Legal Definitions - passive concealment

Passive concealment occurs when one party in a transaction or relationship fails to disclose a significant fact that they know about, and which the other party would reasonably expect to be told. This failure to speak up, rather than actively hiding something, creates a misleading impression or prevents the other party from making an informed decision. It often applies when there is a legal or ethical duty to reveal important information.

Here are some examples to illustrate passive concealment:

• Example 1: Real Estate Sale

  A homeowner is selling their house. They are aware that the attic has a recurring leak that causes significant water damage during heavy rainfall, but they have always just cleaned it up and never mentioned it to potential buyers. They don't actively paint over water stains right before a showing, but they also don't disclose the ongoing leak issue.

  This is an example of passive concealment because the seller *failed to disclose* a material defect (the recurring attic leak) that they knew about and that a buyer would reasonably want to know before purchasing the property. Their silence, rather than an active act of hiding, creates a false impression of a structurally sound roof.

• Example 2: Used Car Transaction

  A car dealership is selling a used SUV. The dealership knows that the vehicle was previously involved in a major accident that resulted in significant frame damage and subsequent repairs, which could affect its long-term safety and resale value. While they don't lie if directly asked, they do not volunteer this critical information to a potential buyer who is clearly looking for a safe and reliable family car.

  The dealership's failure to inform the buyer about the significant accident history, which is a material fact affecting the car's value and safety, constitutes passive concealment. They are not actively misrepresenting the car's condition, but their omission of crucial information misleads the buyer into believing the car has a clean history.

• Example 3: Investment Advice

  A financial advisor recommends a particular mutual fund to a client, highlighting its strong past performance. The advisor is aware that the fund's lead portfolio manager, whose expertise was largely responsible for that strong performance, recently left the firm under controversial circumstances, a fact that is likely to negatively impact the fund's future returns. However, the advisor does not disclose this change in management to the client, allowing the client to invest based on outdated information.

  This situation demonstrates passive concealment because the financial advisor, who has a duty to act in the client's best interest, failed to disclose a material fact (the departure of the key portfolio manager) that could significantly influence the client's investment decision. The advisor's silence about this crucial development creates a misleading impression about the fund's current stability and future prospects.