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What is Negligent Misrepresentation?

June 24, 2020 Federal Criminal Attorneys

Many states have recognized the tort of negligent misrepresentation, which is a variation of fraud. Generally misrepresentation involves causing another person to suffer damages by providing false information. In order to understand negligent misrepresentation, it is necessary to first understand the concept of negligence.

A generally accepted definition of negligence is the failure to exercise the degree of care that a reasonable and prudent person would exercise under the circumstances. A party suing for damages caused by negligence cannot recover damages from the defendant without proving, at minimum, the following facts:

* the defendant owed a duty to exercise reasonable care for the plaintiff’s benefit or protection;
* the defendant breached that duty of care, either by doing something that the defendant should not have done or by failing to do something that the defendant should have done; and
* the defendant’s breach of duty caused the plaintiff to suffer damages.

While there is not a single, uniform definition of negligent misrepresentation in the United States, the definition adopted by most states that have recognized this tort was developed by an organization known as the American Law Institute with input from judges, law professors and practicing attorneys. That definition, which appears in Section 552 of a publication known as the Restatement of the Law of Torts (Second Edition), reads in part as follows:

(1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.

(2) Except as stated in Subsection (3), the liability stated in Subsection (1) is limited to loss suffered (a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and (b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction.

The exception in Subsection (3) applies to persons who are subject to “public duty” to furnish information, and protects people for whose benefit the duty was created, but only in connection with transactions in which the duty is intended by law to apply.

This standard does not impose a general duty to exercise reasonable care to avoid providing false information. The duty only applies to persons acting in the course of a business, profession or employment, or acting to further a business transaction in which they have a financial interest.

Under this standard the duty to avoid negligent misrepresentation only protects people to whom the person intends to supply the information and to whom the person providing information knows the intended recipient will provide the information. The exception that protects a broader class of people arises when a “public duty” governs the disclosure of the information, in which case the duty protects any person in the class for whose benefit the duty is created; for example, an independent auditor who reviews a company’s financial records and prepares reports for the public’s benefit may be liable for damages suffered by anyone whose reliance on the s reports is reasonably foreseeable.

The obligation to avoid negligent misrepresentation requires persons who are subject to that duty to exercise reasonable care (that degree of care that the reasonably prudent person in their positions would exercise) to compile and provide factually correct information. People (including businesses) who are protected by that duty can recover pecuniary damages (meaning economic or financial damages only, and not damages for pain and suffering) caused by their justifiable and reasonable reliance on misstatements of fact (not opinions, unless the opinions are phrased as facts).

The law of negligent misrepresentation varies from state to state. If you believe that you have suffered damages due to a misrepresentation by someone else, contact a lawyer who is licensed to practice law in your state to discuss what remedies may be available to you.

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