In Key Finance, Inc. v. DJ Koon,1 the Oklahoma Court of Civil Appeals reversed and remanded the trial court’s order granting the motion of Key Finance (Key) for a directed verdict and to compel arbitration on the claims of DJ Koon (Koon) arising from the sale and financing of a vehicle.2 The case raises some fundamental issues relating to the execution and enforcement of contracts, quite aside from the more specialized issue of arbitration.3

Koon purchased a vehicle from Key and executed a purchase agreement, motor vehicle retail installment sales contract (RISC) (including a promise to pay the purchase price for the vehicle in installments, with interest and a security agreement) and arbitration agreement. The arbitration agreement reads in relevant part as follows:

ARBITRATION AGREEMENT […] This Arbitration Agreement significantly affects your rights in any dispute with us. Please read this Arbitration Agreement carefully before you sign it.4

Koon defaulted on his obligation to pay under the RISC, and Key repossessed and sold the vehicle pursuant to the security agreement and UCC Article 9, then filed suit to collect the deficiency (the balance owed after sale of the repossessed vehicle and application of the sale proceeds to the debt). Koon answered and counterclaimed, alleging violations of the UCC, the Oklahoma Consumer Protection Act, the federal Odometer Act and the Oklahoma Vehicle License and Registration Act, and sought to certify a class action.5 When Key moved to compel arbitration, Koon objected, arguing that the arbitration agreement was unenforceable due to lack of assent, fraud, waiver and unconscionability, on grounds that the agent representing Key in the transaction (the agent) falsely described the consequences of the arbitration agreement to Koon.6 Koon argued that the agent stated at the time of execution of the contract that the arbitration agreement required Koon to pay his own attorney fee in the event of litigation, without going on to explain more fully the effects of the arbitration agreement.7

The trial court granted Key’s motion and issued an order compelling arbitration. Koon filed a motion to reconsider, and the trial court held an evidentiary hearing on the issue of whether Key’s agent conveyed a false impression to Koon with respect to the arbitration agreement. At the hearing Koon testified that the agent never mentioned that it was an arbitration agreement or explained that it limited his rights in court, instead merely stating that it made Koon liable for his own attorney fee if there was legal action. The trial court then held that Key did not convey a false impression and granted Key’s motion for a directed verdict, compelling arbitration.8

I. THE FOCUS ON CONTRACT LAW ISSUES
Both the trial and appellate courts appropriately focused on basic contract law issues. As noted above, the court of appeals opinion discusses the FAA9 and its impact on state law, recognizing that courts cannot impose requirements on arbitration contracts different from those for other contracts.10 This principle is well established, and the court’s discussion of this issue need not be repeated here, except to note again that it means cases on the enforcement of arbitration agreements are necessarily focused on general contract law issues rather than arbitration per se, and thus may have important implications for other types of contracts.11 That is the case in Key Finance, and this article likewise focuses on the contract law issues rather than arbitration as such.

II. THE COURT OF APPEALS ANALYSIS
The appeal in Key Finance was essentially limited to the issue of whether the trial court erred in finding there was no fraud in the inducement of Koon to sign the arbitration agreement.12 As noted, the court of appeals emphasized that, under the FAA and United States Supreme Court precedent, arbitration agreements can be invalidated only on the basis of “generally applicable contract defenses, such as fraud, duress, or unconscionability.”13 Moreover, “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.”14 Thus, the basic issue is a matter of contract law, and contract law recognizes fraud in the inducement as a defense that may impair the assent necessary to form a contract.15

In Key Finance the court of appeals noted the elements of actionable fraud, described as requiring:

(1) a material misrepresentation; (2) known to be false at the time made; (3) made with specific intent that a party  would rely on it; and (4) reliance and resulting damage.16

This requires “the intentional misrepresentation or concealment of a material fact which substantially affects another person.”17 However, “[c]onstructive fraud is a breach of either a legal or equitable duty that does not necessarily involve any moral guilt, intent to deceive, or actual dishonesty of purpose.”18 This includes the breach of a duty which provides an advantage to a person regardless of his or her intent, by misleading another.19 “Where a party has a duty to speak, but remains silent, there may be constructive fraud.”20 A determination of this depends on the facts and circumstances of each case; however, if the circumstances create a duty to speak and the person remains silent, “to his benefit and to the detriment of the other party, the failure to speak constitutes fraud.”21

In Key Finance, the court of appeals concluded that:

Koon asserted [that] Key’s agent affirmatively represented the following about the document he was signing: 1) if they  had to sue, Koon would be responsible for their attorney’s fee and all costs of their attorney; 2) that “if I took legal  action against them and lost, I’d have to pay their attorneys[’] fees;” 3) after Koon hesitated in signing the document,  Key’s agent told him he had to sign the document if he wanted to buy the car; and 4) that Key’s agent never told him  that the Arbitration Agreement meant he was giving up his rights to court.22

Viewing as true all of the evidence favorable to Koon, and disregarding all of the evidence favorable to Key, for purposes of considering Key’s motion for a directed verdict, the court of appeals concluded that Koon presented evidence to indicate that Key “owed him a duty of full disclosure because [Key’s] agent chose to speak regarding the Arbitration Agreement.”23 The trial court’s grant of Key’s motion for a directed verdict was reversed, and the case was remanded for further proceedings.

