Silence Amount To Fraud

This thesis focuses on fraudulent silence. For a long time, silence has never been deemed as fraud by courts or laws of various countries, which means “No word no fraud”. The main reason is that Caveat Emptor is the dominant principle in the field of contract law within the period of liberal capitalism. Moral standards are not compulsory in law and no one is obliged to consider other’s interests. However, with the deepening of social division of labor and the coming of information age, fraudulent silence is becoming more and more obvious and frequent. Meanwhile, moral standards are being introduced into laws by natural law jurisprudence. Therefore, more and more countries start to admit that silence can be amount to fraud.However, as silence is non-conduct, courts may feel difficult to find silence amount to fraud. For this reason, scholars and courts of different countries made a same decision that pre-contractual duties of disclosure(hereinafter referred to as “duties of disclosure”) is the prerequisite of fraudulent silence. The problem is that there is not a unanimous answer on when a party have a duty of disclosure. Chinese scholars did not discuss much about fraudulent silence. They admit that there is duty of disclosure and it is based on faith good principle. But it is still unclear what factors should courts consider when they face the problem of duty of disclosure and what is the constituent elements of fraudulent silence. Therefore, it is necessary to be discussed. The main research methods of this paper are historical analysis and comparison method. This paper reaches a primary conclusion after the review of legislations and judgments of four countries on fraudulent silence and duties of disclosure and the comparison of silence with active conducts. Except for forward and peroration, this paper consists of five chapters.The first chapter mainly analyzes the necessity of bringing fraudulent silence into the rules of fraud. In the early times, active conducts is the only form of fraud, no words no fraud. However, it should be noticed that the essence of fraud is malice, namely intentionally influencing the forming of other’s will. And the purpose of rules on fraud is to protect the freedom of will. Although, silence is not words, it can still be fraudulent. If combined with the specific circumstances, silence can be delusive. In addition, the tricker has the intention to take advantage of other’s mistake which is as malicious as causing the mistake. The intentional silence is malicious and it definitely conform to the essence of fraud. Therefore, silence can be amount to fraud.In the second chapter, the author illustrate the development of fraudulent silence and pre-contractual duties of disclosure by comparing the change of attitudes of four countries on fraudulent silence and reaches the conclusion that silence can be fraud when there is a duty of disclosure. By observing legislation and judgments, it can be founded that there is a reason for denying fraudulent silence. The reason is that the merchant class is powerful in the period of liberal capitalism, which means that they are able to create a favorable principle- Caveat Emptor in contract law. Hereafter, with the development of law, the scholars started to pay attention to reliance formed in the process of negotiations. Fraudulent silence and duties of disclosure are admitted gradually. Courts of various countries（regions） affirm that silence is fraud when the tricker has a duty of disclosure. The main reason for duties of disclosure to be a prerequisite is the causal relationship in law. The second reason is that illegality is one of the constitution elements of fraud in some countries or regions(e.g. Japan, Taiwan). Only with the duty of disclosure according to the good faith principle can silence conform to the illegality.Chapter three and chapter four are the core of this paper. Since duties of disclosure is the prerequisite of fraudulent silence, it is a must to figure out why there is a duty, what is the legal source and what factors should be considered when affirm the duty. Therefore, chapter three analyzes the duties of disclosure in detail. The foundation of duties of disclosure rely on three principles:(1) the good faith principle, which requires people to consider other’s interests;(2) the fairness principle, as parties of contracts are frequently unevenly matched on information; and(3) the economic efficiency principle. There are four legal source of duties of disclosure: laws, contracts, trade usage and the good faith. The laws are mainly special civil laws, which may provide the specific contents to be disclosed before the signing of some kind of contracts. Good faith is the main legal source. But it is vague in nature. It is necessary to list some factors for courts to consider when affirm duties of disclosure. The factors should include:(1) fiduciary relationships,(2) experts,(3) former behaviors or situations,(4) significance of the information and(5) the cost and difficulty of acquiring the information. When making a judgment, judges should consider the above factors synthetically.Chapter four discusses the constitution elements of fraudulent silence. Although duties of disclosure is the prerequisite, it does not mean that all silence which violates the duties of disclosure are fraudulent. Fraudulent silence must also fulfill the constitution elements of fraud: subjective requirement and causation relationship. In the subjective requirement, the person who keeps silent should be intentional as malice is the essence of fraud. Though it could protect the victims better if only negligence is sufficient, the outcome of fraud is the elimination of legal relationship which means rules on fraud should not be too generous. The intention should be reflected in two aspects. The first is making the other party get into, deepen or keep the mistake. The second is making the other party express his will which is formed according to the mistake. The victim takes the burden to prove the tricker’s intention. At least the following shall be proved:(1) the tricker knows that the victim does not have the information should be told;(2) the tricker knows that the victim makes a mistake because of the lack of information; and(3) the contract is executed between the tricker and the victim. In order to protect customer, the weaker on information, it is necessary to reverse the burden of proof which means that the merchant should prove that his silence is negligent. The causation relationship includes the causation between silence and mistake and the causation between mistake and will. In the first causation shall not limited to inducing mistake but also include deepening and keeping the mistake. Because of the duty of disclosure, the obligor has a special legal relationship with the other party. The obligor’s non-conduct changes the other party’s circumstance ought to be and causes damage. The second causation means if there is no mistake, the victim would not sign the contract with the same conditions and terms. The criteria in judging the second causation is whether the undisclosed information is significant. And the significance shall be measured in the sense of ordinary people not the contractual parties.Chapter five firstly analyzes the admitting on fraudulent silence in our country by scholars, legislations and courts and their insufficiency. And then the author gives his advices. In the formulation of civil code, fraudulent silence shall be provided in the part of general rules as a single clause. The contract law should have a general rule regulating duties of disclosure based on the good faith principle and list the factors to be considered by courts in affirming the duties of disclosure. For the courts, it is necessary to differentiate fraudulent silence and serious misunderstanding. The differences between fraudulent silence and serious misunderstanding mainly include the existing of duties of disclosure, requirement of significant loss, malice of one party, causation and the content of mistake. Certainly, fraudulent silence may concur with serious misunderstanding. In the concurrence cases, the claimant shall have the right to choose, as the burden of proof and the legal effect of each are different.