Laidlaw v. Organ
15 U.S. 178 (1817)
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Rule of Law:
A party to a contract is not obligated to disclose extrinsic information that may affect the value of the commodity being sold, especially when the means of acquiring that information are equally accessible to both parties. However, a party may not engage in any conduct, such as misrepresentation or fraudulent concealment, that imposes upon or deceives the other party.
Facts:
- During the War of 1812, a British blockade of New Orleans suppressed the price of tobacco.
- A buyer, Mr. Organ, received private news that the Treaty of Ghent had been signed, ending the war, hours before this information became public.
- Knowing the news would cause tobacco prices to rise dramatically, Organ immediately sought to purchase a large quantity of tobacco from a seller, Laidlaw & Co.
- When an agent for Laidlaw asked Organ if there was any news calculated to enhance the price of tobacco, Organ remained silent or was evasive, not disclosing his knowledge.
- Relying on the currently depressed market price, Laidlaw agreed to sell the tobacco to Organ.
- Later that day, news of the peace treaty became public, and the market price of tobacco increased by 30 to 50 percent.
- Upon learning of the circumstances, Laidlaw refused to deliver the tobacco.
Procedural Posture:
- Organ (plaintiff) sued Laidlaw & Co. (defendant) in the United States District Court for the Louisiana District, which acted as the trial court, to compel delivery of the tobacco.
- At trial, the judge directed a verdict in favor of Organ, ruling as a matter of law that Organ had no duty to disclose the information.
- Laidlaw & Co. (as petitioner) appealed the trial court's judgment directly to the Supreme Court of the United States.
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Issue:
Does a buyer have a legal duty to disclose extrinsic information, of which he has exclusive knowledge and which will affect the price of a commodity, to a seller who is unaware of that information?
Opinions:
Majority - Mr. Chief Justice Marshall
No, a buyer does not have a general duty to communicate extrinsic information to a seller. The Court reasoned that imposing such a broad duty would be difficult to limit and would penalize a party's superior diligence and intelligence in the marketplace, especially where the means of intelligence are equally accessible to both. However, this principle does not permit one party to actively impose upon or mislead the other. The trial court erred by giving an absolute instruction; the factual question of whether Organ's conduct constituted an 'imposition' on Laidlaw should have been submitted to the jury for determination.
Analysis:
This landmark decision establishes the common law rule of "caveat emptor" (let the buyer beware) in the context of informational advantages, distinguishing between mere silence on extrinsic facts and fraudulent misrepresentation. It promotes economic efficiency by rewarding parties who invest in acquiring information, shaping the modern understanding of disclosure obligations in arm's-length transactions. The case carves out a critical exception for fraud, leaving the determination of what constitutes deceptive conduct as a question of fact for the jury. This creates a lasting tension between the right to exploit superior knowledge and the duty not to deceive.