III. AUTHOR’S ANALYSIS OF KEY FINANCE
The court of appeals provided some additional discussion that further highlights the issues in Key Finance, noting that silence alone is not equivalent to a misrepresentation, absent a duty to speak.24 But the court then held that the duty to speak was applicable in this case, without further discussion of wrongful intent or the nature of the underlying relationship, apparently because Key made a true statement that failed to convey the “whole truth.”25 This can be read to impose a duty to speak the “whole truth,” as a basis for the defense of constructive fraud, whenever there is a “partial disclosure” in an arms-length relation. To say the least, this would break new ground in Oklahoma law and the law of contracts. The court of appeals stated that Key’s partial disclosure created a false impression of the purpose and content of the arbitration agreement, in circumstances where Key’s agent had a “duty to speak,” even without any knowledge or wrongful intent on the part of Key. This imputed to Key a “duty to speak” the “whole truth” about the applicable law in an arms-length contract negotiation, as the basis for a claim of constructive fraud. Thus, the court’s opinion can be read to indicate that, in ordinary contract negotiations, the parties have a duty to “say nothing or to tell the whole truth.”26 In Key Finance, this applied even though there was no evidence that Koon was illiterate, or was prevented from reading the documents27 or that Key’s statements were untrue.28 The court’s opinion can be read to say that disclosing some facts while omitting others is per se constructive fraud, even in an arms-length relation and absent any wrongful intent or “peculiar circumstances.”29

It should be noted that, while the court of appeals seemed eager to weigh in on these substantive law issues,30 the decision remains essentially a procedural one, relating to the burden of proof necessary to sustain a motion for a directed verdict.31 Still, the case was remanded for “further proceedings consistent with the [court of appeals’] opinion,”32 an opinion that includes strong substantive language in support of a finding of constructive fraud on these facts (as to the arbitration agreement, not the underlying RISC). This represents a striking reversal of the trial court’s order, considering that the trial court had already conducted a hearing on the question of fraud in the inducement and issued an order based on findings of fact seemingly contrary to the court of appeals’ subsequent conclusion.33 Thus, it is not difficult to suppose that the Key Financeopinion could be read to mean that a duty to speak the “whole truth” arises as the basis for constructive fraud in every contract negotiation, a view that would significantly rewrite the law of contracts.

It also can be noted that, despite the court of appeals’ focus on the tort concept of fraud, the ultimate issue is whether there was assent to a contract. There is more discussion on the relation between tort and contract law in Sections IV and V but it can be noted here that contract law has long (going back hundreds of years) dealt specifically with these issues.34 The Oklahoma Supreme Court, consistent with the long-standing majority view,35 has expressly held that (absent fraud) a person who has the opportunity to read a written contract before signing it is obligated by its terms regardless of actual knowledge or intent.36 Any other rule would make ordinary commerce impossible. Given that Koon had ample opportunity to read the arbitration agreement, which was conspicuously labeled as such, and that the trial court had already conducted an evidentiary hearing and found no fraud in the inducement,37 it would seem that the issue of assent was already settled as a factual matter.

The facts of Key Finance may bring to mind other issues.38 The court’s opinion may sound similar to an analysis grounded in a mutual mistake of fact or law, or perhaps a unilateral mistake with advantage taken, presenting a somewhat different set of issues from those addressed in Key Finance.39 These theories would not require a separate “duty to speak” based on a special relationship or the other “peculiar circumstances” that are traditionally necessary to a claim of constructive fraud and apparently were missing in Key Finance. Of course, the Key Finance court was limited to considering the arguments made by Koon. Still, for the various reasons noted here, the results may be problematic, if seen as imposing a tort-based duty on nonlawyers to fully explain the law to the other party in an arms-length contract negotiation. This would create an obviously impossible standard for contracting parties to meet, requiring, i.e., each party to demonstrate that he or she had fully and properly explained the applicable law to an adverse party.40 Such a standard is unprecedented and would be unwise. As additionally discussed below, it also ignores the policy considerations that led to development of the common law of contracts more than 300 years ago, as a body of law separate from the law of torts; these considerations are equally compelling today and deserve emphasis by the courts in these kinds of cases.

IV. TORT VERSUS CONTRACT LAW
The court of appeals analysis in Key Finance reveals some inherent tensions between tort and contract law. All of these tensions cannot be described here, but suffice it to note that there are fundamental differences between enforcing private bargains and protecting against torts.41Contract law provides time-honored principles designed to preserve consensual bargains and expectations of the parties as expressed in private agreements.42 A substantial discussion of these contract law issues in a case like Key Finance might serve to enhance application of the tort-based concepts inherent in a fraudulent inducement case, including the use of constructive fraud to override contract law expectations with respect to execution and enforcement of the parties’ agreement.43 In contrast, as previously suggested and discussed further below, the Key Financecourt’s broad adoption of a “duty to speak” as the basis for a finding that constructive fraud precluded assent to the arbitration agreement could be viewed as creating a new legal standard that would make it all but impossible to enforce a contract in a consumer transaction.44

Thus, it is important to recognize the relation between contract and tort law in this context. Clearly a fraudulent misrepresentation in the formation of a contract can negate the mutual assent necessary for a private bargain.45 On the other hand, contract law recognizes that there could never be an enforceable contract if one party or the other can rescind the bargain merely by claiming that he or she did not read the written contract or fully understand the deal or the applicable law.46 Thus, an unexpressed subjective intent, a unilateral lack of understanding about the facts or contract terms, or a mistake with respect to an opinion of law or a future expectation, without more, generally will not impair the enforcement of a signed written contract.47 As noted, the Oklahoma Supreme Court has been clear in recognizing the basic principle that the parties to a signed contract are bound by the contract terms, even if they did not read it first, so long as they had an opportunity to do so.48This is subject to defenses based on actual fraud (apparently not an issue in Key Finance) or constructive fraud (based on a duty to speak created by a special relationship or other “peculiar circumstances”), the law of mistake, etc.

