Section 22 Omissions and Duty to Disclose

• Library: Commercial Law 2007

Most jurisdictions recognize that nondisclosure of material information constitutes fraud when the defendant is under a duty to disclose such information. The franchise relationship itself usually does not create a duty to disclose. SeeVaughn v. Gen. Foods Corp., 797 F.2d 1403, 1414 (7^th Cir. 1986); O’Neal v. Burger Chef Sys., Inc., 860 F.2d 1341, 1349 (6^th Cir. 1988) (citing substantial caselaw concluding that franchisor owed no duty to disclose to franchisee). But see Commercial Prop. Invs., Inc. v. Quality Inns Int’l, Inc., 938 F.2d 870, 877 (8^th Cir. 1991), appeal after remand, 61 F.3d 639 (8^th Cir. 1995) (hotel franchisor had duty to disclose to avoid misleading franchisee when franchisor had special knowledge of material facts to which franchisee did not have access).

Missouri law requires disclosure of material facts in a variety of situations. In Slater v. KFC Corp., 621 F.2d 932, 936 (8^th Cir. 1980), the Eighth Circuit discussed the circumstances requiring disclosure in a franchise situation. A party to a business transaction is under a duty...