Also known as: fact basic to the transaction
Written by attorneys · grounded in primary & secondary sources — see below
Information central to the economic value or operational viability of a business transaction. A party with knowledge of such facts owes a duty to disclose them before consummation when the other party is mistaken about them and would reasonably expect disclosure because of the parties' relationship, trade customs, or other objective circumstances.
Voltix Electronics agreed to sell an automated production line to NovaTech. Voltix learned that its sole overseas chip supplier would halt shipments within two weeks but said nothing before closing. NovaTech later discovered the disruption and sued. The court held Voltix liable because the supplier termination was a fact basic to the transaction and industry custom required disclosure of such supply risks.
Harbor & Cole sold its practice to MetroLaw. The managing partner knew from a confidential letter that the firm's main corporate client would move its work elsewhere within months but did not disclose it. MetroLaw sued after learning the news. The court found liability because the client's imminent departure was a fact basic to the transaction and professional norms created a reasonable expectation of disclosure.
Select any source to read its text and confirm it supports the definition.
A fact is basic when it goes to the core value or feasibility of the transaction, such as the loss of a sole supplier for production equipment or the departure of a cornerstone client in a practice sale. The rule requires more than ordinary materiality. The information must be so central that the other party would reasonably expect disclosure given trade customs or objective circumstances.
Supporting sources
No. Even in arm's-length business transactions, a duty arises when one party knows the other is mistaken about facts basic to the deal and knows that trade customs or other objective circumstances would lead the other to expect disclosure. Sophistication of the buyer or absence of a fiduciary relationship does not automatically negate this duty.
Supporting sources
The buyer's opportunity or failure to investigate does not relieve the seller of the duty when the seller knows the buyer is mistaken about basic facts and knows disclosure is reasonably expected. Contractual inspection rights may allocate risk but do not override the tort duty when the elements of subsection (e) are met.
Supporting sources
…accord Cornell , 408 N.W.2d at 376. This principle is consistent with the Restatement’s imposition of a duty to disclose facts basic to the transaction, if [the defendant] knows that the other is about to enter into it under a mistake as to them, and that the other, because of the relationship between them, the customs of the trade or…