Misrepresentation

Question 1

In General

Answer 1

Also known as deceit, where D in the course of some transaction makes a false statement to P (or another), P acts in justifiable reliance on the statement, and thereby sustains pecuniary loss. (If P sustains physical harm, then one of the other tort actions will lie.)

At common law, this action was called “deceit,” and would lie only if D’s misrepresentation was fraudulent—i.e., was made with “scienter.” Today, liability is recognized for some types of negligent misrepresentations.

Question 2

Intentional Misrepresentation Elements

Answer 2

1. Misrepresentation by D
2. Scienter
3. Intent to Induce P’s reliance
4. Causation - Actual Reliance
5. Justifiable Reliance
6. Damages

Question 3

Intentional: Misrepresentation by D

Answer 3

1. Affirmative misrepresentation
   
   1. must be a false, material representation of a past or present fact. False representations of opinion or law may also be actionable.
      
      1. Material: any representation that would influence P in this type of business dealing, as well as any representation D knew that P considered important.
2. Fraudulent concealment
   
   1. If no affirmative misrepresenation made, fraudulent concealment of facts will be a sufficient “misrepresentation” except where:
      
      1. the bill of sale or transaction is marked “as is,” or
      2. P is charged with some knowledge or notice of the facts concealed
3. Failure to disclose
   
   1. D is not ordinarily under any duty to disclose facts. Thus, failure to disclose (as distinguished from active concealement) all D knows is not a “misrepresentation.”
   2. Exceptions:
      
      1. Fiduciary relationships
      2. Half-truths
      3. New information
      4. Reliance
      5. Sale of property

Question 4

Intentional: Scienter

Answer 4

1. Scienter refers to D’s knowledge of the falsity of the representation made, or knowledge that he had an insufficient basis for deterining the truth of the representation (i.e., recklessness in making the statement)
2. Intent to deceive implied
   
   1. Negligence alone is not sufficient for scienter; D’s honest belief in the truth of the representation, even if based on unreasonable grounds, will not support an action for intentional misrepresentation. But the enormity of the unreasonable behavior may allow a jury to infer lack of honest belief, which would suffice for scienter.
3. Burden of proof
   
   1. Most courts demand that P must have clear and conving evidence that prove thir claims of fraud.

Question 5

Intentional: Intent to Induce Reliance of P

Answer 5

D must have intended to induce the reliance of P, or a class of persons to which P belongs, in a particular transaction

Exception: ongoing deception

1. If the misrepresentation is a “continuous deception,” it is not necessary that the reliance of a particular P be intended. Anyone who acquires the product or instrument may sue.

Question 6

Intentional: Causation

Answer 6

It must be proven that the misrepresentations played a substantial part in inducing P to act as she did - i.e., actual reliance. P’s awareness of hte falsity of the misrepresentation precludes reliance.

1. The use of an “as is” clause will not prevent P from proving fraud.

Question 7

Intentional: Justifiable reliance by P

Answer 7

1. P’s reliance must be foreseeable
2. Whether reliance is justified depends on type or represenation:
   
   1. Representations of fact
      
      1. always justified, unless facts are obviously false; P is under no duty to investigate
   2. ”” of opinion
      
      1. Ordinarily not justified in relying on opinio, value, or quality unless one of the following exceptions applies:
         
         1. D has superior knowledge not available to P.
         2. D owes some fiduciary duty to P
         3. D and P are in some way affiliated or specially related so that D has “secured the confidence” of P.
         4. D offers P advice on some transaction P was contemplating with a third person without disclosing that D has a financial interest in the deal.
   3. ”” of law
      
      1. Reliance is justified if D represents the law as fact, not opinion.

Question 8

Intentional Misrep: Damages

Answer 8

Unlike most intentional torts, proof of actual damages must be shown to obtain any recovery.

