Brief Fact Summary. The Court of Appeals (Wisconsin) found the Appellants, Kenwood Gauerke and Elisabeth Gauerke (the Gauerkes), realty companies, a real estate agent, and an insurer (Appellants), liable on a theory of strict responsibility for the misrepresentations of the Appellant real estate agent regarding the acreage and the amount of road and river frontage of resort property purchased by the Respondent purchasers, Robert W. Rozga and Ann C. Rozga (Respondents). The Appellants challenged the decision.
Synopsis of Rule of Law. A cause of action for misrepresentation can be based on intent, negligence, or strict responsibility. The bases of responsibility in these three classifications of torts have at least three elements in common: (1) The representation must be of a fact and made by the defendant; (2) the representation of fact must be untrue and (3) the plaintiff must believe such representation to be true and rely thereon to his damage.
Issue. Should the theory of strict responsibility have applied in the case and an instruction to that effect been submitted to the jury?
Held. Yes. The court affirmed the finding in favor of the Respondents against the realty Appellants in the Respondents’ action for misrepresentation.
Discussion. The tort of fraudulent misrepresentation or deceit provides for recovery for pure economic loss, unassociated with other injury. While the Wisconsin court applies a three-point scheme, most jurisdictions apply the formula outlined in the Restatement, which consists of five elements: (1) a material misrepresentation; (2) the defendant acted with the requisite scienter: she knew the statement was false or made it with reckless disregard as to its truth or falsity; (3) the defendant intended to induce reliance; (4) the misrepresentation caused plaintiff’s justifiable reliance; (5) pecuniary damages resulted to the plaintiff. The formula applied in Gauerke is, in any event, an abbreviated version of the former. As the court further explained (and as noted above), “A cause of action for misrepresentation can be based on intent, negligence, or strict responsibility. The bases of responsibility in these three classifications of torts have at least three elements in common: (1) T
he representation must be of a fact and made by the defendant; (2) the representation of fact must be untrue; and (3) the plaintiff must believe such representation to be true and rely thereon to his damage.”
With regard to deceit, knowledge on the part of the defendant is the central consideration: “In intentional deceit the defendant must either know the representation is untrue or the representation was made recklessly without caring whether it was true or false and with intent to deceive and induce the plaintiff to act upon it to the plaintiff’s pecuniary damage.” For a defendant to be held strictly responsible, the court explained, “the misrepresentation must be made on the defendant’s personal knowledge or under circumstances in which he necessarily ought to have known the truth or untruth of the statement and the defendant must have an economic interest in the transaction.” Further, the court noted, “Intent to deceive and good-faith belief in the truth of the representation are immaterial. In this classification the speaker is supposed to possess complete knowledge of the facts or could normally be expected to know them without investigation. A person is therefore justified in expec
ting infallibility as to the representations of fact.” Finally, the court articulates the heightened standard to which actors in commercial transactions are to be held: “Assertions of fact as to the quantity or quality of land or goods sold, the financial status of corporations, and similar matters including commercial transactions, may justifiably be relied on without investigation, not only where such investigation would be burdensome or difficult, as where land which is sold lies at a distance, but likewise where the falsity of the representation might be discovered with little effort by means easily at hand.”