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Negligent Misrepresentation

Society recognizes a standard of business ethics that demands that factual representations be made carefully and honestly. A "representation" may consist of words or conduct. If a person makes a misrepresentation to another in business, it may give rise to liability on his part, even if he did not know that he was making a misrepresentation.

In order for a defendant to be held liable for a negligent misrepresentation, an injured party must show that:

  • The misrepresentation was of a material fact;
  • The misrepresentation was made in a business or professional capacity rather than under casual circumstances;
  • The misrepresentation was a breach of some duty that the defendant owed to the injured party;
  • The injured party justifiably relied on the misrepresentation; and
  • The injured party suffered some monetary loss.

Example: A used car salesman negligently overstates to a buyer the amount of weight that a truck for sale can carry. The buyer purchases the truck in reliance on the representation, loads the truck with the amount of weight designated by the salesman, and, because the weight is too heavy, damages the truck . The buyer may recover for negligent misrepresentation against the salesman.

If a reasonably prudent person in the exercise of ordinary care would have discovered that the defendant's statement was a misrepresentation, the injured party may not recover. It is not justifiable for an injured party to rely on a statement that is so obviously false that he must have closed his eyes to discovering the truth.

The injured party does not need to demonstrate that the defendant had any intent to injure him because the defendant's liability is based on his failure to fulfill some duty of care that he owed rather than on any malice on the part of the defendant.

A defendant generally will not be liable if a third party to whom he did not communicate his misrepresentation relies on the misrepresentation unless he knew that the third party would rely on it.