Question 9

Negligent Misrepresentation Elements

Answer 9

1. Misrepresentation by D
2. Negligence toward particular group
3. Cause in fact - Actual reliance
4. Justifiable reliance
5. Proximate Cause
6. Damages

Question 10

Negligent: Misrepresnetation by D

Answer 10

Made in business or professional capacity

The same type of misrepresentation may serve as the basis for an action in negligent mispresentation as for an intentional one.

Note: Negligent misrepresentation must normally be made by one in the business of supplying information for the guidance of others in business transactions.

1. If the representation is volunteered in a nonprofessional or noncommercial setting, liability will result only if the statements are not honestly made.

Question 11

Negligence toward particular P

Answer 11

If D provides info with the intent that P rely on it in a business transaction, D is under a duty to exercise reasonable care to discover the truth or falsity of hte representation made. (This is different from the scienter requirement for intentional misrep.)

1. To whom duty owed
   
   1. D owes duty of care to those persons to whom the representation was made or to those D knew would rely upon it; D must have contemplated the reliance of a particular P or group of persons to which P belongs.
   2. A duty to avoid negligent misrepresentation may also arise when a party volunteers info
   3. Privity of contract not required
2. Professional liabilty
   
   1. Traditionaly view: limited liabilty for professionals if negligently prepared documents or reports for clients.
   2. Modern view: expanded the scope of duty
      
      1. Linkage: D must be aware of P’s reliance and some conduct must link D to P in a way that suggests D’s willingness to incur a duty.
      2. Specific foresseability: may be liable if D knows a specific third party is relying
      3. General foreseeability: few states hold that D may be liable if P belongs to class that could generally be foreseen to receive/rely on statement.
   3. D can also violate statutory duties which are created as a duty for the general public.

Question 12

Negligent: Justifiable Reliance

Answer 12

1. This is the same as in intentional misrepresentation, except that unreasonable failure to investigate may be contributory negligence.

Question 13

Misrepresentation Predicated on Strict Liability

(“Innocent Misrepresentation”)

Answer 13

Some courts also impose damages for certain misrepresentations in connection with the sale of land or chattels.

1. Nature of liability
   
   1. The basis for liability here is very close to that for breach fo express warranty; i.e., having made a warranty as to the thing sold, the seller is bound thereby whether or not he had reason to know of its falsity.
      
      1. But note, this is clearly not a contract action; hence, contractual defenses such as PER do not apply.
2. Prima facie case
   
   1. The prima facie case is the same as for negligent misrepresentation, except that there is no requirement for the fault at all. All that need be shown is a false representation made with the intent to induce P’s reliance in a business transaction, and P’s justifiable reliance thereon to her financial detriment and D’s gain.
      
      1. Distinguish - products liability
         
         1. Recovery for misrepresentation is limited to pecuniary damages to P’s business interests. If physical harm has resulted from use or consumption of a product, consider the products liabilty rules.

Question 14

Negligent: Defenses

Answer 14

Contributory Negligence

1. Defense to negligent misrepresentations, but not to intentional misrepresenation or to misrepresentation pegged on strict liabilty. Most states apply comparative negligence.

Assumption of Risk

1. This is a defense to both strict liability misrepresentations and negligent misrepresenations.

Exculpatory Contracts

1. In most states, exculpatory contracts that seek to exempt one from fraid or intentional wrong soing are void. For example, “as is” provision in a contract does not bar actions for fraid or for negligent misreprensations.
   
   1. In a few states, a contract that says the buyer is not relying on the seller’s statement will bar a tort claim for fraud, but a general merger clause will not.

Question 15

Measure of Damages

Answer 15

Benefit-of-bargain rule:

1. The majority of courts hold that P is entitled to the benefit of the bargain: the value of the property as contracted for less the value of the property as it actually was. This is basically the same measure as applied in contract actions for breach of warranty.

Out of Pocket Loss Rule:

1. A minority view limits P’s recovery to out of pocket loss (the price paid less the value of the property received) which is a more typical tort meaure of compensatory damage.

Emotional distress

1. some courts will allow damages if it is a “natural and proximate” consequence of the misrepresentation.

Punitive Damages:

1. May be awarded if misrepresentation was intention and made with malice.