The Negotiator Magazine

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II. Partially True Statements

Some seemingly truthful statements can be misleading. A famous legal case involves a person injured in an automobile accident. His ribs are cracked and he suffers soft tissue injuries. With the passage of time, the ribs and the affected tissue heal. The defense lawyer sends the plaintiff to a physician who will be used as an expert for the defense at trial. That doctor verifies that the ribs have healed, but finds a life-threatening aneurism on that person's aorta. If asked by the claimant's attorney about the examining physician's findings, could the defense lawyer respond that everything is fine? Clearly not, because this would be a misrepresentation of material fact. What if that lawyer merely states that "the ribs have healed nicely?" Would this truthful statement be acceptable, or does it deceitfully imply that nothing else has been discovered? The vast majority of lawyers asked this question suggest that this would be an impermissible misrepresentation - despite the truth of what is being said - due to the fact the person making the statement knows that the listener is likely to misinterpret what is being said to mean that everything has healed. Ethical opinions have held that truthful statements may constitute actionable misrepresentations when they are made under circumstances in which the person making the statements knows the other party is misinterpreting what is being conveyed. While the defense lawyer may not have to answer the question about the doctor's findings, she should not be permitted to say something she knows will be misleading.

A similar issue might arise when someone is thinking of purchasing a house that suffered substantial damage in a hurricane but seems to have been repaired. What if the prospective purchaser asks if the storm damage has been repaired? Could the seller truthfully indicate that the roof has been completely replaced, but say nothing about the fact the eves under the roof still leak when it rains? Since it should be apparent that the person hearing this representation would be likely to assume that the storm damage has been entirely repaired, the seller should either have to remain silent or include information indicating that additional leaks exist. In many states requiring house sellers to disclose known defects of a serious nature, the seller would be obliged to disclose the leaking eves even if they are not specifically asked about this issue.

When negotiators are asked about delicate issues or decide to raise those matters on their own, their statements should be phrased in a manner that conveys - both explicitly and implicitly - truthful information. They should not use half-truths they know are likely to induce listeners to misunderstand the actual circumstances. If they are not sure what to say, they may remain silent. If they choose to speak, however, they must do so in a way that is not misleading.

III. Impermissible Omissions

In many business and legal interactions the basic rule is caveat emptor - buyer beware. If the buyer does not ask the right questions and the seller makes no affirmative misrepresentations, the buyer has no recourse if he subsequently discovers problems. When might seller silence give rise to legal liability? Whenever the law imposes an affirmative duty to disclose. As noted above, the laws in many states require home sellers to disclose known defects of a serious nature. Sellers who fail to satisfy this duty may be sued for the damages caused by the undisclosed defects.

Similar affirmative duties are imposed upon stock and bond sellers by securities laws. Before selling stock or bonds to buyers, owners are required to provide prospectuses that include detailed financial information. If they fail to include relevant positive and negative information, they can be held liable for their omissions.

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December 2005