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:
6. Fiduciary Duty
Litigation: http://whitingjardine.com/practice_areas.php?part=fiduciary
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.
