D. Non-disclosure and Good Faith

AuthorJohn D. McCamus
ProfessionProfessor of Law. Osgoode Hall Law School, York University
Pages334-337

Page 334

Under American law, an exception to the traditional rule that parties negotiating agreements have no duty to disclose material facts to one another is more "open-textured" than the more limited exceptions thus recognized to date in Canadian common law. In the American jurisprudence, the duty to disclose is often linked with a duty to act in good faith. Thus, the Restatement of Contracts48provides in section 161(b) that a representor’s non-disclosure of a known fact will be treated as equivalent to a misrepresentation in the following circumstances: where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party is making a contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.49The American cases50reflected in the Restatement rule include cases rather similar to the decisions in Wren and MCGRATH, discussed above.

Page 335

More generally, the American cases appear to deal with situations where the information relates to a fundamental matter that, if disclosed, would cause the other party to refrain from entering the agreement and where the non-disclosure could not be justified on the ground that the informed party should be able to take advantage of his or her superior knowledge in the particular bargaining context. Thus, where a prospective employee indicated concerns about job security, the employ-er’s failure to disclose the insecurity surrounding the position offered constituted misrepresentation by non-disclosure.51Similarly, an apostate priest was held required to disclose his status when applying for appointment to the faculty of a Catholic university.52Although no equivalent doctrine has yet been plainly recognized in Canadian common law, the Court of Appeal for Ontario, in a recent decision, has expressed support for the recognition of a similar duty to disclose where non-disclosure would constitute a failure to act in good faith. The disclosure issue in 978011 Ontario Ltd. v. Cornell Engineering Co.53arose in the unusual context of a services agreement that had been drafted by the prospective employee. Stevens, the president and principal owner of the employer, Cornell Engineering, had been a mentor and advisor of the prospective employee, Macdonald. When recruiting Macdonald, Stevens invited him to draft a services contract. Macdonald included in the draft a rather generous termination provision. When Macdonald presented the agreement to Stevens for signature, Stevens declined to read the agreement and simply asked whether Macdonald was satisfied with the terms of the agreement. Upon the...

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