The Doctrine of Uberrimae Fidei / Doctrine Utmost Good Faith

The Doctrine of Uberrimae / Doctrine Utmost Good Faith

Introduction

The Doctrine of Utmost Good Faith is also known by its Latin term “Uberrimae Fidei”., which refers that all the parties involve into or entering into a contract must act Honestly and must not mislead any critical information from another parties. The Doctrine of Utmost Good Faith, applies to everyday Financial Transaction.

Duty to Speak arises, when one party reposes a trust in the other. Where, there is a Duty to Speak and a man in breach of duty, holds his tongue and does not disclose any informative thing, which he is bound to do, we consider it as Fraud.

Fraud is a misrepresentation, made with an intention to cheat. It donates an absence of honest believe or wicked mind. Fraud includes all the acts committed by a person, with an intention to cheat another person.

When there is a duty to speak about all the material facts, keeping silence  and nor representing the material facts is Fraud. Certain contracts are considered as contracts of Uberrimae Fidei, which means Contracts of Utmost Good Faith.

Uberrimae Fidei, contracts are contracts, where law imposes upon the parties, the duty of making a full disclosure of all material facts.

For Instance, in certain contracts if one the parties has any information concerning the subject matter of the transaction, which is likely to affect the willingness of the other party, to enter into the transaction, he/she is bound to disclose the information. Suppression of Truth in such cases is equivalent to falsehood. Not disclosing of the fact is considered as fraud.

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Contracts that comes under Utmost Good Faith-

The Doctrine of Uberrimae Fidei/ Utmost Good Faith is a principle that is used in certain contracts and it requires all the parties to reveal information to the other parties, it also influences that decision of the parties to enter into a contract.

The contract that comes under the Doctrine of Utmost good Faith are as follows-

  1. Contract of Insurance– The principle of utmost good faith is used in Contracts of insurance and. All the parties need to act honestly and reveal all the information. The agent must all reveal all the critical information and the terms and conditions. Upon failure to do so, the contract may be avoided.

Some important case laws regarding, Contract of Insurance are as follows:-

  • In the case of Ratan Lal v. Metropolitan Company, it was held that a “concealment or mis-representation of a material fact will render the contract void”
  • In Imperial Pressing Company v. British Assurance Corporation’s case, it was observed that , Caveat Emptor or purchaser beware is the general rule , unless the contract be one of Uberrimae Fidei , like a contract of insurance , in which utmost good faith is required.
  • In Life insurance corporation of India v. Asha Goel case, the Supreme court held that, “The contracts of insurance and the contracts of Life Insurance are contracts of Utmost Good Faith and each and every material facts must be disclosed, otherwise there is a good ground for that recession of the contract. The Duty to disclose material facts continues right up to the conclusion of the contract and it also implies any material alteration in the character of risk which may take place between proposal and its acceptance. If there are any misrepresentation or suppression of material facts, the policy can be called into the question. For determination of the question whether there has been suppression of any material fact, it may be necessary to also examine whether the suppression relates to the facts which is in the exclusive knowledge of the person intending to take the policy and it could be ascertained by reasonable enquiry by a prudent person.
  • In the case of Srinivasa Pillai v. LIC of India, the Supreme Court held that “It is normal to expect in a contract of insurance, utmost good faith, i.e., the insured is expected to answer various question which comes up and also take the responsibility to give true information about himself. He must be honest while answering and making disclosures. 
  1. Sale of Land-

    A contract relating to the Sale of land is also a contract relating to Utmost Good Faith / Uberrimae Fidei. This is because there is an obligation on the part of the vendor, who needs to disclose all the defects that he knows about his land, regarding any title or any restrictive covenants running with the land, to the purchaser.

  • In the case of Flight v. Booth (1834) the documents of the sale of land only contained few material facts, on the other hand, the lease contained restrictions against carrying on several traders. It was held that, as it was failure to disclosure of all restrictive covenants, the purchaser refused the contract. 
  1. Partnership-

    Utmost Good Faith, should be there between partners, after formation of Partnership. Before the Partnership is formed, a person who induces another person to become his partner, must disclose every fact within his knowledge, which is likely to affect the consent of the other party to become a partner.

  2. Service Contract-

    A contract of service is also a contract, relating to Utmost Good Faith. This is because, the person needs to disclose, every fact within his/her knowledge.

  • In the case of, Bull v. Leves Brothers, Lord Atkin held that, “It seems to me clear, that a master and man negotiating for an agreement of service is as unfettered as any other negotiation”. It was also said that, it is a contractual duty of the servant to disclose his past faults.

Conclusion

The Doctrine of Uberrimae Fidei/ Utmost Good Faith, Provides, a general assurance to the parties, involve in the contract are truthful and honest. If there is an intention misrepresentation of facts or misrepresentation or fraudulent Concealment, the contract may become voidable. The misinformed party may also take some legal actions. Specially, in case of Insurance, sale of land and partnership, the parties must disclose all the critical information of the material facts.

Author: Beas Sain,
IFIM Law School , 2nd Year - BBA LLB / Student

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