Considering this state of the law, which is likely necessary to the optimal functioning of modern society, there are troubling aspects of the Key Finance holding as regards the relation between tort and contract law. As noted, the decision may open the door to rescission and damages claims on a tort-based theory that one party did not fully explain to the other the full range of legal consequences and the legal effect of the contract terms that were being negotiated, seeming to require the provision of legal advice from a nonlawyer on the opposite side of an ordinary arms-length negotiation.49 Moreover, the Key Finance court apparently imposed this duty on the basis of constructive fraud, i.e., without regard to wrongful intent or the other elements of actual fraud.50This is not to ignore the procedural aspects of the Key Finance decision; clearly the movant’s burden is high in a motion for a directed verdict, as indicated by the court of appeals. Even so, the court’s conclusion, that an apparently innocent and truthful (if incomplete) comment about the legal effect of an arbitration agreement during arms-length pre-contract negotiations gives rise to a tort-based duty to provide a full explanation of the legal rights of the other party, by a nonlawyer, would create an obviously unrealistic and untenable burden in the formation of ordinary contracts.51 Is there any person who, seeking to avoid a contractual obligation, could not argue that the other party made an innocent oral comment during the negotiations that failed to fully describe the legal implications of the proposed agreement and therefore committed constructive fraud? Such a standard is inconsistent with the law of contracts as we know it.52 Arguably this would represent the reabsorption of contract law into the law of torts, reversing what is likely the greatest development in the history of Anglo-American common law.53

V. GOOD FAITH AND THE TORTIFICATION OF CONTRACT LAW
Some years ago there was a trend in some states, that temporarily spread to Oklahoma, toward treating a breach of contract as an independent tort for breach of the duty of good faith.54 These cases were subsequently repudiated.55 The Key Finance holding, that there is an independent tort-based duty in contract negotiations, creating the basis for a claim of constructive fraud for breach of an imputed duty to speak the “whole truth,” seems to resurrect aspects of this discredited theory. One hopes that a similar battle will not have to be fought again, to maintain the traditional and important distinctions between the law of torts and contracts, and the limits on fiduciary or special relationships, in the context of contract formation.56

VI. SUMMARY AND CONCLUSION
There are at least four reasons why the Key Finance analysis may be misleading or questionable, or even (on some issues) entirely wrong.57 First, the duty to speak as a basis for a claim of constructive fraud should not arise in an arms-length contract negotiation, absent a special relationship or other “peculiar circumstances.”58 Second, the suggestion that an innocent failure to speak the “whole truth” violates this duty imposes an impossible burden on contracting parties.59 In Key Finance, the imputation of a “duty to speak” the “whole truth” in an ordinary contract negotiation, as the basis of an independent tort-based claim of constructive fraud, without evidence of wrongful intent or guilty knowledge, cannot be logically sustained without some other foundation in the relation between the parties. Third, the requirement for a nonlawyer engaged in contract negotiations to disclose the “whole truth” about a complex area of law to an adverse party is not realistic.60 Again assuming that there is no actual fraud, the cases on allegations of a mistake of law could be instructive on this point.61 Even if there was a unilateral mistake of law with advantage taken or a mutual mistake (arguments not addressed by the court of appeals in Key Finance), a mistake of law may not be actionable under Oklahoma case law.62 Fourth, the 1980s history noted in Section V (addressing somewhat similar issues on the basis of good faith) should discourage a judicial effort to create a new all-absorbing tort-based claim (resulting from innocent statements, without actual fraud) to override basic contract law principles. In effect, that has been tried and rejected.63

Even conceding the procedural posture of the Key Finance holding,64 a full analysis should recognize that constructive fraud arises only if there is a duty to speak under other law, e.g., due to a special relationship or other “peculiar circumstances,” and that ordinary contract negotiations do not constitute “peculiar circumstances.” Thus, courts should not impose a duty to speak as indicated in Key Finance (a duty to say nothing or tell the “whole truth”) unless there is some basis for imposing a special obligation to protect the legal interests of the other person. A fiduciary duty is an obvious example, although other “peculiar circumstances” may give rise to a special or confidential relation. In the absence of such circumstances or actual fraud one does not owe a “duty to speak” the “whole truth” to the entire world, and certainly not to an adverse party in an arms-length contract negotiation.65 Absent something more, e.g., a special relationship and/or guilty knowledge (as in the context of a unilateral mistake with advantage taken),66 there should be no liability for a failure to speak the “whole truth” in an arms-length contract negotiation. A recognition of this basic point is the missing piece in the puzzle of Key Finance.

ABOUT THE AUTHOR
Alvin C. Harrell is a professor emeritus at the OCU School of Law and president of Home Savings and Loan Association of Oklahoma City. He is co-author of a dozen books, including The Law of Modern Payment Systems and Notes. He was editor of the Consumer Finance Law Quarterly Report, 1988-2017 and chaired the ABA UCC Committee task forces on State Certificate of Title Laws and Oil and Gas Finance.

