by Kurt Schafers
Missouri has adopted Section 551 of the Restatement (Second) Torts, which makes clear that under some circumstances a person’s failure to disclose information constitutes a positive misrepresentation. Kesselring v. St. Louis Group, Inc., 74 S.W.3d 809, 814 (Mo.App. E.D.,2002). But the Missouri Court of Appeals has made clear that non-disclosure amounts to a misrepresentation only when the person is under a duty to disclose. Id. The Restatement identifies five circumstances under which persons in a business transaction have a duty to disclose:
One party to a business transaction is under a duty to exercise reasonable care to disclose to the other before the transaction is consummated:
(a) matters known to him that the other is entitled to know because of a fiduciary or other similar relation of trust and confidence between them; and
(b) matters known to him that he knows to be necessary to prevent his partial or ambiguous statement of the facts from being misleading; and
(c) subsequently acquired information that he knows will make untrue or misleading a previous representation that when made was true or believed to be so; and
(d) the falsity of a representation not made with the expectation that it would be acted upon, if he subsequently learns that the other is about to act in reliance upon it in a transaction with him; and
(e) facts basic to the transaction, if he knows that the other is about to enter into it under a mistake as to them, and that the other, because of the relationship between them, the customs of the trade or other objective circumstances, would reasonably expect a disclosure of those facts.
In Kesselring, the buyers of a business argued that the brokers for the business provided all relevant financial documents prior to the purchase of the business except for the “December 1999 Balance Sheet” and the “1999 Moneys Owed.” Id. These documents would have disclosed $93,861.32 in outstanding expenses from 1999. Id. The buyers claimed this partial disclosure of information created a duty to make a complete disclosure. The brokers claimed they were under no duty to disclose the documents.
The court of appeals agreed with buyers. Specifically, the court found that “if the brokers gave the buyers the impression that their files contained all relevant business documents, they had a duty to disclose all relevant documents.” Id. Although not expressly stated by the court of appeals, they presumably relied upon Section 551(b) or (e), because the duty disclose was premised on the fact that only partial financial information had been provided by the brokers while assuring the buyers, at least implicitly, that all relevant financial information had been disclosed.
This holding from Kesselring could be applied as the basis for a cause of action in any number of situations where partial or non-disclosure is misleading, whether it be a broker or seller of a business, or a broker or seller of investments. The attorneys at Cosgrove Law Group, LLC, have experience with claims based on non-disclosure of material information in commercial transactions. Contact us for more information.