Pre-contractual Duty To Disclose Information

There seems to be an apparent inconsistency in the law of contracts. On the one hand,there are many contract cases—generally classified under the rubric of unilateralmistake—which hold that a promisor is excused from his obligation to either perform or paydamages when he is mistaken about some important facts and his error is known (or shouldbe known) to the other party. On the other hand, cases may also be found which states that insome circumstances one party to a contract is entitled to withhold information he knows theother party lacks. These two kinds of cases address essentially the same question: if one partyto a contract knows or has reason to know that the other party is mistaken about a noteworthyfact of the contract, does he have the right to remain silent and profit from her secretknowledge, or does he have to disclose it? Or we should say that these two kinds of casesboth address about who should bear the risk of mistake.The root causes of the mistake are the incomplete and asymmetric of information. Thecontradiction of the above-mentioned cases arises when one party masters some informationthat unknown by the other party. Information is the antidote to the mistake, but it may cost alot to produce information. The combination of information and control of resources alwaysrequires transaction costs, so a reasonable legal should reduce transaction costs by rationallyallocating the risk of error in the requirements of the principle of efficiency. However, whatinformation can be used as reasons for revocation of the contract and what information isallowed not to disclose is a very complex issue in specific cases. Based on the requirementsof the contract principle of efficiency, the risk of the mistake should be allocated to the partythat can prevent the error with lower costs, that is, the least cost informationgatheter/provider.To establish a universal standard, the article classifies information based on differentcriteria, including material information and non-material information, deliberately acquiredinformation and casually acquired information, productive information and redistributiveinformation and the buyer’s information and seller’s information. Compared to our principlethat the risk of the mistake should be allocated to the least cost information gatherer, we canget the conclusion that, firstly, the information must be a material one, whether ascontributors to cancel the contract or of which one has the right of non-disclose. Secondly, ifthe buyer’s information is productive or simultaneously productive/redistributive and he hasinvested resources to produce it, then the law should allow him to enter into and execute the contract which the information indicates can be profitable, without disclosing information tothe other party. Moreover, when he is asked if had concealed some valuable informationabout the contract, he has the right to say ’no’, or lie. Sellers should always have a duty todisclose as productive as well as redistributive information, whether this information aredeliberately acquired or casually acquired.