1. 2016 OK CIV APP 27, 371 P.3d 1133 (Oct. 6, 2015), 57 Okla. Bar J. 980 (May 14, 2016), cert. denied (April 4, 2016) [hereinafter Key Finance].
2. Id. The order of the trial court also rejected Koon’s effort to certify a class action. Id.
3. Key Finance arose in the aftermath of the enforcement by Key of a security interest in Koon’s vehicle under Uniform Commercial Code (UCC) Article 9, and specifically involved the effort of Key to invoke an arbitration clause in response to Koon’s counterclaim in the resulting collection suit for the deficiency. Nonetheless, the issues in the case do not relate specifically to the UCC or to arbitration, but rather to contract law generally. Pursuant to the Federal Arbitration Act (FAA), 9 U.S.C.A. §2 (2000), and as expressly recognized in Key Finance, 371 P.3d at 1137, 87 Okla. Bar J. at 981 – 82, the United States Supreme Court has consistently recognized that arbitration contracts can only be invalidated on the basis of “generally applicable contract defenses,” i.e., they must be treated “on an equal footing with other contracts.” Key Finance, 371 P.3d at 1137, 87 Okla. Bar J. at 981, quoting Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996), as quoted in Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 67 (2010). Thus, the issues in Key Finance relate broadly to all contracts, not just security agreements or contracts to arbitrate. See also AT&T Mobility, LLC v. Concepcion, 131 S.Ct. 1740 (2011) (reversing lower court decisions holding an arbitration clause unconscionable); Quilloin v. Tenet Healthsystem Philadelphia, Inc., 673 F.3d 221 (3rd Cir. 2012) (similar analysis).
4. Key Finance, 371 P.3d at 1135, 87 Okla. Bar J. at 980.
5. Id.
6. Id. Koon also noted that the RISC included a box indicating that, if checked, the RISC would be subject to a separate arbitration agreement, and that the box was not checked. Id. However, the arbitration agreement was a separate contract, not dependent in any way on a reference in the RISC. See infra note 15. While Key might prefer that the box had been checked, it does not appear that this was, or should have been, a material issue in the case.
7. Key Finance, 371 P.3d at 1138, 87 Okla. Bar J. at 982.
8. Key Finance, 371 P.3d at 1136, 87 Okla. Bar J. at 981.
9. 9 U.S.C.A. §§1 et seq. See supra note 3.
10. See supra note 3.
11. Id. Thus, there may be reason for concern that a hostility to arbitration could color these decisions, with unintended adverse implications for contracts generally.
12. Key Finance, 371 P.3d at 1137, 87 Okla. Bar J. at 980 - 81. The doctrine of fraudulent inducement, as stated by Professor Corbin, is as follows: “If one party to a bilateral contract is induced to make it by fraudulent representations of the other party, he has the power of avoidance and also the power to ratify.” Arthur Linton Corbin, Corbin On Contracts §146 at 214 (1952). Discussions of fraud commonly focus on actual fraud, as contrasted to the constructive fraud apparently at issue in Key Finance. Constructive fraud can have the same effect as actual fraud; however, as noted in this article, constructive fraud arises only in the context of a special relationship or other “peculiar circumstances.” See infra this text and notes 18 – 21, and infra Sections III – V.
13. Key Finance, 371 P.3d at 1137, 87 Okla. Bar J. at 980 - 81 (quoting Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996), as quoted in Rent-A-Center, W, Inc. v. Jackson, 561 U.S. 63, 67 (2010)). See also the FAA, 9 U.S.C.A. §2, quoted in Key Finance, 371 P.3d at 1137, 87 Okla. Bar J. at 981 – 82; and see other sources cited supra at note 3.
14. Key Finance, 371 P.3d at 1137, 87 Okla. Bar J. at 982, ¶10 (quoting Moses H. Cone Mem’l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24 (1983), as quoted in Continental Cas. Co. v. Am. Nat’l Ins. Co., 417 F.3d 727, 730 – 31 (7th Cir. 2005)).
15. See e.g., Corbin, supra note 12. In Key Finance the court of appeals noted that, pursuant to the FAA, 9 U.S.C.A. §2, and as further explained in Rent-A-Center, 561 U.S. 63, challenges to the contract as a whole are not sufficient to bar enforcement of an arbitration agreement. Rather, the question is whether the arbitration agreement is enforceable; i.e., because the “arbitration provision is severable from the remainder of the contract,” it is separately enforceable. Key Finance, 371 P.3d at 1137, 87 Okla. Bar J. at 982, quoting Buckeye v. Cardegna, 546 U.S. 440, 444 (2006). See also Quilloin, 673 F.3d 221 (supra note 3). On this issue, the analysis is similar to that for forum selection clauses. See e.g., M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972); Rucker v. Oasis Legal Finance, LLC, 632 F.3d 1231 (11th Cir. 2011).
Of course, a claim of fraud or misrepresentation also may form the basis a separate cause of action under tort law, but this may require a higher level of proof as compared to a contract law defense. See e.g., Restatement Second of Contracts Ch. 7 Introductory Note (1979).
16. Key Finance, 371 P.3d at 1137, 87 Okla. Bar J. at 982, ¶10 (citing Bowman v. Presley, 2009 OK 48, ¶13, 212 P.3d 1210, 1218).
17. Key Finance, 371 P.3d at 1138, 87 Okla. Bar J. at 982, ¶13 (quoting Faulkenberry v. Kansas City Southern Railway Co., 1979 OK 142, ¶4, 602 P.2d 203, 206). Note that this describes actual fraud. While the court’s opinion is not entirely clear on this point, there does not appear to be evidence of actual fraud in Key Finance, and in any event this would involve issues of fact seemingly settled by the trial court’s previous holding on the issue. See Key Finance, 371 P.3d at 1136, 87 Okla. Bar J. at 981, ¶¶5 and 6; and infra note 33. Instead, in Key Finance the court of appeals seems to have focused on imposing a duty to speak as the basis for constructive fraud (i.e., an innocent failure to tell the whole truth). See infra this text and notes 18 – 21, and infra Sections III – V.
