B. Misrepresentation: The defendant must make a misrepresentation to the plaintiff. Normally, this will be in words, (e.g., “The lot that I am selling consists of 26 acres”).
1. Actions: But the defendant’s actions may also constitute a misrepresentation. For instance, if a used car dealer turns back the odometer on a car from 60,000 to 18,000 miles, he is making a misrepresentation as to the mileage. Rest. 2d, §525, Illustr. 1.
2. Concealment: Furthermore, if the defendant intentionally conceals a fact from the plaintiff, he will be treated the same way as if he had affirmatively misstated that fact. Rest. 2d, §550.
Example: D, the owner of a Cadillac, trades it in to P, a car dealer, as part payment on a new car. Previously the engine block cracked, and prior to the trade-in D has a service station paint over the cracks to conceal them.
This is a positive act of fraudulent concealment. Therefore, D will be liable for fraud.
3. Nondisclosure: Suppose the defendant simply fails to disclose a material fact (as opposed to taking positive steps to conceal it).
a. Common law: At common law the defendant was almost never liable for fraud in the “mere nondisclosure” scenario. This was particularly true in cases involving business transactions, where the rule was pretty much “every man for himself” and “caveat emptor.”
b. Modern rule: Today, the general rule remains that failure to disclose by itself does not constitute misrepresentation. (But as we’ll see below, there are important exceptions.)
Example: D proposes to buy a parcel of rural land from its absentee owner, P. D, who is a petroleum engineer, knows that oil has recently been discovered beneath adjacent lands. P does not know this. D offers a price about equal to the market value the land would have as farmland, which is far below what an oil company would now pay given the local oil discoveries. D says nothing about the discoveries, nor makes any other statement about the value of the land. P agrees to sell, closes on the sale, and then discovers that D knew about the oil discovery. P sues D for intentional misrepresentation.
P will lose. This scenario falls within the general rule that one party to a proposed transaction ordinarily has no duty to make disclosure to the other about a material fact which the former knows and the other does not. There are exceptions (see infra) but none applies here. (But if D said, “I’m an oil engineer, and I can tell you that no oil has been or is likely to be discovered around here,” that’s an affirmative misrepresentation that would be the basis for liability.)