Elements of Concealment of Material Facts
An action for fraud may be based on the concealment of material facts, but only if the defendant had a duty in the circumstances to disclose. The essential elements of fraud based on failure to disclose material facts are:
- The defendant had knowledge of a material fact;
- The defendant had a duty to disclose the material fact;
- The defendant failed to disclose the material fact;
- The defendant acted with intent to mislead or deceive the victims.
The duty to disclose usually depends on the relationship between the parties. Those people who occupy a special relationship of trust, such as the officers or directors of a corporation, a lawyer, accountant, trustee, stockbroker, or other agent, may be found to have a duty to completely disclose material facts to the parties who rely upon them. Statutes might expand the duty to disclose to areas in which traditionally there was no such duty, such as to the sellers of personal or real property or to the purchasers or sellers of securities.
Proof that the concealed fact was material is probably the most important element in a concealment case; there can be no liability if the withheld information was not material (i.e., the information would not have affected the other party’s actions or decisions).
Also, it is not necessary to prove that the defendant knew for certain that the victim would be harmed. It is only necessary to prove that he intended to mislead or deceive the victim.
In addition to being liable for fraudulent concealment, a defendant might be liable for negligent failure to discover and disclose material facts. An accountant, for example, might be liable for failure to discover or report material facts in a financial statement or audit. Of course, as with negligent misrepresentation, the penalties are less severe for negligent concealment than fraudulent concealment, and there is no criminal liability for negligent concealment.
