Discuss whether silence can constitute fraud.

Question

What will be an ideal response?

Answer 1

The original common law position on this issue was caveat emptor (let the buyer beware). The seller could remain silent without fear of being found guilty of fraud. Only actual statements by the seller could serve as a basis for fraud. The duty, therefore, was placed on buyers to ask the right questions of the seller, forcing the seller to make statements about the subject of the sale.

Today, however, many courts recognize that caveat emptor often produced unfair results. Some buyers simply do not know enough to ask the right questions about the subject of the sale; thus, many courts are recognizing a limited duty on the part of the seller to disclose material facts. Generally, this duty is limited to material facts that the buyer could not have discovered by reasonable inspection and would be unlikely to inquire about. Some courts consider the duty to disclose to be especially important in the consumer real estate sales area. Because the purchase of a home is the largest investment most consumers make, courts are increasingly protecting that investment by holding knowledgeable developers, sellers, and their agents liable when they fail to reveal defects or problems that seriously undermine the value of the home.

Legislatures are also expanding the situations in which persons must make disclosures. For example, the Truth in Lending Act and federal securities laws both mandate that certain information be disclosed. Additionally, many states have passed laws requiring specific disclosures in real estate transactions.