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What is Duty of Disclosure?

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  • Written By: Terry Masters
  • Edited By: Allegra J. Lingo
  • Last Modified Date: 06 November 2016
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    Conjecture Corporation
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A duty of disclosure is an obligation to reveal relevant information that another party needs to rely upon to make a decision. This duty has specific legal requirements and significant penalties when breached that are dependent upon the context in which the duty applies and the laws in the relevant jurisdiction. Some of the more common instances where a duty of disclosure is prescribed by law are criminal and civil trial procedure, corporate actions, and the sale of insurance.

Certain transactions require that all parties involved operate on equal footing. In those instances, the law establishes a proactive responsibility on the parties, particularly the party with the most leverage, to disclose all facts relevant to the matter. This duty of disclosure enables all parties to complete the transaction aware of all facts and prevents a later claim of fraud or ignorance of material facts.

The law supports an express duty of disclosure in instances that serve the public interest. One of the most important types of disclosures is the duty of a prosecutor in a criminal case to disclose all exculpatory evidence that is relevant to the defendant’s case. If a prosecutor is found to have violated this duty, the case can be thrown out of court, the defendant is released, any conviction will be overturned, and the prosecution is then sanctioned by the court.

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Corporate officers and directors are also subject to a legal duty of disclosure that has been imposed to further the public interest. Investors buy shares of corporate stock from a distance and through a stock market. These investors have no choice but to rely upon financial and topical information released by the company to decide whether to buy or sell. Officers and directors are legally bound to tell the corporation’s shareholders the truth regarding the condition of the company. If this obligation did not exist, corporations could take advantage of investors, investors would lose faith in the system, and a country’s business economy would be at risk.

A duty of disclosure is very often applied to the sale of certain types of goods. Although this varies by jurisdiction, cars, real estate, medicines, and food all impose a duty of disclosure on sellers in various respects. The duty is designed to protect the consumer, who is considered to be in a disadvantageous position to know vital information that would affect the buying decision.

Insurance sales are an example where a duty of disclosure is imposed on both the buyer and the seller. Buyers are obliged to provide truthful information to the company so the insurance can be properly underwritten. The insurance company is also under a specific legal obligation to disclose the actual terms of coverage in a way that an ordinary consumer can understand. If either party shirks his duty, a court can either invalidate the whole transaction or force the insurance company to pay out.

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