18. Key Finance, 371 P.3d at 1138, 87 Okla. Bar J. at 982, at ¶13.
19. Id. (citing Patel v. OMH Med. Ctr., Inc., 1999 OK 33, ¶34, 987 P.2d 1185, 1199). As noted, this appears to be the primary allegation considered by the court of appeals in Key Finance. See supra note 17.
20. Key Finance, 371 P.3d at 1138, 87 Okla. Bar J. at 982, ¶13 (citing Evers v. FSF Overlake Assocs., 2003 OK 53, ¶16 n. 3, 77 P.3d 581, 587, n. 3). Similar yet different issues may arise when there is a claim of unilateral mistake with advantage taken, e.g., where one party has reason to be aware of the other party’s mistake of fact, and seeks to take advantage of it rather than speaking up to indicate the mistake. See e.g., Corbin, supra note 12, at §608; infra notes 39 and 51. There does not appear to be any allegation of this in Key Finance.
21. Key Finance, 371 P.3d at 1138, 87 Okla. Bar J. at 982, ¶14 (citations omitted). See also supra this text at notes 18 – 20. A crucial question, of course, is whether the circumstances create a duty to speak. This is a limitation on the use of constructive fraud which (given the court of appeals’ emphasis on this doctrine in Key Finance) perhaps should have received more attention in the court’s opinion. The court’s language on constructive fraud (citing various cases) is similar to (but does not cite) the statutory language at Okla. Stat. tit. 15 §59 (defining constructive fraud). This definition is predicated on the requirement that the duty to speak applies only “[i]n any breach of duty,” indicating that the elements of constructive fraud (e.g., gaining an advantage by innocently misleading another) arise only in the context of a duty that is being breached. This predicate is essential; without it, section 59 (and the doctrine of constructive fraud) could make every person liable for fraud on the basis of innocent statements that provide some advantage to the detriment of another party. This would mean that every person owes an affirmative duty to every other person in the world, at all times, to say nothing or tell the “whole truth,” obviously an untenable standard. Thus, section 59 limits constructive fraud to cases where there is a breach of some other duty, i.e., allowing the use of constructive fraud as a means to evidence the breach of that other duty.
Oklahoma case law explicitly recognizes this point, requiring the breach of a separate legal or equitable duty as a prerequisite to the allegation of constructive fraud. See e.g., Roberts v. Wells Fargo AG Credit Corp., 990 F.2d 1169 (10th Cir. 1993); Silver v. Slusher, 770 P.2d 878 (Okla. 1988), cert. denied, 493 U.S. 817, 110 S.Ct. 70; Faulkenberry v. Kansas City Southern Ry. Co., 602 P.2d. 203 (1979) (requiring an “underlying right” to be correctly informed); Barry v. Orahood, 132 P.2d 645 (Okla. 1942) (requiring “peculiar circumstances”); Morris v. McLendon, 27 P.2d. 811 (Okla. 1933) (same). See also N.C. Corff Partnership, Ltd. v. OXY USA, Inc., 929 P.2d 288 (Okla. Ct. App. 1996) (constructive fraud requires actual knowledge by the person accused); Roberts Ranch Co. v. Exxon Corp., 43 F.Supp.2d 1252 (W.D. Okla. 1997) (same).
In Key Finance the court of appeals initially seemed to recognize this, by limiting constructive fraud to cases where there is “a duty to speak” because there is “any breach of a duty[,]” e.g., cases where there is “a breach of either a legal or equitable duty…”Key Finance, 371 P.3d at 1137 – 38, 87 Okla. Bar J. at 982, ¶13. The court went on to hold that a duty to speak “may arise from a partial disclosure,” apparently without more, thereby suggesting that every person who speaks has a broad “duty to say nothing or to tell the whole truth,” as a predicate for constructive fraud. Id. at ¶14. This was subsequently qualified by a recognition that, “[i]n determining whether there is a duty to speak, consideration must be given to the situation of the parties and matters with which they are dealing.” Key Finance, id., quoting Silk v. Phillips Pet. Co., 760 P.2d 174, 179 (which also notes the requirement for “peculiar circumstances” in order to trigger a duty to speak). After this brief reference, the requirement for breach of an established duty is seemingly dropped from the court of appeals’ analysis. The Key Finance opinion omits any further reference to or consideration of the “situation of the parties” (who apparently were in an ordinary, arms-length contract negotiation, not involving a special relation) or any “peculiar circumstances” that might give rise to a duty to speak as a predicate for constructive fraud. Instead, the court’s opinion skips directly to the conclusion that Koon had presented evidence indicating that Key had such a duty. Since no such evidence is mentioned in the court’s opinion, and indeed the predicate issue (e.g., a requirement for a special relation or other “peculiar circumstances”) is not even discussed except as provided in the quotes from the Silk case noted above (which merely note the requirement as a matter of general law), it appears there is a significant gap in the court’s analysis and holding as regards constructive fraud.
22. Key Finance, 371 P.3d at 1138, 87 Okla. Bar J. at 982, ¶15. Note again the significant omission in this statement of any reference to a special relationship or the “peculiar circumstances” previously required by Oklahoma courts in order to trigger an obligation to say more. See supra note 21. If the language quoted in the text is the full extent of the evidence considered by the court, it does not appear to be sufficient to support the court’s decision. See discussion below.
