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.
The difference between actual and constructive fraud can be seen best by considering the elements of actual fraud and observing which of them are non-essential in constructive fraud. Thus an active misstatement of a material fact, or a wilful and active concealment thereof, is an essential element of actual fraud in order to avoid ordinary contracts.1 Between persons in relations of especial trust and confidence, constructive fraud may exist by reason of mere non-disclosure. Even if the party reposing trust and confidence does not care with whom he deals and the identity of the adversary party is of no consequence to him, the person in whom trust is reposed can not conceal his identity and act as the adversary party to the contract. If he does so, constructive fraud exists.2 If he discloses his identity, he must furthermore make full and complete disclosure of all material facts known to him,3 and must make a fair and reasonable contract. If he does not do this the contract thus induced is voidable for constructive fraud. If he does, the contract may be valid. The party in whom trust is reposed must not make any secret gain for himself out of the subject-matter of such trust and confidence. If he does so, the person reposing such trust and confidence may make him account for such gain. If the parties to a written contract occupy a confidential relation, the superior to such relation is bound to inform the adversary party of the legal effect of such contract.4
7 Rogers v. Brightman, 189 Ala. 228, 66 So. 71; Roberts v. Weimer, 227 111. 138, 81 N. E. 40 [affirming Roberts v. Weimer, 130 111. App. 297]; Dawson v. National Life Ins. Co., 176 la. 362, 157 N. W. 929; Peterson v. Budge, 35 Utah 596, 102 Pac. 211.
1A different rule applies to contracts uberrimae fidei. See Sec. 387 et seq.
2 See Sec. 408.
3 See Sec. 408 et seq.; Rogers v. Bright-man, 189 Ala. 228, 66 So. 71; In re Spann (Okla.), 152 Pac. 68.
The burden of showing that the transaction is a fair one and honest is upon the person in whom confidence is reposed.5 The burden of showing that full disclosure of all material facts rests upon the superior to the fiduciary relation.6