This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
According to the weight of authority the mere omission by one party to disclose facts material to the contract, which are known to him and not to the adversary party does not, in the absence of special circumstances, amount to fraud or affect the validity of the contract.1 Thus omission to disclose a prior mortgage on certain property;2 a dispute as to a boundary line;3 the intended location of a manufacturing plant,4 that a larger sum than that offered will be paid for the land,5 as non-disclosure by a mortgagee of his intention to pay forty-five thousand, five hundred dollars if necessary to get in the equity of redemption, by which he buys it for nineteen thousand dollars;6 or to disclose the actual purchase price of realty;7 or where land is purchased from the state the non-disclosure by the vendee of his intention to offer revenue bond script in payment in order to obtain a decision as to its validity;8 omission by the seller of timber to give information to the purchaser as to the value thereof; 9 failure to disclose that the vendor has not the legal title to the land which he is selling if he has a present right to a conveyance;10 omission to disclose the intention of the vendor to sell if necessary for a price lower than the price at which he offers the property to the vendee; 11 omission by a purchaser of land to disclose the existence of valuable minerals thereon,12 as oil,13 or granite,14 or to disclose the intended construction of a railroad;1 5 failure to disclose that lessors owned different tracts in severalty;16 omission to disclose agency,17 or that the nominal grantee of a right of way is acquiring it for another corporation,18 or an expected commission, the fact of agency being known;19 omission by one dealing in a stock to disclose facts affect-
Arkansas. Cook v. Bagnell Timber Co., 78 Ark. 47, 8 Am. & Eng. Ann. Cas. 251, 94 S. W. 695.
Illinois. Mitchell v. McDougal, 62 III. 498; Hayner v. Mcllwain, 53 III. App. 652; Luthy v. Kline, 56 111. App. 314.
Indiana. Court v. Snyder, 2 Ind. App. 440, 50 Am. St. Rep. 247, 28 N. E. 718.
Kentucky. Williams v. Beazley, 26 Ky. (3 J. J. Mar.) 578.
Louisiana. Tookc v. Burke, 141 La. 746, 75 So. 668.
Massachusetts. Potts v. Chapin, 133 Mass. 276; Phinney v. Friedman, 224 Mass. 531, 113 N. E. 285.
New Jersey. Merkel v. Merkel, 87 N. J. Eq. 154, 99 Atl. 924.
New York. People's Bank v. Bogart, 81 N. Y. 101, 37 Am. Rep. 481; Wood v. Amory, 105 N. Y. 278, 11 N. E. 636.
Oregon. Leonard v. Howard, 67 Or. 203, 135 Ac. 549.
Pennsylvania. Wilkinson v. Suplee, 166 Pa. St. 315, 31 Atl. 36.
Rhode Island. Ford v. Shcpard Co., 36 R. I. 497, 90 Atl. 805.
Washington. Conrads v. Green, 92 Wash. 269, 159 Ac. 102.
West Virginia. Pennybacker v. Laidley, 33 W. Va. 624, 11 S. E. 39.
Wisconsin. Dickson v. Pritchard, 111 Wis. 310, 87 N. W. 292.
Omission to disclose the fact that a river, a mile away from a farm, is cutting its banks is not ground for rescission if the purchaser has examined the farm and no change has taken place between such examination and the sale. Kautenberger v. Johnson, 131 Minn. 214, 154 N. W. 943.
2 May v. Dyer, 57 Ark. 441, 21 S. W. 1064; Littlejohn v. Drennon, 95 Ga. 743, 22 S. E. 657.
3 Baker v. Sherman, 71 Vt. 430, 46 Atl. 57.
4 Standard Steel Car Co. v. Stamm, 207 Pa. St. 419, 56 Atl. 954.
5 Tliorne v. Bowers, 1 Ariz. 239, 25 Ac. 476.
6 De Martin v. Phelan, 115 Cal. 538, 56 Am. St. Rep. 115, 47 Ac. 356.
7 Spence v. Geilfuss, 80 Wis. 499, 62 N. W. 529.
8 Tindal v. Westey, 167 U. S. 204, 42 L. ed. 137.
9 Cook v. Bagnell Timber Co., 78 Ark. 47, 94 S. W. 695.
10 Provident Loan Trust Co. v. Mcintosh, 68 Kan. 452, 75 Ac. 498.
11 Morrow v. Moore, 98 Me. 373, 57 Atl. 81.
12 Harris v. Tyson, 24 Pa. St. 347, 64 Am. Dec. 661.
13 Neill v. Shamburg, 158 Pa. St. 263, 27 Atl. 992.
14 Corby v. Drew, 55 N. J. Eq. 387, 36 Atl. 827.
15 Boyd v. Leith (Tex. Civ. App.), 50 S. W. 618.
16 Merritt v. Dufur, 99 Ta. 211, 68 N. W. 553.
17 Alabama, etc., By. v. Tiirnbull. 71 Miss. 1029, 16 So. 346; Cowan v. Fair-brother, 118 N. Car. 406, 54 Am. St. Rep. 733, 32 L. R. A. 829, 24 S. E. 212.
18 Grundy v. Ry., 98 Ky. 117, 32 S. W. 392. (The grantor having been anxious to get the road for years, and having made no attempt to avoid the convey a ncee until' the road was built.)