23. Key Finance, 371 P.3d at 1138, 87 Okla. Bar J. at 983, ¶16. But see supra notes 20 – 22, and further discussion below. As indicated above at notes 21 and 22, this appears to understate the requirements for constructive fraud, by indicating that any statement, even between parties in an ordinary arms-length (and inherently adversarial) contract negotiation process, creates a fiduciary-like duty to say nothing or tell the “whole truth.” Despite the quoted language in the text, there is no evidence cited by the court of appeals that was presented by Koon to indicate circumstances that would create a “duty of full disclosure” as the basis for a claim of constructive fraud in this case. See also infra Sections III - V Contrast the requirements for a claim of actual fraud, as noted supra this text at notes 16 and 17 (including a requirement for an intentional misrepresentation but not a special relationship).
24. Key Finance, 371 P.3d at 1138, 87 Okla. Bar J. at 983, ¶16. Note again that silence can constitute actual fraud (e.g., where there is intentional and fraudulent concealment), but this requires the elements noted in the text above at notes 16 and 17. For an example, see infra note 26. These elements are not apparent in the facts described by the court of appeals in Key Finance. See supra this text at notes 21 and 22, and infra this text and notes 26 – 29.
25. Key Finance, 371 P.3d at 1138, 87 Okla. Bar J. at 983, ¶16.
26. Id. (quoting Deardorf v. Rosenbusch, 1949 OK 117, ¶8, 206 P.2d 996, 998). As noted, the Key Finance court indicates this as a basis for constructive fraud, even in the absence of guilty knowledge or wrongful intent, e.g., in the case of an innocent misrepresentation. See e.g., Key Finance, 371 P.3d at 1138, 87 Okla. Bar J. at 982; supra this text and notes 18 – 23. However, it should be noted that Deardorf, relied on in the Key Finance opinion, does not go this far and is distinguisheable fromKey Finance in several significant ways: 1) Deardorf was a case of actual fraud (which does not require the predicate of a special relationship or other “peculiar circumstances”); 2) although not discussed in Deardorf (as unnecessary, because there was actual fraud), Deardorf may well have involved a special relationship, which was clearly missing in Key Finance; 3) Deardorf involved an apparent misrepresentation of a known fact, as opposed to the mistake of law in Key Finance; and 4) Deardorf affirmed the trial court’s finding of fact, whereas Key Finance reversed it (see infra note 33).
27.See supra note 26. Failure to read the terms of a written contract before signing it is not a defense. See e.g., Exchange Int’l Leasing Corp. v. Consolidated Business Forms Co., 462 F.Supp. 626 (W.D. Pa. 1978); and sources cited infra at notes 35 and 36. Also note that the arbitration agreement in Key Finance included the bold face disclosure excerpted supra this text at note 4.
28. Again, compare the elements of fraud and fraudulent representation, indicated supra at note 12 and in this text supra at notes 16 and 17.
29. There are two apparent problems with this conclusion: One is the court’s suggestion that a duty to speak arises in every contract negotiation, without more; the other is the indication that even an innocent failure to speak the “whole truth” will breach this duty. Again, cf. supra this text and notes 12 and 18 – 26. There is something incongruous about imposing a legal duty to explain things that the person does not know, absent a separate duty to do so. Of course, if there is a special relation between the parties, as in a fiduciary or attorney-client relation, there may be a duty to research, resolve or disclose unknown matters. But to impose a duty to fully explain things that one does not know, in an arms-length contract negotiation (and absent any “peculiar circumstances”), would be something quite extraordinary.
30. See supra this text Section II and notes 21 – 26.
31. Key Finance, 371 P.3d at 1138, 87 Okla. Bar J. at 982 – 83, ¶16. And, for the parties, it ultimately meant that the merits of the underlying dispute were left to be determined in a court of law rather than arbitration.
32. Key Finance, 371 P.3d at 1138 – 39, 87 Okla. Bar J. at 983, ¶17.
33. Key Finance, 371 P.3d at 1136, 87 Okla. Bar J. at 981, ¶¶5 and 6. Note that “[a]ctual fraud is always a question of fact.” Okla. Stat. tit. 15 §60.
34. See e.g., Corbin, supra note 12.
35. See e.g, Fountain v. Oasis Legal Finance, LLC, 86 F. Supp. 3d 1037 (D. Minn. 2015) (rejecting the argument that an adhesion contract was unenforceable, the court noting there was no allegation that the plaintiff was unable to read and reject the terms and seek an alternative transaction elsewhere); supra note 27; Corbin, supra note 12, §607.
36. See e.g., Walker v. Builddirect.com Technologies, Inc., 2015 OK 30, 2015 WL 2074964 (S.Ct. May 5, 2015), at ¶13 (citingOne Beacon Inc. v. Crowley Marine Serv., 648 F.3d 258 (5th Cir. 2011)). See generally Alvin C. Harrell, “Electronic Commerce and Incorporation by Reference in Contract Law”, 86 Okla. Bar J. 2351 (2015) (discussing the Walker case).
37. See supra note 33.
38. For example, while not bearing directly on the issue of fraud or mistake, and subject to many exceptions and qualifications, the parol evidence rule was intended to prevent the impeachment of written contracts by oral testimony that may be self-serving and unreliable. See e.g., John Edward Murray, Jr., Murray on Contracts §§83 – 87 (5th Ed. 2011). Nonetheless, the parol evidence rule is a matter of contract law and does not bar the use of such evidence as it bears on tort law issues, or equity doctrines such as the law of mistake. “The parol evidence rule does not preclude the use of prior or contemporaneous agreements or negotiations to establish that a party was mistaken. See §214.” Restatement Second of Contracts §153, cmt. a.See also infra note 39.
