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.
In some jurisdictions it is said to be the duty of a party to a contract to correct any material mistake made by the other and known to him.1 "Good faith, bona fides, should be as much an essential part of a contract now as it was in the time of Justinian."2 It is said to be the duty of the seller to disclose all defects known to the seller and not discoverable by ordinary observation.3 It has been said to be the duty of a party to a contract to disclose the existence of encumbrances on property conveyed,4 or the existence of building restrictions;5 to disclose the title to the land to be sold;6 to disclose the fact that the property which is sold does not extend to the public highway and has no outlet upon a public road;7 to disclose the fact that coal, believed by the vendee to underlie the land, has been exhausted;8 to disclose facts known to vendee affecting the value of the property conveyed,9 as that the land was underlaid with coal or other valuable mineral,10 or that the vendee had an offer to resell the realty at an advance;11 to disclose the pendency of an action involving title to the realty conveyed;l2 to disclose the fact that interest on a mortgage is secured collaterally,13 or to disclose the fact that the material to be excavated consisted largely of a conglomerate of clay and gravel very hard to remove,14 or that a hidden obstruction would make performance of the contract impossible.15 If A sells to B certain dumps which are supposed to contain some ore and certain mills, and A knows that such dumps are of no value and that such mills can not be operated profitably, it is A's duty to disclose such facts to B.16 If A induces B to sign an instrument by agreeing that it shall not take effect unless C and D also sign it, and then induces C to sign it without disclosing the fact that A's signature is conditional, C may avoid his liability thereon while such instrument is in A's hands.17 One who enters into a contract of compromise knowing that certain instruments have not been recorded and taking advantage of the fact that the adversary party is ignorant of the condition of the title of the realty which is the subject-matter of the contract by reason of such omission, produces a false impression, and is guilty of fraud.18 A compromise of a debt may be avoided if the debtor did not disclose the fact that such debt had been reduced to judgment, and that execution thereon had been levied on the debtor's realty.19 If A buys a judgment against X from B, the receiver of a bank of which X was a debtor, and A states that X has gone into bankruptcy, but does not disclose the fact that there is collateral of considerable value to secure such judgment debt, whereby B, who does not know of the existence of such collateral, is induced to sell such judgment at a small fraction of the value of the collateral, such sale may be set aside.20 If A induces B to sell certain land to A, the fact that A knows that such land contains a large amount of valuable granite, and does not diaclocc such fact to B, but repreccnts that such land is to be used only as a pasture and that he is buying it to keep persons from going over his own land to such other tract, such non-disclosure, together with such statements, justify equity in rescinding such conveyance.21 A statement by A, who is offering to B an oil lease for execution to the effect that the bonus provided for in such lease is as large as that generally given in such leases at that time and place, is a statement of fact, and when taken in connection with A's failure to disclose the fact that a verv heavily producing well had just been opened on an adjoining piece of land, is ground for setting the lease aside.22 If A, who lived in Virginia, owned a tract of land in Kentucky, and B discovered that a salt lick existed under such land and B bought such land, representing that he knew nothing about it, and B subsequently sent a special messenger to A with such deed to be executed by A, and B induced A's agent not to notify A of the discovery of such salt lick, by claiming that B's messenger had a five days' start and was on a fast horse, such facts justify a rescission of such conveyance.23
42Cleaveland v. Richardson, 132 U. S. 318, 33 L. ed. 384.
43Hennessy v. Bacon, 137 U. S. 78, 34 L. ed. 605.
44Barrett v. Lewiston, B. & B. St. Ry. Co., 110 Me. 24, 85 Atl. 306.
45Cleaveland v. Richardson, 132 U. S. 318, 33 L. ed. 384.
46Hadley v. Importing Co., 13 0. S. 502, 82 Am. Dec. 454.
47Hadley v. Importing Co., 13 O. S. 502, 82 Am. Dec. 454.
1 BuscH v. Wilcox, 82 Mich. 315, 336, 21 Am. St. Rep. 563, 46 N. W. 940, 47 N. W. 328; Skinn v. Reuter, 135 Mich. 57, 106 Am. St. Rep. 3S4, 63 L. R. A. 743, 07 N. W. 152; Riley v. Galarneault, 103 Minn. 165, 114 N. W.
755; Murtland v. Atlantic City, 75 N. J. L. 592, 65 Atl. 1049; Salmonson v. Horswill, 39 S. D. 402, 164 N. W. 973.
2Campion v. Marston, 99 Me. 410, 59 Atl. 548.
3Boyer v. State, 169 Ind. 691, 83 N. E. 350. If A sells to B an order on X for personalty, B may assume that such order is valid unless A has disclosed the existence of certain defenses. Riley v. Galarneault, 103 Minn. 165, 114 N. W. 755.
4Merritt v. Robinson, 35 Ark. 483; Head v. Thompson, 77 la. 263, 42 N. W. 188; McPhereon v. Kissee, 239 Mo. 664, 144 S. W. 410.
5Shea v. Evans, 109 Md. 229, 72 Atl. 600.
6 Evans v. Marsh, 38 D. C. App. 341. 7Lainhart v. Gabbard (Ky.), 89 S.
8Friend v. Zamb, 152 Pa. St. 529, 34 Am. St. Rep. 672, 25 Atl. 577.
9Gottschalk v. Kircher, 109 Mo. 170, 17 S. W. 905. (The vendor not having the same means of obtaining information.)
10Bean v. Valle, 2 Mo. 126.
Such omission to make disclosure is at least a reason for denying specific performance if the purchaser has not made his payments promptly. Mis-souri River, Fort Scott & Gulf Ry. Co. v. Brickley, 21 Kan. 275.
11Engberry v. Kouseau, 117 Wis. 52, 93 N. W. 824.
12 Rogers v. Thornton, 101 Ky. 650, 42 S. W. 97. (Such action causing a total failure of consideration by paramount title.)
14Ricker v. Sanitary District, 89 Fed. 251.
15Murtland v. Atlantic City, 75 N. J. L 592, 65 Atl. 1049.
16Evans v. Palmer, 137 la. 425, 114 N. W. 912.
17Hodge v. Smith, 130 Wis. 326, 110 N. W. 192.
In many of the cases which lay down this rule, special facts exist which make it possible to decide them on other grounds. In some cases there has been such partial disclosure as coupled with non-disclosure is equivalent to a positive false statement;24 in others the mistake which the other party does not correct goes to the existence of the subject-matter, as where a valuable property right which the vendor does not know of, is included in the general terms of the instrument,25 and in others the omission to disclose is so unconscionable as to prevent specific performance.26 Specific performance, in equity, is granted or denied in the sound discretion of the court, and if the contract is unfair and oppressive, it will be denied, even if such contract could be enforced at law.27
18Linton v. Sheldon, 98 Neb. 834, 154 N. W. 724.
19Cowan v. Sapp, 81 Ala. 525, 8 So. 212.
20Files v. Rankin, 153 Fed. 537, 82 C. C. A. 491.
21Crompton v. Beedle. 83 Vt. 287, 30 L. R. A. (N.S.) 748. 75 Atl. 331. 22Douglass v. Treat. 246 111. 593, 92 N. E. 976.
23Bowman v. Bates, & Ky. (2 Bibb.) 47.
While it is often said that non-disclosure of a material fact will of itself render a contract so unfair that it will not be enforced specifically in equity,28 such statement is usually found where there are other facts, in addition to non-disclosure, which render the contract unfair,29 or where there is in effect a practical failure of consideration.30 In many cases the rule that full disclosure is unnecessary is modified in its practical working by the doctrine of implied warranties.31