Pre-contractual Duty To Disclose Information

Lack of information impairs one’s ability to make decisions of the fully rationalkind postulated in economic discourse, thus they must be made in the presence ofuncertainty. This uncertainty will cause parties to make decisions different from whatthey would have been under conditions of abundant substantial information. Theincomplete and asymmetric of information is the source of disutility and rationallyallocating the risk of error is the antidote to it.In the pre-contractual stage, a party who was or ought to have been aware of afact which knew to be of determining importance for the other contracting party isbound to inform the later of that fact. Otherwise, the other party is entitled to void thecontract pursuant to fraud.However, this general duty of information disclosure is troublesome. Theparty’s incentives to invest in generation and utilization of productive information arelost, and it impedes assets to its higher value users, increases transaction costs andsocial loss. On the other hand, the other contracting party will be permitted to a freeride on the party’s research.The first part elaborates the traditional practice and the new trend towards thepre-contractual duty to disclose information in France, UK and US. The France lawstipulates the general duty of information disclosure, the English law objects tointroduce the duty to disclose information in a wider range and the rule of “caveatemptor” has less impact in US law.The second part introduces the main methods of economic analysis adopted inthis article, which is used to discuss the issue. It testifies that the costs depend on theinformation obtaining types, so it’s quite important to divide the information.The third part holds the opinion that the risk of the mistake should be allocatedto the party that can prevent the error with lower costs. After dividing the informationinto different groups, we get the conclusion that: the information must be a materialone; deliberately acquired information and productive information should be protected; sellers should generally have to disclose material information they possesto buyers, whether they have been deliberately or casually acquired and whether theyhave been productive or redistributive. And, there should be no duty to be honest withrespect to mere opinions, unless the contracting party is not available to the fact andhas a reasonable cause to rely on the opinion.The fourth part thinks that permitting the buyer who deliberately acquiredproductive information, to lie in such situations, when the seller explicitly askswhether he is concealing any relevant information, is the only way to induce him togenerate and utilize such information.Then in the fifth part talks a problem that can not be ignored. In competitioncontext, rivals can infer the productive information from the competing offers or bedirectly informed by seller. Thus, buyers who deliberately acquired information canhardly get a competing edge and win the contract. Rivals and seller can free ride onthe party’s research, and thus causes duplication investment or decrease the standardprofit that the party could get from transaction. Competition-based motivation canhardly induce buyers to acquire and utilize productive information.The final part concludes that the law should protect the buyer’s inventive toacquire productive information when he deliberately gets it, for the purpose oftransferring the undervalued or undiscovered assets to its higher value users andrealize economic efficiency.