39. An alternative to the constructive fraud analysis in a case like Key Finance might be the doctrine of unilateral mistake with advantage taken, which recognizes silence as a predicate factor without any need for a special relationship between the parties.See supra note 20 (noting the doctrine of unilateral mistake with advantage taken). See also the doctrine of mutual mistake. See e.g., Corbin, supra note 12, §§608 – 616. As to a mistake of law, see id. §§616 – 620. The Restatement Second of Contracts treats a mistake of law the same as a mistake of fact (see § 151, cmt. b), but historically the Restatement of the Law of Restitution differs (see e.g., Corbin, supra note 12, at §616, noting also that many cases recognize a distinction between mistakes of law and fact). Corbin notes that the effect of the Restatement Second of Contracts on this issue is muted somewhat by the continuing and long-standing recognition by many courts of a distinction between mistakes of law and mistakes of fact, and a common unwillingness to allow rescission based on a mistake of law (at least without a special relationship or superior knowledge). Oklahoma case law fits this pattern. See e.g., Nesbitt v. Home Federal Sav. and Loan Ass’n., 440 P.2d 738 (Okla. 1968); Equity Life Ass’n of Oklahoma City v. Willis, 108 P.2d 110 (Okla. 1940); White v. Harrigan, 186 P. 224 (Okla. 1919) (all rejecting rescission on the basis of a mistake of law). See also infra Section IV. The reasons for the distinction seems obvious; as Corbin states: “Even the wisest jurist may be mistaken in this manner [as regards a rule of law].” Corbin, supra note 12, §616. Nonetheless, Corbin advocates doing away with the distinction between mistakes of law and fact, as essentially advocated in the Restatement Second of Contracts. In any event, however, the Restatement Second of Contracts view is predicated on the notion that a mistake of law should be subject to the same requirements as a mistake of fact. See: id. §151, cmt. b; Corbin, supra note 12, §616. That is, i.e., a mistake of law (or fact) is a basis for rescission only if there is an objective fact as to which the person is mistaken; matters relating to an opinion or prediction, for example, do not qualify, whether relating to a fact or the law. See e.g., Restatement Second of Contracts §151. Given the inherent uncertainty as to many legal issues (as to which even scholars may disagree), many mistakes of law (including perhaps that in Key Finance) could fail this test. There is also the even more basic question as to whether a nonlawyer should be held liable for failing to provide legal advice in the context of an arms-length contract negotiation. Perhaps these sorts of problems influenced a decision not to pursue these theories in Key Finance. See also infra note 65.
40. See supra note 39. Note again the court’s apparent recognition that the agent’s statements to Koon were true. See also supra this text and notes 26 - 29.
41. See e.g., Murray, supra note 38, §125.
42. See e.g., supra notes 27 and 35 – 36, and supra this text Section III, noting the basic principle that one is bound by a contract one signs so long as there was an opportunity to read it first. This is obviously essential to party autonomy as the basis for economic transactions.
43. The argument that Koon did not understand the full implications of the arbitration agreement does not undermine the statement in the text; if it were required that every contracting party fully understand the legal implications of the agreement, there could be no contracts.
44. Id.
45. Again, see supra notes 12 and 16 – 17 and accompanying text. See also Okla. Stat. tit. 15 §§53 and 58 – 59.
46. See e.g., Corbin, supra note 12, §607 (noting, of course, an exception where the signing party “is induced by the artifice or misrepresentation of the other party.”). See also supra notes 27 and 35 – 36.
47. See e.g., Corbin, supra note 12, §597. Though a unilateral mistake of fact with advantage taken is actionable by reformation or rescission. Id. §608. See generally supra note 39.
48. See e.g., supra note 42 – 43.
49. Based on traditional legal analyses, this would be an error. See e.g., supra note 29. It can be noted here that there is no duty of good faith in the negotiation and formation of a contract, in contrast to its performance and enforcement. See e.g., UCC §1-304 (“Every contract or duty within [the UCC] imposes an obligation of good faith in its performance and enforcement.”). Moreover, in the context of Key Finance there was apparently nothing in the nature of a fiduciary or special duty on the part of either party, to protect the other party or to explain his or her legal rights.
50. See supra note 49.
51. Id. And one that arguably violates the FAA in this context, since the result was to impose requirements on an arbitration agreement more onerous than those previously applied to other contracts. See id., and supra note 3.
52. Again, perhaps violating the FAA in this context. See supra notes 3 and 51. It is one thing to say, as Corbin does, that a contract can be rescinded if one party is induced to enter it by the fraudulent representations of another. This is accepted law.See supra note 12. It is something else to say that it is fraud for a nonlawyer, without wrongful intent, to incompletely describe a complex series of legal issues, on which even lawyers may differ. See e.g., Corbin, supra note 12, at §616. Traditionally, the salient distinction in the law has depended on whether the mistaken party was entitled to rely on the representation by the other party. As noted by Corbin, relief is appropriate if the mistake was “caused by a fraudulent misrepresentation of the law by the other [apparently not the case in Key Finance], or by his innocent misrepresentation if the relations of the parties are such as to make it reasonable for the one to rely upon the representations of the other.” Id. at §618. See also supra note 39. Thus, an essential question in a case like Key Finance is whether the parties to an arms-length contract negotiation have a special relationship or otherwise are justified in relying on an adverse party (who is a nonlawyer) for legal advice. In the absence of any fiduciary-like relationship or other duty of trust (or good faith), this seems doubtful. See e.g., supra notes 21, 39 and 49, and infranotes 53-55. Note also, again, the contract disclosure excerpted supra this text at note 4.
