Fraud and Duty to Disclose - Legal consequences of intentionally misrepresenting

facts (i.e. fraud) or failing to make representation (i.e. failure to disclose)

Case: Laidlaw v. Organ (1817, US) [pp. 498-500]

Procedural History: Lower court found for buyer. On Appeal.

Facts: P (Organ - seller) was going to sell tobacco to D (Laidlaw - buyer). The
night before the day of the transaction, news had spread that the War of 1812 was
over. The price of tobacco was expected to go up once the war was over. Buyer
called seller about the transaction before seller had heard the news. Seller asked
buyer if there was "any news which was calculated to enhance the price or value of
the tobacco." Buyer remained silent, and the purchase was made.

Issue: Whether the sale was invalid because the buyer did not communicate
information that would change the price of the goods sold, where seller could have
possibly heard the same information otherwise, but was not informed. Not
necessarily.

Holding: Lower court judgment for D reversed and remanded for a new trial to find
out if buyer (D) had acted in bad faith.

Reasoning: The news was in the public domain, and was accessible to both parties.
However, each party still has to take care not to say or do something tending to
impose on the other. Whether such imposition was practiced by the buyer, D, is a
jury question.

RULE: Non-disclosure does not necessarily amount to fraud, but one cannot falsely
impose information on the other party (or if there is silence in bad faith). If
the information is in the public domain where one party could have obtained it
with due diligence, then there is no duty to disclose.

Notes

• Chief Justice Marshall - very few have been overturned. Pay close attention to
his cases.
• Laidlaw was happy to sell his tobacco, because there was a blockade b/c of the
war, and no one else to sell to.
○ So b/c the war is over, the tobacco price goes up 50%
○ So Laidlaw takes his tobacco back
• Marshall - says D was not bound to tell him the war was over. A clever
negotiator would not want to communicate it.
○ Although no duty to disclose, when P asked if there was any news that
might affect the value of the goods, D was silent
§ Silence here might be interpreted that there is no news
§ Marshall remands the case - b/c if we say he has a duty to disclose,
it would be hard to determine where that duty ends
§ Because Laidlaw asked a question, he deserved an honest answer
□ The silence could, to a reasonable person, mean either a yes or
no to the question.
□ The silence may be made in bad faith - this is why it was
remanded to decide if silence was made in bad faith
□ Laidlaw may not have expected such dramatic news - the war
going on for a long time
○ Remanded b/c -
§ If silence was made in bad faith to impose upon seller false
information
§ What would a reasonable person have understood by the silence?
 □ For Organ - unreasonable question for Laidlaw to ask, he should
know this himself
□ What might Organ be asked?
§ Very similar.
• Important point here
○ Very difficult to articulate what the duty of disclosure would be
○ So Marshall says in general no duty to disclose
§ As long as everyone could get the information, and everyone to
himself
§ Imposition (fraud, misrepresentation, unconscionability) - figure out
how to bring out both sides to show your party did the right thing