Legal Definitions - fraudulent concealment

Fraudulent concealment occurs when one party intentionally hides or fails to disclose a crucial piece of information that they know about, and which the other party could not reasonably discover on their own. This deliberate act of keeping a secret is done with the specific aim of misleading the other party, who then relies on the incomplete information, leading to harm or financial losses. Essentially, it involves a conscious effort to prevent someone from knowing a significant fact that, if known, would likely change their decision or actions.

Here are some examples illustrating fraudulent concealment:

• Real Estate Transaction: Imagine a homeowner selling their property. They are aware of a significant, recurring mold problem in the basement that they have repeatedly painted over to hide. This mold issue is not easily detectable during a standard home inspection because it's behind a newly constructed false wall. The seller intentionally conceals this material fact from potential buyers. A buyer purchases the home, and months later, the mold reappears, causing extensive damage and requiring costly remediation. Here, the seller's deliberate act of hiding the mold behind a false wall and failing to disclose it, knowing it was a serious issue, constitutes fraudulent concealment. The buyer was misled and suffered damages as a result.

• Business Acquisition: A small tech company is being acquired by a larger corporation. During the due diligence process, the smaller company's CEO knows that their flagship software product has a critical, unpatched security vulnerability that could expose user data, but they intentionally instruct their IT team to delete all internal reports and emails discussing this flaw. They present a clean bill of health to the acquiring corporation, which then completes the acquisition. Shortly after, the vulnerability is exploited, leading to a massive data breach and significant financial penalties for the acquiring company. The CEO's deliberate suppression of information about the security flaw, which was material to the acquisition, is an act of fraudulent concealment.

• Product Manufacturing: A toy manufacturer discovers a design defect in a popular children's toy that causes small parts to detach easily, posing a choking hazard. Instead of issuing a recall or warning, the company's executives decide to keep this information secret to avoid negative publicity and financial losses, hoping no serious incidents occur. They continue to sell the defective toys without any disclosure. A child later chokes on a detached part, suffering severe injury. The manufacturer's intentional decision to hide the known, dangerous defect from the public and regulators, thereby misleading consumers about the product's safety, exemplifies fraudulent concealment.