MISREPRESENTATION

c. Exceptions:  But there are some important exceptions to the general rule that nondisclosure will not trigger liability for deceit. The Second Restatement, in §551(2), lists several situations in which one party to a business transaction has an obligation to make disclosure to the other. Among these are the following:

i.         Fiduciary relation:  Matters which must be disclosed because of a fiduciary relationship between the two (e.g., a bank and its depositor);

ii.       Half-truth:  Matters which must be disclosed in order to prevent a partial statement of the facts from being misleading (discussed below);

iii.     Subsequent information:  Newly-acquired information which, if not disclosed, would make a previous statement misleading; and

iv.     Facts basic to transaction:  Most importantly, facts basic to the transaction, if the party with knowledge “knows that the other [party] is about to enter into [the transaction] under a mistake as to them, and that the other, because of the relationship between them, the customs of the trade, or other objective circumstances, would reasonably expect a disclosure of those facts.” (§551(2)(e)).

(1)    Termite cases:  The duty to disclose is frequently invoked in “termite” cases. A homeowner selling his home today is often held liable to the purchaser for his failure to tell the latter that the house has had termites. This modern rule represents a change in doctrine.

d. Rescission:  Although the plaintiff’s ability to get damages for non-disclosure is even today, as noted, somewhat limited, he has always been able to obtain rescission (i.e., a cancelling of a contract) for nondisclosure of a material fact. Thus if the plaintiff in Swinton had brought an equitable action to rescind the contract, he probably would have won.

e. Extension to other defects:  Courts have become more lenient in what they consider a “basic fact” required to be disclosed. Thus a real estate developer who sold lots without indicating that the land had such a heavy salt content that shrubbery or trees could not be grown on it, was held to have failed to disclose a basic fact, and was therefore liable. Griffith v. Byers Constr. Co. of Kansas, Inc., 510 P.2d 198 (Kan. 1973).