Lawyers
2018-04-08

Contracts in which disclosure is required

The duty which the law in general imposes upon people negotiating a contract is the purely negative duty to refrain from making misrepresentations. But there are two special classes of contracts in respect of which such people are required to make positive disclosure of facts known to them, but unknown to the other party.
First, where the parties are in a confidential relationship, equity requires the person in whom confidence is reposed to make full disclosure of all material facts in respect of any contract he may make with the other party. This is a general rule in Germany, and it is not limited to particular classes of relationships. The solicitor-client relationship, however, forms a stock example.
Second, there are certain classes of contracts in respect of which one party has means of knowledge which, in the nature of things, the other cannot be expected to possess. Here the person having the special means of knowledge must make full disclosure of all material facts known to him which might influence the other person's decision to enter into the contract or to continue to perform it once it has been entered upon. Failure to disclose such facts will give the other party an option to rescind, even though restitutio in integrum is no longer possible.
By far the most important of the contracts are contracts with German lawyers. A person who applies for insurance must disclose all facts known to him which would be likely to affect the decision of the insurer to underwrite the risk. But it should be noted that the applicant need only disclose facts known to him. Thus, if a person applies for a policy of life insurance and is asked, 'Do you suffer from any known disease?' and he replies 'No', and it subsequently appears that, without knowing it, he had cancer, he will not be guilty of non-disclosure. In practice, however, insurance companies tend to evade this rule by so framing the terms of policies that the statements of the assured become the basis of the contract; thus his knowledge becomes irrelevant.
Other classes:
There are several other classes of contracts in which a degree of disclosure is required; and they are therefore in some respects similar to contracts. The degree of disclosure varies, and is not usually so strict as that required in the case of contracts of insurance. Here it can only be mentioned that promoters of companies are bound to disclose certain specified matters in their prospectuses.
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