Fraud and Misrepresentation

In one line

Fraud under section 17 requires an intent to deceive; misrepresentation under section 18 does not; and the practical difference lies in the Exception to section 19, which denies avoidance for misrepresentation where the party had the means of discovering the truth with ordinary diligence.

Section 17: fraud

Fraud means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or 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.

Four observations.

The act may be by a party, with his connivance, or by his agent, so a principal is fixed with his agent's fraud.

Clause (3) is the one to notice. A promise made without any intention of performing it is fraud, which converts a purely contractual failure into a vitiating factor where the intention never existed. The difficulty is proof, since a party's intention at the moment of promising must be inferred from conduct.

Clause (2) requires ACTIVE concealment, which is why the Explanation is needed for passive silence.

And clause (4), "any other act fitted to deceive", keeps the list open.

The Explanation: silence

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.

The rule and its two exceptions, and the four illustrations teach them exactly.

(a) A sells by auction to B a horse which A knows to be unsound, and says nothing. This is not fraud in A. That is the rule: caveat emptor, and mere silence is not fraud.

(b) B is A's daughter and has just come of age. Here the relation between the parties would make it A's duty to tell B if the horse is unsound. That is the first exception, a duty to speak, and it arises from the relation.

(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. That is the second exception, and it arises from the circumstances of the exchange.