Chapter 16

MISREPRESENTATION

The independent tort of “misrepresentation” usually describes a situation where a misstatement causes intangible pecuniary loss. There are two types of misrepresentation, “intentional misrepresentation” and “negligent misrepresentation.”

• Intentional misrepresentation (deceit):  To recover for “intentional misrepresentation” (also called “deceit” or “fraud”), P must establish the following elements:
  • Misrepresentation:  A misrepresentation by D;
  • Scienter:  Scienter (i.e., a culpable state of mind – either knowledge of the statement’s falsity or reckless indifference to the truth);
  • Intent:  An intent to induce P’s reliance on the misrepresentation;
    • Third-party recovery:  Even if D did not intend to influence P, however, P can recover if she can show that she is a member of a class which D had reason to expect would be induced to rely, and the transaction is of the same sort that D had reason to expect would occur in reliance.
  • Reliance:  Justifiable reliance by P; and
  • Damage:  Damage to P, stemming from the reliance.
• Negligent misrepresentation:  Today, most courts also allow recovery for “negligent misrepresentation,” even where P suffers only intangible economic harm.
  • Same requirements:  Most requirements for a negligent misrepresentation action are the same as for intentional misrepresentation.
  • Business relationship:  However, most courts add the requirement that D’s statements be made in the course of his business or profession, and that D have had a pecuniary interest in the transaction.
  • Liability to third persons:  The maker of a negligent misrepresentation is liable to a much narrower class of third persons than is the maker of a fraudulent statement. In most courts, D is liable for negligent misrepresentations only to a “limited group of persons” whom D either: (1) intends to reach with the information; or (2) knows the recipient intends to reach.
• Strict liability:  Generally, a person has no liability for an “innocent” misrepresentation – that is, there is no strict liability. But there are some exceptions (e.g., where two parties are involved in a sale transaction, and one makes a representation to another).