Rethinking Mistake and Nondisclosure in Contract Law

Jeffrey Lynch Harrison

University of Florida - Levin College of Law

March 3, 2009

University of Florida Levin College of Law Research Paper No. 2009-15

The common law seems solidly wedded to the idea that nondisclosure of relevant information is not required unless there is a duty by one party to another or the nondisclosing party has made a prior representation that could be misleading. Professor Kronman and others have explained that the rule, in practice, is actually one that requires disclosure of casually acquired information and permits nondisclosure of deliberately acquired information. The claim is made that this distinction is consistent with maximizing social welfare.

The theory involves a number of assumptions and largely ignores the social costs of nondisclosure. Nondisclosure can mean there is a race for information which itself may be inefficient and duplicative. The rule also permits the nondisclosure of information that has strictly distributive and no socially beneficial effects. In addition, it presupposes that nondisclosure will lead to market corrections as undervalued goods are discovered and brought into their more valued uses. In fact, a great deal of deliberate research is devoted to discovering overvalued goods and the information purposely kept off the market to avoid downward market adjustments. Most of these costs are the result of what economists refer to as rent seeking.

The Article identifies these social costs of the nondisclosure rule. It proposes a more nuanced approach to nondisclosure and one that is relatively easy to administer. It maintains the casual/deliberate distinction but also asks whether the information has primarily distributive or allocative consequences, whether the information will ultimately be revealed to the market, and whether it is the product of a race in which the winner may not be the most efficient source of market correcting information.

Number of Pages in PDF File: 67

Keywords: contracts, Kronman, efficiency, information, nondisclosure, patent, Pareto, social cost, distributive, rendt seeking

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Date posted: March 7, 2009 ; Last revised: September 7, 2015

Suggested Citation

Harrison, Jeffrey Lynch, Rethinking Mistake and Nondisclosure in Contract Law (March 3, 2009). University of Florida Levin College of Law Research Paper No. 2009-15. Available at SSRN: http://ssrn.com/abstract=1352447 or http://dx.doi.org/10.2139/ssrn.1352447

Contact Information

Jeffrey Lynch Harrison (Contact Author)
University of Florida - Levin College of Law ( email )
P.O. Box 117625
Gainesville, FL 32611-7625
United States

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