Misrepresentation

Question 1

Definition of Misrepresentation:

Answer 1

A false representation of fact.

Question 2

What are the policies of creating the tort of misrepresentation?

Answer 2

1) To protect persons from relying upon false information in business and personal dealings;
2) Protect the intangible economic interests of persons who are induced to enter into bargaining transactions.

Question 3

What are the three types of misrepresentations?

Answer 3

1) Fraudulent Misrepresentation;
2) Negligent Misrepresentation;
3) Innocent Misrepresentation.

Question 4

What is the rule regarding fraudulent misrepresentation?

Answer 4

One who makes a fraudulent misrepresentation or concealment is subject to liability for “pecuniary losses” to the person or class of persons whom he intends or has reason to expect to act or to refrain from action, in reliance upon the misrepresentation.

Question 5

What are the elements of fraudulent misrepresentation?

Answer 5

1) Defendant must make a false representation or concealment of a material fact;
2) The representation is made in a fraudulent manner (Scienter + knowledge);
3) To a person or class of persons with the purpose of inducing the plaintiff to act or to refrain from acting;
4) Plaintiff relies on the representation;
5) Plaintiff’s reliance is reasonable;
6) Plaintiff suffered pecuniary losses resulting from plaintiff’s reasonable reliance on the misrepresentation or concealment.

Question 6

What is the rule of Negligent Misrepresentation?

Answer 6

One who negligently gives false information to another is subject to liability for physical harm caused by action by the other in reasonable reliance upon such information, where harm results to the other, or to such third persons as the actor should expect to be put in peril by the action.

Question 7

What are the elements to prove negligent misrepresentation?

Answer 7

1) Defendant must make a false representation or concealment of a material fact;
2) The representation is made in a negligent manner (careless, non-intentional, accidental);
3) To a person or class of persons with the purpose of inducing the plaintiff to act or to refrain from acting in reliance;
4) Plaintiff relies on the representation;
5) Plaintiff’s reliance is reasonable;
6) Plaintiff suffers pecuniary losses resulting from plaintiff’s reasonable reliance on the misrepresentation or concealment.

Question 8

How can misrepresentations be made?

Answer 8

Either expressly (through words) or by actions designed to conceal information (i.e. prevent the plaintiff from discovering certain information).

Question 9

What is the rule regarding tacit non-disclosures?

Answer 9

There is no liability for misrepresentations when the defendant has committed only a bare or tacit nondisclosure of facts. Even if those facts are material to the transaction.

Question 10

Why did the court find in favor of the defendant in the termite case (Swinton v. Whitnsville)?

Answer 10

The court found in favor of the defendant because they found no evidence of:

1) The uttering of a half-truth; or
2) Any action to prevent or stop the plaintiff from acquiring the information regarding the condition of the home; or
3) A showing the parties were in a fiduciary relationship; or
4) Showing the parties were in a position of confidence with each other.

Question 11

What are the two viewpoints regarding non-disclosures?

Answer 11

1) Traditional Viewpoint - Absent active concealment or material misrepresentation, the traditional view holds that here is no duty to disclose no matter how unfair - Caveat Emptor;
2) Modern View - Where there is a serious and dangerous latent defect, known to exist by the seller, then the seller must disclose such defect to the buyer or suffer liability for failure to do so.

Question 12

What is the Jenkins Rule?

Answer 12

Where a vendor has knowledge of a defect in property which is not within the fair and reasonable knowledge of the vendee and which he or she could not discover by the exercise of reasonable diligence, the silence of the vendor to disclose this defect constitutes an actionable fraudulent concealment.

Question 13

How does the Jenkins rule compare to Restatement 2nd of Torts Section 551?

Answer 13

They are essentially the same thing. Both state that disclosure is necessary when it is something that the plaintiff cannot possibly be expected to discover.

Question 14

What does Restatement 2nd of Torts Section 526 state about when a misrepresentation is fraudulent?

Answer 14

A misrepresentation is fraudulent if the maker:

1) Knows or believes that the matter is not as he represents it to be;
2) Does not have the confidence in the accuracy of his representation that he states or implies; or
3) Knows that he does not have the basis for his representation that he states or implies.

Question 15

What is the defense of Honest Belief seen in Derry v. Peek?

Answer 15

If a party does not know that their statements are false, then the statement cannot be fraudulent. Fraud requires knowing or ought to know.

Question 16

Will the defense of honest belief always work?

Answer 16

No. The defense will fail when the belief is lacking all reasonable foundations, or the person making the false statement has shut their eyes to the fact or purposely decides not to investigate the facts.

Question 17

According to International Products v. Erie RR, do the American Courts recognize negligence in words?

Answer 17

Yes. In some cases, a negligent statement could be the basis for recovery of damages. However, it will only arise if there is a duty to give correct information.

Question 18

What are the considerations a court will consider when deciding if a defendant had a duty to provide correct information according to International v. Erie R.R.?

Answer 18

These considerations include:

1) Knowledge by the defendant that the information is desired for a specific purpose;
2) That the plaintiff intends to rely on the information and if it is false, the plaintiff will be injured as a result;
3) The relationship between the parties is one that the plaintiff has the right to rely upon the defendant’s statements.