53. See e.g., Alvin C. Harrell, “The Importance of Contract Law: A Historical Perspective”, 41 Okla. City Univ. L. Rev. 1 (2016).
54. See e.g., Peter G. Pierce III and Alvin C. Harrell, Financiers as Fiduciaries: An Examination of Recent Trends in Lender Liability, 42 Okla. L. Rev. 79 (1989) (discussing, e.g.: Rodgers v. Tecumseh Bank, 756 P.2d 1223 (Okla. 1988) (there is no tort action based on an implied duty of good faith); and Commercial Cotton Co. v. United California Bank, 163 Cal. App.3d 511, 209 Ca. Rptr. 551 (1985) (imposing a “quasi-fiduciary” duty on the bank-customer relation)). Subsequent cases have universally rejected the Commercial Cotton view. Id. In addition, the official comments to the UCC were revised to make this clear. See UCC §1-304 cmt. 1 (current official text) (“[the definition of good faith] does not support an independent cause of action for failure to perform or enforce in good faith.”). It should also be noted that even cases like Commercial Cotton did not seek to extend the duty of good faith beyond performance and enforcement issues, e.g., to contract negotiations and formation. See also supra note 49.
55. See supra note 54. See also Frederick. H. Miller and Alvin C. Harrell, The Law of Modern Payment Systems ¶¶9.3[1] and [2], 9.5 and 9.8[3] (2d. ed. 2017) (noting numerous cases rejecting the argument that there are special or fiduciary duties in an ordinary debtor-creditor relation).
56. Of course, if the court concluded that Key or its agent assumed a fiduciary-like duty based on a special relationship with Koon or other “peculiar circumstances,” this could trigger a duty to speak as the basis for constructive fraud, but there is no mention inKey Finance of any such relation or circumstances. See also supra notes 26 – 29 and infra note 58. If the courts are going to impose fiduciary-like obligations in ordinary contract negotiations, some additional explanation and stated parameters are sorely needed.
57. This refers to the court’s substantive law analysis. On the procedural posture, relating to the burden of proof necessary to sustain a directed verdict, the court was correct. See supra this text at note 31.
58. Compare the court’s conclusion at ¶16: “Koon has presented evidence that Key’s agent owed him a duty of full disclosure because the agent chose to speak … Key’s agent’s partial disclosure or representation to Koon conveyed a false impression … As a result, a duty to speak arose, ‘the speaker being under a duty to say nothing or to tell the whole truth.’” Key Finance, 371 P.3d at 1138, 87 Okla. Bar J. at 983 (quoting Deardorf, 206 P.2d at 998, ¶8) (suggesting that a duty to speak “the whole truth” arises in every contract negotiation). It can be noted again that there is no indication that other evidence was presented to suggest any special relationship or “peculiar” circumstances that would create a duty to speak, and that Deardorf does not support this conclusion. See supra note 26.
59. See supra note 29. See also supra note 58. One cannot help recalling the Hollywood movie Liar, Liar (starring Jim Carey), to illustrate this point. Along the same lines, see Elizabeth Bernstein, Life and Arts, “Bonds: On Relationships, A Guide to Little White Lies,” Wall Str. J., June 6, 2017, at A11 (“I bet you’ve lied recently.”).
60. Id. See also supra notes 39 and 52.
61. See e.g., supra note 39.
62. See supra notes 39 and 52, and infra note 66.
63. See supra Section IV. It is unfortunate the Oklahoma Supreme Court passed up the opportunity to further clarify this point.See supra note 1.
64. See supra this text at notes 23 and 31.
65. See supra notes 57 and 58. Note again that a duty of good faith (a lower standard) does arise, once the contract is formed, but not during the negotiations for contract formation. See supra notes 49 and 54. Again, it also can be noted that Deardorf, relied on by the court of appeals for the quoted language, was a very different type of case from Key Finance. See supra note 26. In Deardorf, the Supreme Court was merely reaffirming the trial court’s finding of fact that there was actual fraud, on ample evidence of that fact. This is very different from imposing a tort-based finding of constructive fraud, on the theory that innocent statements created a duty to speak “the whole truth” in an arms-length contract negotiation.
66. As noted previously, one may speculate as to whether Key Finance should have been framed as a case of mistake rather than constructive fraud, and why this theory was not pursued. See e.g., supra notes 39, 47 and 52. However, this would require a mutual mistake or a unilateral mistake on the part of Koon and either a conscious advantage taken by Key or an unconscionable result. See Restatement Second of Contracts §153. In Key Finance, there is no indication in the court’s opinion that Key’s agent knew the law well enough to realize that Koon was acting under a mistake of law. Even if a mistake of law is actionable (which may not be the case in Oklahoma – see supra note 39), this doubt as to the agent’s knowledge of the law might negate the argument that there was a mutual mistake or conscious advantage taken by Key. As to unconscionability, the United States Supreme Court has made clear that arbitration agreements are not unconscionable per se. See sources cited supra at note 3. So, the doctrine of unilateral mistake apparently did not hold much promise on the facts of Key Finance.

Originally published in the Oklahoma Bar Journal -- OBJ 89 pg. 6 (February 2018)