Monday, January 18, 2016

Can I be defrauded because someone failed to disclose information?

Can I Be Defrauded because someone failed to disclose information?

Utah Disclosure Law Generally

In general, there is no liability for not disclosing information to another party.  People often believe they have been defrauded when information has not been disclosed, but the term “fraud” in law has a different meaning than its colloquial use and generally requires an affirmative misrepresentation.  “A person who possesses important, even vital, information of interest to another has no legal duty to communicate the information where no relationship between the parties exists.” Yazd v. Woodside Homes Corp., 2006 UT 47, ¶17 (Utah 2006).  Simply failing to disclose information is not normally enough to create a cause of action. 

However, there are some important exceptions to this general rule.  For example, a person may be sued for fraudulent non-disclosure, for breach of a fiduciary duty to disclose, or to reform a contract based on a unilateral mistake.

Fraudulent Non-Disclosure
“To prevail on a claim [for] fraudulent nondisclosure, a plaintiff must prove by clear and convincing evidence that (1) the defendant had a legal duty to communicate information, (2) the defendant knew of the information he failed to disclose, and (3) the nondisclosed information was material.” See Anderson v. Kriser, 266 P.3d 819 (Utah 2011).

Information is said to be material if it is “of such a nature that knowledge of the item would affect a person’s decision-making[.]”  Black’s Law Dictionary pg. 998.   Standards of materiality may shift in different types of transactions, particularly if the standards are based on regulations or statutes specific to a profession.

Who was required to make the disclosure?
For many fraudulent non-disclosure claims, the first element requiring a duty to disclose is the most difficult hurdle to overcome.  Different people have different disclosures obligations, and understanding the obligation to disclose is usually tied to determining the type of relationship that exists between the parties.

In many fraudulent non-disclosure claims, the non-disclosure is tied to a fiduciary duty to disclose (as well as to a breach of fiduciary duty case of action).   Fiduciaries, such as lawyers and real estate agents, have the highest disclosure obligations.  A fiduciary has a duty to pursue his client’s best interests, which interests often require the disclosure of information.

In a seller-purchaser relationship, the seller only has the obligation to disclose information that is known to the seller and which, for the buyer, is “not discoverable by reasonable care.”  Mitchell v. Christensen, 2001 UT 80, ¶11 (Utah 2001) [quoting First Security Bank of Utah v. Banberry Development Corp., 786 P.2d 1326, 1331 (Utah 1990].  Even with this higher standard, to prevent potential litigation, sellers of real estate are encouraged to provide a broad disclosure form.

For more specific information about this particular subject, please call my office at 801-691-7770 for a free consultation or see the following web pages:
1.      Whiting & Jardine, LLC Home Page:
3.      Sales & Purchase Agreements:
5.      Contract Negotiation and Drafting:
6.      Fiduciary Duty Litigation:

Disclaimer: This blog is for general information and educational purposes only.  Nothing in this blog should be construed as legal advice for any particular situation.  The statements in this blog may be generalized, contain speculation, be based on opinion, or be made inaccurate by updates or clarifications to the law.  No attorney-client relationship is created by virtue of this blog.  To receive competent legal advice for your situation, you should seek competent, licensed legal counsel in the appropriate jurisdiction and practice area.

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