Question 19

What does Restatement 2nd of Torts Section 311 state?

Answer 19

(1) One who negligently gives false information to another is subject to liabilty for phsyical harm caused by action by the other in reliance upon such information;
(2) Such negligence may consist of failure to exercise reasonable care:
(a) In ascertaining the information; or
(b) In the manner in which it is communicated.

Question 20

Is a publisher liable for the material they publish?

Answer 20

As a general rule, no. A publisher does not have a duty to investigate the accuracy of the contents of the books it publishes. However, they may assume such a burden.

Question 21

How may a publisher accept the burden to be liable for what they publish?

Answer 21

Good Housekeeping case. If they certify their published works that they will do something, then they will bear the risk that it wont do what they say it will.

Question 22

What are the three approaches to Misrepresentations made to 3rd parties?

Answer 22

1) Credit Alliance - Liability will be imposed only when the 3rd party is in privity or a relationship so close as to approach privity;
2) Restatement 2nd of Torts Section 552 - Liability to 3rd parties is imposed only for a limited group who are expected to gain access to the information provided from the transaction;
3) Citizens Bank - Liability is imposed for all foreseeable injuries resulting from the defendant’s negligent act.

Question 23

What is the first approach to misrepresentations occurring to 3rd parties - Credit Alliance approach?

Answer 23

Liability to 3rd parties is imposed only when the defendant and 3rd party are in privity or a relationship so close as to approach privity.

Question 24

What is the second approach to misrepresentation occurring to 3rd parties - Restatement 2nd Section 552?

Answer 24

Liability to 3rd parties is imposed only when the defendant and the 3rd party who are expected to gain access to the financial statement information in an expected transaction.

Question 25

What is the third approach to misrepresentation occurring to 3rd parties - Citizens bank?

Answer 25

Liability to 3rd parties is imposed for all foreseeable injuries resulting from the defendants negligent act, except as limited by public policy.

Question 26

What is required for a relationship to “approach privity” according to Credit Alliance?

Answer 26

1) A particular purpose;
2) A “known” relying party;
3) A “nexus” between the defendant and the third party.

Question 27

What are the public policy factors included in the exception to the Citizens Bank rule?

Answer 27

Remoteness, proportionality, the injury is highly extraordinary, recovery would place too difficult a burden on the tortfeasor, recovery might open the door for fraudulent claims, recovery might open the door for indefinite liability.

Question 28

What does reliance have to be to valid?

Answer 28

Reliance must be reasonable and it must be justifiable.

Question 29

Could a plaintiff rely on an obviously false statement for recovery?

Answer 29

No. if a statement is obviously false, then the plaintiff could not have reasonably relied on it. They also cannot blindly follow a statement.

Question 30

What are the factors the court will consider when determining if a falsity could have been detected by ordinary observation?

Answer 30

1) The relationship between the parties;

2) The intelligence and life experience of the plaintiff.

Question 31

How will the court treat “readily observable” falsities?

Answer 31

Courts will refuse to act for the relief of one claiming to have been misled by another’s statements who blindly acts in disregard of the knowledge of the falsity, where, with ordinary action and observation they could have discovered the falsity.

Question 32

What is an opinion and can a plaintiff rely on it?

Answer 32

An opinion is a statement that is ague and indefinite in its nature and terms, or is merely a loose, conjectural, or exaggerated statement.
A plaintiff may not rely on them to justify fraud.

Question 33

Is “puffing” or “trade talk” actionable?

Answer 33

No. it cannot be the basis for an action for fraud. It is a form of opinion.

Question 34

Can a plaintiff rely on future predictions for their claim of misrepresentation?

Answer 34

No. False representations, upon which fraud may be predicated, must be of existing facts, and cannot consist of mere promises or conjectures as to future acts or events.
A person is not justified in placing reliance upon representations of things that will take place in the future.

Question 35

What is the rule and exception regarding future predictions shown in McElrath v. Electric?

Answer 35

False representations, upon which fraud may be predicated, must be of existing facts, and cannot consist of mere promise or conjecture to future acts or events.
Exception - If in the making of the representation, the defendant intended to create in the mind of the plaintiff that it was a fact, then the representation is understood by the plaintiff as a fact, then the statement may be actionable.

Question 36

Is a plaintiff justified in relying on a defendant’s statement of law?

Answer 36

No. No person is justified in relying on representations made concerning the law.

Question 37

What sort of relationships will allow an action for a misrepresentation regarding the law?

Answer 37

Fiduciary or contractual.

Question 38

What is the rule regarding an action based on an individuals state of mind?

Answer 38

In some instances, a promise to perform a future act may be a misrepresentation when an individual professes an intent to do or not do something, when the party intends the contrary.

Question 39

What are the minority and majority views of damages?

Answer 39

Majority: Benefit of the Bargain Recovery;
Minority: Out of Pocket Recovery.

Question 40

What is the damages formula for benefit of the bargain recovery?

Answer 40

Recovery (“R”) = Value of the Good as Represented (“VGR”) minus the Value of the Good at the time of Sale (“VGS”)

Question 41

What is the damages formula for Out of Pocket recovery?

Answer 41

Recovery (“R”) = Price Paid (“PP”) minus the Value of the Good at the time of Sale (“VGS”)