When Does Silence Become Fraud? Omissions and Concealment in New Jersey Business Deals

When Does Silence Become Fraud? Omissions and Concealment in New Jersey Business Deals

Understanding the Legal Line Between Silence and Fraud

In this post we answer the question, When Does Silence Become Fraud? In every business transaction, there exists a spectrum of representations—ranging from overt statements and warranties to vague generalizations and, in some cases, outright silence. While most business owners are aware that making false statements can give rise to a fraud claim, many are less familiar with the legal consequences of failing to speak at all. The common misconception is that silence is legally safe. It is not. Under New Jersey law, silence may be treated as actionable fraud when it involves the intentional concealment of a material fact.

The New Jersey Supreme Court has long recognized that fraud is not limited to affirmative misrepresentations. A party’s deliberate decision to withhold material information—where there exists a duty to disclose—can be equally deceptive. The law distinguishes between legally permissible silence and fraudulent concealment based on context, relationship, and the nature of the transaction. Business owners, particularly those negotiating contracts or agreements with less sophisticated parties, must understand when silence crosses the line into liability.

Puffery Is Not Fraud—But There Is a Limit

New Jersey courts recognize that not every vague or exaggerated statement amounts to fraud. General sales talk—often referred to as “puffery”—is not actionable. For example, broad claims that a product is “the best in the industry” or that a service is “guaranteed to change your business” are typically not treated as factual representations upon which a fraud claim may rest.

The distinction lies in whether a representation is one of fact or opinion. Statements of opinion or subjective judgment, especially when they are obviously promotional, do not generally give rise to legal liability. However, if those opinions are accompanied by specific misstatements of fact—such as falsified financial statements, manipulated customer data, or fabricated performance history—the protective shield of puffery falls away.

Silence Becomes Fraud When There Is a Duty to Speak

The legal question is not simply whether a party remained silent, but whether that silence was maintained in the face of a legal duty to disclose. Under New Jersey law, the duty to disclose arises in several circumstances.

First, when there exists a fiduciary or confidential relationship between the parties—as in partnerships, joint ventures, or certain agent-principal arrangements—the obligation to disclose material facts is heightened. Silence in those cases, even without overt misrepresentation, may be actionable.

Second, a duty to disclose can arise when one party makes a partial or misleading statement. A party who chooses to speak cannot reveal only part of the truth if the omitted information would render the statement deceptive. For example, a seller who claims that a commercial property passed environmental inspection but omits that a prior report identified contamination would likely be found to have committed fraud by omission.

Third, a party may be liable where it actively conceals a material fact. This involves more than passive silence. It encompasses conduct intended to prevent the other party from discovering a critical piece of information—such as withholding documentation, destroying evidence, or making access to due diligence materials unreasonably difficult.

New Jersey’s Legal Standard for Fraud by Omission

To establish a claim for fraud by omission in New Jersey, the plaintiff must show: (1) the defendant had a duty to disclose a material fact; (2) the defendant knowingly failed to disclose it; (3) the plaintiff reasonably relied on the omission; and (4) the plaintiff suffered damages as a result.

The requirement of a “material fact” is particularly significant. Not every undisclosed piece of information will support a claim. The fact must be one that a reasonable person would consider important in deciding whether to engage in the transaction. Omissions relating to value, risk, legal compliance, or structural defects frequently meet this threshold in the business context.

Practical Implications for Business Owners

From a practical perspective, business owners involved in negotiations must assess not only what they are saying, but also what they are withholding. This is particularly true when negotiating with parties who are less experienced or less informed. Even in arm’s-length transactions, efforts to hide relevant information, especially where questions have been asked or partial disclosures made, can trigger liability.

Common scenarios where omission becomes problematic include the sale of a business with known but undisclosed liabilities, the concealment of regulatory investigations during merger negotiations, or the failure to disclose expired or contingent contracts that impact valuation. Courts are increasingly willing to examine the totality of the circumstances, including email communications, document control, and internal knowledge of key risks.

Conclusion

In New Jersey business law, silence is not always benign. When a party has a duty to speak and deliberately remains silent, particularly in a way that misleads the other party, that silence may constitute fraud. The legal consequences are significant, including rescission of the contract, compensatory damages, and in some cases, punitive damages. Business owners must carefully evaluate what they disclose and what they withhold during negotiations and transactions.

For more information about your legal rights or to schedule a consultation, please contact the Law Offices of Peter J. Lamont at www.pjlesq.com, call 201-904-2211, or email info@pjlesq.com.

Contact us today to discuss your business or legal matter. Put our 20+ years of legal experience to work for you.

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For detailed insights and legal assistance on topics discussed in this post, including litigation, contact the Law Offices of Peter J. Lamont at our Bergen County Office. We're here to answer your questions and provide legal advice. Contact us at (201) 904-2211 or email us at  info@pjlesq.com.

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About Peter J. Lamont, Esq.

Peter J. Lamont is a nationally recognized attorney with significant experience in business, contract, litigation, and real estate law. With over two decades of legal practice, he has represented a wide array of businesses, including large international corporations. Peter is known for his practical legal and business advice, prioritizing efficient and cost-effective solutions for his clients.

Peter has an Avvo 10.0 Rating and has been acknowledged as one of America's Most Honored Lawyers since 2011. 201 Magazine and Lawyers of Distinction have also recognized him for being one of the top business and litigation attorneys in New Jersey. His commitment to his clients and the legal community is further evidenced by his active role as a speaker, lecturer, and published author in various legal and business publications.

As the founder of the Law Offices of Peter J. Lamont, Peter brings his Wall Street experience and client-focused approach to New Jersey, offering personalized legal services that align with each client's unique needs and goals​.

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