect the willingness to enter into contract IS NOT FRAUD.
However, if Melvin has said:
Without replying, I would take it as there is in fact, foundation done in the car park.
Then, Edmund would constitute a fraud or misrepresentation on the part of foundation in the car park. This is because by maintaining silence he gave his implied agreement that there was foundation which in fact, was without.
This is seen in the example in S.17 below (as extracted),
(c) 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.
So, unless there is specific attempt to make silence as denial for a fact, passive silence is not taken as concealing information and there is no fraud.
This is particularly true in real life scenario as not every question is heard and even more so, not every query is answered to the correct interpretation. Hence, unintentional reply or non-reply cannot be taken to commit a wrong or worse, a crime in the eye of law.
Ref:
Thanks to Angie Ng for the idea In this post.
S.17, s.18, s.19 & s.66 Contracts Act, 1950.