Suppose that A and B propose to enter into a contract for the purchase and sale of a commodity, A knows a material fact concerning the commodity, and B does not know the fact. Should A be required to disclose the fact to B? There are three strong efficiency reasons for requiring disclosure. The principle that bargains are enforceable rests most securely on a foundation of complete information; requiring disclosure can save the socially wasteful costs of searching for information that the other party already has or of making duplicate searches to generate the same information; and uncorrected mistaken assumptions increase the resources that must be devoted to allocate goods to their highest-valued uses. In addition, social morality indicates that when one party knows a material fact that is relevant to a proposed contractual transaction, and knows that the other party does not know the fact, nondisclosure normally is sharp dealing, or a kind of moral fraud. But against all this, in some classes of cases a requirement of disclosure can lead to inefficiency by decreasing the incentive to invest in the discovery of productive information. To balance these competing considerations, I develop the basic principle that should govern disclosure in contract law, which I call the Disclosure Principle. Under this Principle, the law should require disclosure of material facts except in those classes of cases in which a requirement of disclosure would entail significant efficiency costs. The Disclosure Principle puts a thumb on the scale-in effect, creates a kind of presumption-in favor of disclosure, because of the efficiency and moral reasons that support disclosure. To overcome this presumption, it is not enough that in a given class of cases a requirement of disclosure would entail some relatively slight efficiency costs. Instead, the presumption is overcome only if disclosure would entail significant efficiency costs. The Disclosure Principle is not intended to be applied directly to individual cases. Instead, the Principle is a guide to the formulation of a more specific, multi-stranded rule concerning when disclosure is or is not required in given classes of cases. In this Article, I examine the applicability of the Disclosure Principle to a series of variables, such as whether the relevant information was produced adventitiously or by a deliberate investment, whether the information was properly acquired, whether the information is productive information or mere foreknowledge, whether the knowing party is a buyer or a seller, and whether the parties were in a relationship of trust and confidence. In light of this examination, I develop the following multi-stranded rule that should govern disclosure in contract law: Subject to certain exceptions, an actor with private information concerning material facts, other than her own preferences, intentions, and evaluations, should be required to disclose unless the actor is a buyer, the information is more than mere foreknowledge, the information was not acquired either adventitiously or improperly, and the actor and her counterparty are not in a relationship of trust and confidence such that a reasonable person in the counterparty's position would expect disclosure. The exceptions are that unless the parties are in a relationship of trust and confidence or the information was acquired through improper means, disclosure should not be required if either: (1)the risk that the unknowing party held a mistaken assumption was allocated to that party; (2) the unknowing party was on notice that his assumption was mistaken or failed to conduct a reasonable search; or (3) the social context in which the transaction occurred is a game in which buyers troll for mistakes by sellers.
