Nondisclosure (Revised)

>> We now shift our attention from

affirmative misrepresentations of fact
to concealment and non-disclosure,

other instances in which courts
regulate improper bargaining tactics.

Section 160 of the restatement
deals with concealment,

instances in which one party takes

an action that is likely to keep the
other party from learning some fact.

That section states that concealment
is dealt with as equivalent of

the wrongdoers affirmatively stating
that the concealed fact does not exist.

In other words, concealment is dealt
with as a type of misrepresentation.

For example, if a home seller

moves a heavy piece of
furniture over a portion of

the living room floor that was
damaged by termites to keep

prospective buyers from learning
about prior termite infestation,

the law will treat that action as
if the homeowner affirmatively

stated that the house never had
termites, an obvious misrepresentation.

Non-disclosure is dealt with in
Section 161 of the restatement.

Sometimes, rather than affirmatively
misrepresenting facts,

a party remains silent under
circumstances that lead

the other party to wrongly assume that
certain facts exist or do not exist.

This is an instance of non-disclosure.

Non-disclosure presents a particular
challenge to contract law

because of the age-old doctrine
of caveat emptor, buyer beware.

Each party is assumed
to be looking out for

his or her own interests
at the bargaining table.

If a party fails to
inquire about an issue,

that's his problem, so long
as he is not been lied to.

In other words, so long
as the other party does

not affirmatively misrepresent some fact,

why should the law impose an obligation on

the silent party to affirmatively

disclose the weakness in
his bargaining position?

It is against the general idea of

caveat emptor that the restatement
attempts to draw clear boundaries

around those instances
in which one party is

required to speak up and
affirmatively disclose facts.

The instances generally
involve cases that directly

implicate the honesty and fairness
of the bargaining process.

Let's explore Section 161.

The first thing to notice
is that if a party has

an obligation to disclose
a fact and fails to do so,

the restatement treats
that party as having made

an affirmative assertion that
the fact does not exist.

In effect, a misrepresentation under the
definition set forth in Section 159.

The first instance in which
a party is required to

disclose a fact is when
that party has previously

made some assertion and
knows that failure to speak

up will render his prior
assertion a misrepresentation.

Let's take an example,

one similar to Hill v.
Jones in our casebook.

Let's assume the following exchange takes

place between a homeowner
and a potential buyer.

Further assume that several
years prior to this exchange,

the homeowner discovered the
early stages of termite damage,

but it was treated aggressively.

Obviously, the potential buyer
understood the homeowner is

saying that the house had never
been infested with termites.

Under such circumstances,
Section 161 imposes

an obligation for the homeowner to speak

up to correct the buyer's misperception.

For the moment, we're going to
skip over subsection b and look to

subsection c and d. Subsection c deals

with instances in which it
becomes clear to one party that

the other party has mistaken

understanding of certain provisions
of the proposed contract.

The thinking is that,

if one party is aware
that the other party is

confused as to the proposed
terms of a contract,

it is incumbent upon that party to
correct a misunderstanding and not allow

the other party to enter
into the contract under

some misperception as to what
the proposed agreement requires.

Note that subsections a and c are
instances in which one party is,

to some extent, responsible for the
other party's misunderstanding.

In the case of subsection a,

some prior assertion of one party has

in some way led to the other
party's misunderstanding.

In the case of subsection c,

the party upon which an obligation to

disclose is being imposed is responsible,

at least in part, for

the proposed contractual language that
has led to the other party's confusion.

Subsection d deals with
instances in which one party,

by reason of being in a relation of
trust and confidence to the other,

has special heightened
obligations to that other party.

Such relations arise an
instances, for example,

when one party is acting as a trustee,

an agent, or a guardian on
behalf of the other party.

But the section applies even
to relationships that do

not involve a legally imposed
fiduciary obligation,

including relationships
between family members

or between a physician and a patient.

In such instances,

the failure of the individual with

the heightened obligation
to disclose a fact

relevant to the other's
interests will be considered

an assertion that the fact doesn't exist.

In other words, a misrepresentation.

Subsection b is somewhat different.

It is implicated in instances in which

the party required to
disclose some fact may

shoulder no responsibility for

the other party's confusion,
misunderstanding, or misperception.

Nonetheless, the restatement
in effect asserts

that considerations of
honesty and fair dealing

require that in circumstances
in which disclosure

would correct a mistake that goes
to the core of the contracts,

a basic assumption on which the
party is making the contract,

one party must disclose facts that

would correct the mistake and
understanding of the other party.

Two considerations relevant to whether
the obligation of a good faith and

a good fair dealing require
disclosure are, first,

did one party incur some cost to
acquire the contested information such

that it can be viewed as

the party's property that does not have
to be shared with the other party?

An example is where a seller of
commercial property pays a consultant to

study the future earning potential of

the property in light of
projected market trends.

Even if the seller has
decided to sell based

on a bleak future assessment
by the consultant,

fairness does not require that the
market trend study be disclosed.

A second situation in which one party
does not have to disclose facts,

even when such facts are relevant
to the core of the transaction,

is when the facts are readily available

to the other party through
a diligent search.

A good example is the classic
1817 case of Laidlaw v Organ.

In that case, the parties entered into

a contract involving the
sale of a load of tobacco.

The contract was made in New
Orleans at a time before

news of Treaty of Ghent ending the war
with Britain had reached that city.

The buyer's agent was, however,

aware of the end of the war,

the seller's agent was not.

When the seller's agent
asked if there was any news

calculated to enhance the
price or value of the tobacco,

the buyer's agent remains silent,

despite the fact that the war's
end was likely to increase

that value by much as
50 percent.. At trial,

the judge refused to allow the seller

a defensive fraud and directed
a verdict for the buyer.

Though on appeal, the Supreme
Court remanded the case

for a trial on the issue of actual fraud,

the court had agreed that the
buyer had no duty to disclose

where the means of intelligence are
equally accessible to both parties.

We will discover that there are

other instances in which the
restatement of contracts

imposes an obligation on a party who is

aware of the other party's
mistake and assumption of fact,

either to correct that
assumption or alternatively

face the possibility that the other
party can avoid the contract.

One such case is the doctrine of

unilateral mistake under Section
153(b) of the restatement,

which we will explore in
the very near future.