§30.2 Duty to Disclose

The Case: Homestead Group, LLC v. Bank of Tennessee ,2009 WL 482714 (Tenn. Ct. App. Feb. 26, 2009).

The Basic Facts: Plaintiff hotel purchaser sued bank that sold hotel fraudulent and negligent misrepresentation, alleging that it misrepresented and concealed facts.

The Bottom Line:

• "As a general rule, a party may be found to be liable for damages caused by his failure to disclose material facts to the same extent that a party may be liable for damages caused by fraudulent or negligent misrepresentation. Gray v. Boyle Inv. Co., 803 S.W.2d 678, 683 (Tenn. Ct. App.1990). A person who fails to disclose to another a fact that he knows may justifiably induce the other to act or refrain from acting in a business transaction is subject to the same liability to the other as though he had represented the nonexistence of the matter that he has failed to disclose. However to find such liability, there must also be a showing that the person accused of the concealment had a duty to the other to disclose the matter in question. Macon County Livestock v. Kentucky State Board, 724 S.W.2d 349 (Tenn. Ct. App. 1986). One party to a transaction usually has no duty to disclose material facts to the other. Wright v. C & S Family Credit, Inc., No. 01A019-709-CH-00470, 1998 WL 195954 at *2 (Tenn. Ct. App. Apr. 24, 1998). However, Tennessee courts have identified three exceptions to this general rule and have held that a duty to disclose exists: where there is a previous definite fiduciary relationship between the parties; where it appears one or each of the parties to the contract expressly reposes a trust and confidence in the other; or where the contract or transaction is intrinsically fiduciary and calls for perfect good faith such as a contract of insurance which is an example of this last class. Macon at 349. Moreover, the courts have extended the duty of disclosure of material facts to real estate transactions under certain circumstances." 2009 WL 482714 at *4.

Other Sources of Note: Goodall v. Akers, 2009 WL 528784 (Tenn. Ct. App. March 3, 2009) (Macon County Livestock v. Kentucky State Board, 724 S.W.2d 349 (Tenn. Ct. App. 1986) and Justice v. Anderson County, 955 S.W.2d 613 (Tenn. Ct. App. 1997) cited with approval); Justice v. Anderson County, 955 S.W.2d 613, 617 (Tenn. Ct. App. 1997) (seller of real estate has duty to disclose "material facts affecting the property's value known to the seller but no reasonably known to or discoverable by the buyer").

---