Misrepresentation generally means making a false statement of fact that induces a person to enter into a contract. For instance, it is misrepresentation to say a TV is almost new when it is actually six years old.
Negligent misrepresentation is one of the recognized types of misrepresentation in contract law. It means you did not lie directly – knowingly said something that is false – but you made a representation about something without having reasonable ways for believing it to be true. To understand negligent misrepresentation, here is an example:
A real estate agent attempts to sell a house to a consumer, who stresses he needs a home in a quiet neighborhood. The real estate agent promises the home is on a very quiet street. However, the house next door is being rebuilt, and the house behind it has noisy young children and three barking dogs.
Even though the real estate agent did not know this was true, her promise the house was in a quiet neighborhood was made without having information that would make her think it was true. She simply made the assumption, with the underlying motive of getting a commission on the property from the buyer. This could be prosecuted in some cases as negligent misrepresentation. But if she knew about the noisy factors surrounding the house and lied about it, this would be fraudulent misrepresentation – a much more serious type.
Elements of Negligent Misrepresentation
To prove negligent misrepresentation, the prosecution must demonstrate the following elements:
- Someone made a false representation about an existing or past fact. Statements about something that will happen in the future do not count. Also, opinions and typical sales marketing phrases do not count. For example, it is not illegal for a real estate agent to say a home is ‘lovely,’ but it is illegal for the agent to promise that the roof is two years old without knowing for certain when the roof was replaced.
- The person making the belief does not have any reasonable ground to believe it is true. If a real estate agent lived in the house for five years and found that the home had been quiet in the past (but no longer is without her knowledge), it would not be negligent misrepresentation.
- The representation has to be made with the intent to encourage others in the party to rely upon it. This means you must use the misrepresentation in order to make a deal.
- The other person must believe the misrepresentation and relied upon it to act or make a decision. Most state courts will hesitate to protect the buyer if he is unreasonable in relying on what the other person told him. For instance, if the seller says the car could go 1,000 per hour, it would be unreasonable for the buyer to believe that.
- As a result of relying on the misrepresentation, the other person suffered some type of damages. This means the buyer has to have been harmed by the transaction; otherwise there is no liability.
It is important to note that fraudulent misrepresentation and negligent misrepresentation have very similar elements, but the former is a more serious offense. There is a fine line between the two. The only difference is that fraudulent misrepresentation requires you to engage in reckless disregard as to the truth of a fact. Negligent disregard only requires no reasonable ground to assume that a fact is true. It comes down to a matter of degree.
In the example of the quiet house and the real estate agent, it is not reckless disregard for a fact to say the home was quiet; many times a home may be thought to be so, even if it was negligent of the real estate agent to discover this before making claims.
However, if the buyer stated that he is very allergic to pine wood and asked if there was nay in the home, and the agent said, no there is not, this would be reckless disregard for the truth.
Negligent Misrepresentation Remedies
A misrepresentation is a civil offense and not a federal crime. This means you only can be sued for this offense in a civil court; in a criminal case, a similar charge would be false pretenses. The general remedy in a civil court of law is recission. This means the court will behave like the contract or transaction never happened and all will go back to how things were before.
For example, if you sell a TV to someone for $50 and tell them it is completely function, and you think it is true, but it turns out to be broken, this deal could be rescinded. The buyer would return the TV and you would return his money.
Negligent misrepresentation is always a more serious offense than simple misrepresentation.
Negligent Misrepresentation Defenses
If you have been accused of negligent misrepresentation, below are some defenses that may be effective:
- Contributory negligence: You may claim that the plaintiff contributed to the misrepresentation and the harm that was suffered. For example, if you sell a person a cell phone and make misrepresentations about it but the plaintiff had the ability to learn if the representations were false but did not do so, he or she could be barred from recovering money in states with contributory negligence laws.
- Comparative negligence: You may claim the other party was partially or totally at fault for the negligent misrepresentation. If this works, the negligence of the plaintiff would be assessed according to percentage. If the plaintiff was 30% negligent, this would reduce their award by 30%.
- No duty of care: You may not owe a duty of care to the plaintiff. This means the defendant is not always obligated to make more effort to ensure the representations they are making are completely true. This could be the case where you engaged in puffery; this is where you use exaggerated claims about a product or piece of property. For example, if you say a car you are selling is the best on the road, this is puffery, not misrepresentation.
Negligent Misrepresentation Cases
- Finra Arbitrators Award $4 Million in Case Against Broker – Finra arbitrators this week awarded $4 million to an investor group who says a rogue broker engaged in negligent misrepresentation when he put their retirement savings at risk. The case involved 17 plaintiffs against Anthony Diaz, who was a broker for First Allied Securities. He did not appear at the arbitration hearing, and it is questionable whether the plaintiffs will be able to enforce the judgement.
- Former Montana Neurosurgeon Bankruptcy Trial Postponed – A criminal bankruptcy fraud trial against a Billings, MT neurosurgeon has been postponed to give defense attorneys more time to make a plea deal. John H. Schneider MD has been charged with five counts of bankruptcy fraud, as well as breach of contract, fraud and negligent misrepresentation.
- Three Veterinarians Sue Hospital Over Partnership – Three associate veterinarians are suing Hagyard Equine Medical Institute in Kentucky for what they claim were breaches in promises related to a deal with shareholders. The defendants have been charged with negligent representation, fraud, breach of implied contract and breach of express contract.
- Negligent Misrepresentation Overview. (n.d.). Retrieved from https://www.legalmatch.com/law-library/article/negligent-misrepresentation.html?intakeredesigned=1
- Negligent Misrepresentation Defenses. (n.d.). Retrieved from https://www.legalmatch.com/law-library/article/negligent-misrepresentation-defenses.html?intakeredesigned=1