Fraud is commonly understood as an action of dishonesty towards a person. Under the Contracts Act 1950, Section 17 carries the meaning of fraud.
The act of a person with the intention to deceive another party to enter into a contract can be said that he is committing fraud. There are five elements which constitutes fraud. Those elements are set out in Section 17(a) to (e) of the Contracts Act 1950. Section 17(a) of the act provides that the suggestion as to a fact, of that which is not true and made by a person who does not believe it to be true. The case of Kheng Chwee Lian v Wang Tak Thong was applied. In this case, the respondent bought a half share in a piece of land from the appellant and he then paid for the purchase price.
The respondent was induced to sign another agreement which he will achieve a smaller piece of land than his previous agreement. The Federal court held that the respondent was induced by the action of misrepresentation of signing the agreement. The second agreement was voidable at the option of the respondent. Next, Section 17(b) states that the active concealment of a fact by one having knowledge of belief of the fact. The concealment was made by a person who has knowledge of the facts. Take note that this provision only provide for “active concealment”, not mere situations of silence. In the case of Tay Tho Bok & Anor v Segar Oil Palm Estate Sdn Bhd, the plaintiff entered into an agreement to purchase 11 pieces of land from the defendant.
After done payment for a deposit and signed the agreement, the plaintiffs found out that the land had been used by the Public Utilities Board for water pipelines and by Tenaga Nasional Bhd for transmission cable. Then, the plaintiffs argued that the purchase price to be reduced to reflect the presence of these encumbrances but the defendant refused to do so. The High Court held that the acts of the defendant was amounted to fraud within the meaning of the provision in contracts act. A fact was found out to be that the defendant knew the existence of the transmission lines and pipelines on the said land prior to the signing of the sale and purchase agreement. This case was appealed, the Court of Appeal did not allow the plaintiff apply for rectification but held that the agreement was terminated by the defendant’s fraudulent misrepresentation. The following elements are necessary for Section 17(c) of the contracts act is that when a promise was made, there was no intention to perform the promise. It means that a person who commits a fraud if he made a promise but, later he refused to perform it. However, where a promise is incorporated into the contract as a term, the promisor may sue the promise for breach of promise.
In Datuk Jagindar Singh & Ors v Tara Rajaratnam , the plaintiff had alleged that her land was transferred to the second defendant and later to a third defendant; inter alia, fraud perpetuated by the first and second defendants who were her solicitors. Explanation from the high court is that fraud has clearly been proved as the defendant did not have the intention to perform the promises made towards the plaintiff. When the second defendant had fraudulently misrepresented to the plaintiff that although the transaction was in the form of a transfer, it was actually as a security and the land will be returned after one year. The evidence did not show that the defendants had any intention to fulfil their promise. Relate back to s17(c), a basic proposition of a representation means a statement of fact, not statement of intention because it relates to the future. But it can be a present fact, which means that the fact itself was at there when the contract was made. Moreover, Section 17(d) carries a very wide meaning of fraud in contracts act than the common law position as stated in Derry v Peek & Ors on the topic of fraudulent misrepresentation. In that case, the judge stated that there must first be proof of fraud in order to sustain a deceit.
Next, when a false representation has been made, it must proved that there was elements of fraud whether is of knowingly, without believing in its truth or recklessly, carelessly as to whether it is of true or not. Thus, in order to constitute fraud, there must be elements to it. In addition, it was mentioned that Section 17(d) of the Contracts Act 1950 is inserted just for the sake of abundant caution. The case of Kheng Chwee Lian v Wang Tak Thong is also applicable to this section together with Section 17(c). While Section 17(e) applies where the law specifically declares an act or omission to be fraudulent. Not only that, it applies when there is disclosure of certain kinds of facts is expressly required by law. The purpose of s17(d) and (e) is to include any act of fraud so that no fraud escape from the net of law.
Explanation to section 17 provides on whether silence amounts to fraud. Generally, fraud is not committed when one person is keeping silent that could induce a person to enter into a contract. Thus, silence does not constitutes fraud. However, there are two exceptions which silence can amount to fraud, which is there is an existing duty for that person to speak and when silence itself is equivalent to speech.