At law, a disclosure is defined as the act of “revelation; the impartation of that which is secret.” The concept of a disclosure is based on the idea that some information must be conveyed to the other party in a negotiation. At common law, there is an expectation that contracting parties present fulsome pictures of the deal, and no person is expected to knowingly make false statements. A negligent or innocent misrepresentation or omission [i.e. “forgetfulness”] can be the basis for the injured party undoing the contract, particularly if they would not have entered the contract but for the representation [if you wouldn’t enter a contract due to a factor, that’s known as a “material fact” of the contract]. Knowing something material and intentionally concealing it or not telling someone about it is considered “actionable fraud” and can be the basis for a lawsuit. This tends to mean something to the effect of “you can sue someone when they lie to you and relying on the lie leads you to do something or spend money on something.”
There are a few rules of thumb about materiality that can be used:
- If a party has indicated that they believe something is material/so important to them that the contract hinges on the fact — it’s material.
- E.g. “Floofy is my whole life, if I couldn’t have her with me, I don’t know what I’d do. This apartment allows cats, right?”
- If the fact is something that a “reasonable person” would believe the contract turns upon — it’s material.
- E.g. Does the seller have legal title? If not, such as for contract assignment-based wholesaling, that’s critically material to most people
- If it something that is supported by a contractual provision rendering the fact material — it’s material.
- E.g. “Time is of the essence” provision. Renders all timeline based provisions strictly material.
- If a party is aware of unique or specific harm that can be done to the other party through failure to disclose the fact — it’s *probably* material.
- E.g. seller knows that Buyer is a rancher purchasing the property for commercial agriculture and knows that there are no water rights, potentially rendering the operation commercially nonviable.
Whenever a party becomes aware that a material fact has changed [or even that an immaterial fact has changed], disclosure of that newly revealed fact will typically limit the exposure to claims of misrepresentation. If the seller realizes they said something in error, their exposure to liability can be limited by simply telling the other party about the newly realized issue. The other party doesn’t have to specifically agree to the disclosure either. seller telling Buyer “I just found out my well has a dead mouse in it” will cut off the Buyer’s ability to sue later and claim seller lied to them about the dead-mouse-containing condition of the well. The Buyer doesn’t have to sign the disclosure, they don’t have to agree to it, they just have to be told. For the seller, it’s going to be abundantly helpful to have that disclosure in writing so that they can prove the disclosure was made, and having a signature proves the other party not only got the document but also interfaced with it. Nonetheless, once the disclosure was made, the relevant information was conveyed, and the party’s ability to claim injury through fraud is limited. Some disclosures will be in writing as a matter of law [e.g. the SPDS] and some disclosures will require a response from the Buyer [Lead Paint/Lead Hazard forms require a “statement by the purchaser that he/she has either received the opportunity to conduct a risk assessment or inspection or waived the opportunity” under 40 C.F.R. 745.113(5)]