19 Miller v. Miller, 47 Minn. 546, 50 N. W. 612; Blewett v. McRae, 88 Wis. 280, 60 N. W. 258.
ing its value, either increasing it,20 such as the existence of dividends,21 or decreasing it, such as insolvency of the corporation,22 or the fact that he is selling other stock at a greater discount than that at which he is selling the stock in question,23 or the invalidity of the issue of stock;24 omission to disclose the existence of litigation about a land boundary;25 an intention to sue in attachment;26 the infancy of a mortgagor;27 that a bill of exchange offered for sale was accommodation paper;28 or the ownership of claims against a third person;29 omission to disclose details of other business transactions entered into by one who buys on credit, although such transactions eventually impair his ability to pay;30 omission to disclose the fact that the contract could not be performed for the contract price;31 omission to disclose the existence of an old well near a new one for drilling which the contract in question was made, where it was possible that the tools in the old well prevented drilling the new one,32 are none of them grounds for avoiding the contract. So a vendor of realty selling land to one buying it to mine ore is not liable for fraud because he does not disclose that the ore on the land is not suitable in quantity or in quality for the purposes of vendee.33 One who takes an option upon realty is not bound to disclose to the owner thereof the fact that a third person is planning to erect a large, factory near such land, which will increase the value thereof.34 A purchaser of land on which there is a growth of valuable timber is not bound to disclose the existence of such timber to the vendor; and a contract and conveyance made without such disclosure is valid, even if the land is conveyed for less than a quarter of its value.35 If A sells to B a patent right for a fumigating apparatus without disclosing that the powder which must be used therein contains sulphur, the use of which for such purpose is forbidden by the statute of the state, such contract is not fraudulent and a purchaser who has paid for such patent right can not recover the money thus paid.36 If A has entered into a contract with B through A's agent C, A's request to B that B should notify A if the copy of the contract which A sent to B was all right, is not a request for information as to the value of the property which A has bought from B; and B's telegram to the effect "everything O. K.," is not equivalent to a failure to make necessary disclosure as to the quality and value of such property.37 So omission by one partner purchasing the interest of his co-partner to disclose the fact that he had entered into an unlawful monopolistic contract with other dealers which increased the value of the business, does not avoid the sale.38 Even if the party omitting to make disclosure knows that the adversary party is mistaken as to a matter of inducement, and so knowing, keeps silence, the contract is binding.39 Thus in accordance with a statute requiring the official engineer to estimate the quantity and character of excavations, such estimate was made, to be used by bidders. By mistake the engineer estimated the quantity of rock as less, and the quantity of earth as greater, than it really was. A, knowing this mistake, bid high on excavating rock and low on excavating earth, making his bid the lowest on the estimates, though not so on actual quantity. It was held that in the absence of fraud or collusion such bid should be accepted.40 So in a contract made at the end of the war of 1812 for the sale of tobacco, the omission by the vendee to disclose to the vendor that a treaty of peace had been signed, the effect of which was to raise the price of tobacco, was held not to avoid the contract.41 So in contracts for compromise,
20 Chicora Fertilizer Co. v. Dun an, 01 Md. 144, 50 L. R. A. 401, 46 Atl. 347.
21 Rose v. Barclay, 101 Pa. St. 594, 45 L. R. A. 392, 43 Atl. 385. (Where A, not knowing through inattention of dividends regularly declared, sold stock to B "with all dividends.")
22 Rothmiller v. Stein, 143 N. Y. 581, 26 L. R. A. 148, 38 N. E. 718.
23 State Bank v. Gates, 114 la. 323, 86 N. W. 311.
24 Bank v. Anderson, 194 Pa. St. 205, 44 Atl. 1066.
25 Baker v. Sherman, 71 Vt. 439, 46 Atl. 57.
26 Hart v. Seymour, 147 HI. 598, 35 N. E. 246.
27 Thormaehlen v. Kaeppel, 86 Wis. 37fl, 56 N. W. 1089.
28 People's Bank v. Bogart, 81 N. Y. 101, 37 Am. Rep. 481.
29 Randolph v. Allen, 73 Fed. 23, 19 C. C. A. 353; National Bank v. Allen, 90. Fed. 545, 33 C. C. A. 169; Gray v. Lindauer, 33 111. App. 371; Abilene First National Bank v. Naill, 52 Kan. 211, 34 Ac. 797.
30 Baker v. Lehman, 186 Ala. 493, 65 So. 321.
31 Tooke v. Burke, 141 La. 746, 75 So. 668.
32 Dickson v. Pritchard, 111 Wis. 310, 87 N. W. 292.
33 Smith v. Fisher, 28 Ky. (5 J. J. Mar.) 188. (A suit in equity for rescission.)
34 Guaranty Safe Deposit & Trust Co. v. Liebold, 207 Pa. St. 399, 56 Atl. 951.
35CuIton v. Asher, 149 Ky. 659, 149 S. W. 946.
36Smith v. Alphin, 150 N. Car. 425, 64 S. E. 210.
37 Cook v. Bagnell Timber Co., 78 Ark. 47, 94 S. W. 695.
38Meyers v. Merillion, 118 Cal. 352, 50 Ac. 662.
39Metcalf v. Metcalf. 85 Me. 473, 27 Atl. 457. (This fact exists in most of the cases cited in this section.)
40People v. Roberts, 163 N. Y. 70, 57 N. E. 98. (The engineer's estimate was understood by both parties to be merely a matter of opinion.)
41Laidlaw v. Organ 15 U. S. (2 Wheat.) 178, 4 L. ed. 214.
at least where each party has equal means of obtaining knowledge,42 neither party is bound to make disclosure to the other, even if one party acquires a decided advantage by such non-disclosure.43 The omission of the party who is liable for personal injuries, to disclose to the injured party the fact that his leg would have to be amputated, does not make voidable a contract of compromise.44 Omission to disclose to a creditor of a partnership the fact that there was a general partner who is solvent, although for want of such information such creditor compromised with such partnership at sixty percent. of the face value of his claims, does not render such compromise invalid.45
While it is not proper to state as a matter of law that mere nondisclosure avoids the contract,46 it may be a question of fact whether in view of the facts, and the partial disclosure made by one party to the other, full disclosure should have been made.47