>> 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.