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.
It is often said that wherever there is a duty to disclose the material facts, non-disclosure constitutes fraud. This proposition is eminently safe, but not very helpful, unless we know what circumstances impose such duty. Some authorities have held, chiefly in obiter, that each party is bound to disclose to the other all facts known to himself, of which such other is ignorant. According to the weight of modern authority this rule is sound morality, but not law. The duty to disclose v. Norris, 100 Ky. 29, 66 Am. St. Rep. 324, 37 S. W. 267.
24Rickcr v. Sanitary District, 89 Fed. 251; Files v. Rankin, 153 Fed. 537, 82 C. C. A. 491; Head v. Thompson, 77 la. 263, 42 N. W. 188; Hadley v. Clinton County Importing Co., 13 O. S. 502, 82 Am. Dec. 454; Paddock v. Stro-bridge, 29 Vt. 470; Crompton v. Beedle, 83 Vt. 287, 30 L. R. A. (N.S.) 748, 75 Atl. 331.
25Rescission given in equity. Thayer v. Knote, 59 Kan. 181, 52 Ac. 433.
26McPherson v. Kissee, 939 Mo. 664, 144 S. W. 410; Friend v. Lamb, 152 Pa. St. 529, 34 Am. St. Rep. 672, 25 Atl. 577.
27See Sec. 637 et seq., and ch. LXXXIX.
28Woollums v. Horsley, 93 Ky. 582, 20 S. W. 781; Gibb v. Mintline, 175
Mich. 626, 141 N. W. 538; Huston v. Harrington, 58 Wash. 51, 107 Pac. 874; Engberry v. Rousseau, 117 Wis. 52, 93 N. W. 824.
Contra, Greenhalgh v. Brindley facts may arise in three general classes of ways: (1) The subject-matter of the contract may be such as to make full disclosure necessary. Such contracts are said to be contracts uberrima fidei, contracts of superabounding good faith.1 Among contracts of this class in some states at least, are contracts of insurance and suretyship. (2) The duty to make full disclosure may arise from relations of trust and confidence which actually or technically exist between the parties. Duty to make disclosure in this case is treated under the head of Constructive Fraud. It may be questioned whether the first class here given is not really a part of the second, since it is the fact that in contracts of insurance and suretyship, trust and confidence are, or once were, necessarily reposed by one party in the other, that makes the courts in some jurisdictions require full disclosure of material facts. The somewhat arbitrary line between the two is only another instance of the way in which actual fraud or non-disclosure merges into constructive fraud, and that in turn into undue influence. (3) The circumstances of the particular case may make non-disclosure have the effect of a specific fraudulent representation. Thus non-disclosure may be supplemented by some positive misstatement in such a way that neither without the other would amount to fraud, although when taken together they do. So a positive statement believed, when made, to be true, may be discovered to be false before acted upon. In such case it is the duty of the party making the statement to correct the misstatement. The doctrine of implied warranties may in a peculiar manner require disclosure in special cases. The first and third general classes of cases here noted will be discussed in this chapter.
, 2 Ch. 324; Turner v. Green , 2 Ch. 205.
29 Shoop v. Burnside, 78 Kan. 871, 98 Pac. 202; Banaghan v. Malaney, 200 Mass. 46, 128 Am. St. Rep. 378, 19 L. R. A. (N.S.) 871, 85 N. E. 839; Dodd v. Home Mutual Insurance Co., 22 Or. 3, 28 Ac. 881, 29 Pac. 3.
30 Friend v. Lamb, 152 Pa. St. 529, 34 Am. St. Rep. 672, 25 Atl. 577; Trigg v. Read, 24 Tcnn. (5 Humph.) 529, 42 Am. Dec. 447.
31 See Sec. 392, 393.