Brief Fact Summary. The Circuit Court for Milwaukee County (Wisconsin) overruled the Appellant, O’Rourke Co’s (Appellant), motion to dismiss the Appellee, Ollerman’s (Appellee) amended complaint for failing to state a claim upon which relief could be granted. The Appellant sought review.
Synopsis of Rule of Law. The bases of responsibility in the intent, negligence, and strict responsibility 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. Was the omission of a known fact where there is a duty to disclose tantamount to material misrepresentation and thus actionable?
Held. Yes. The Wisconsin Supreme Court affirmed the lower court’s ruling and held that the Appellant’s arguments, that the well was not an omitted material fact to sustain a cause of action for intentional misrepresentation was a matter to be raised at trial, not in a motion to dismiss. The court further held that the Appellee’s complaint was sufficient to state a cause of action for the tort of intentional misrepresentation.
Discussion. The tort of fraudulent misrepresentation or deceit provides for recovery for pure economic loss. As the court in Ollerman defines it, “Misrepresentation is a generic concept separable into the three familiar tort classifications: intent, negligence, and strict responsibility.” As noted above, the court outlined the elements thusly: “The bases of responsibility in the intent, negligence, and strict responsibility 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.” Knowledge is a critical component in the liability equation: “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 u
pon it to the plaintiff’s pecuniary damage.” A high standard exists with respect to a seller’s knowledge and concomitant responsibility: “In strict responsibility, 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. 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.” Thus, as the court explained, “In negligent misrepresentation, the defendant need only fail to exercise ordinary care in making a misrepresentation or in ascertaining the facts but like other cases of negligence, it requires a duty of care or a voluntary assumption of a duty.”
The specific issue in the instant case was one of omission, which the court addressed by noting, “The general rule is that silence, a failure to disclose a fact, is not an intentional misrepresentation unless the seller has a duty to disclose. If there is a duty to disclose a fact, failure to disclose that fact is treated in the law as equivalent to a representation of the nonexistence of the fact.” Facts, specifically in their disclosure and materiality, are integral in determining whether a duty exists within the business context: A person in a business deal must be under a duty to disclose a material fact before he can be charged with a failure to disclose. One who fails to disclose to another a thing which he knows may justifiably induce the other to act or refrain from acting in a business transaction is subject to the same liability to the other as though he had represented the nonexistence of the matter which he has failed to disclose, if, but only if, he is under a duty to the
other to exercise reasonable care to disclose the matter in question.” The standard of care is one of simple reasonableness, as the court explained, “A party to a transaction is under a duty to exercise reasonable care to disclose to the other facts basic to the transaction, if he knows that the other is about to enter into it under a mistake as to them, and that the other, because of the relationship between them, the customs of the trade, or other objective circumstances, would reasonably expect a disclosure of those facts.”
In addition to duty, materiality then becomes the key issue, as it will determine whether there exists a duty to disclose a particular fact. The court draws the distinction, “A fact is material if a reasonable purchaser would attach importance to its existence or nonexistence in determining the choice of action in the transaction in question; or if the vendor knows or has reason to know that the purchaser regards or is likely to regard the matter as important in determining the choice of action, although a reasonable purchaser would not so regard it. Whether the fact is or is not readily discernible will depend on the nature of the fact, the relation of the vendor and purchaser and the nature of the transaction.” Here, the existence of the well and the additional capital expenditure required to modify building plans that existence entailed would more than likely have given the buyer reason to act otherwise. That fact was thus material and a duty to disclose was incumbent on the seller, and the court found him liable.