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Understanding the tort of negligent misrepresentation

On Behalf of | Sep 22, 2021 | Business Law |

A misstatement in the course of a business negotiation is a common occurrence in Southern California. For example, a business negotiating to purchase a new piece of equipment may ask the seller if the equipment is safe or if it has been tested for safety. The seller, without actual knowledge of the truth and anxious to sell the equipment may casually assure the buyer that the equipment has been tested numerous times and that no safety problems were found. After the buyer concludes the sale, information surfaces indicating that the equipment has failed in other circumstances and caused significant injuries to the operators in other circumstances. What are the buyer’s remedies?

What is negligent misrepresentation?

A lawsuit against the manufacturer of the machine may be barred by the doctrine of privity because the owner of the machine did not purchase it directly from the manufacturer. The buyer, however, may still have a claim for negligent misrepresentation against the seller. A negligent misrepresentation is very similar to a fraudulent statement with the notable difference that the plaintiff does not need to prove that the maker of the statement knew it was false when it was made. The key difference in the hypothetical situation described above is the fact that the person making the false statements about testing and safety was not aware that the statements were false. To succeed on its claim, the buyer must prove only that the maker of the false statement (that the machine had been tested and was found to be safe) did not know whether the statement was true or not. Even if the seller honestly believed his statements about testing and safety were true, he is liable for the buyer’s damages if the byer proves that the seller had no reasonable grounds for believing that the representation was true when he made it.

Other elements of the tort

The plaintiff in the above hypothetical must prove other important facts to succeed on his claim. The plaintiff must prove that it relied on the false statements in agreeing to buy the machine and that it was harmed by its reliance. The payment of damages to an injured employee may be sufficient proof of such harm.

Conclusion

Anyone who relies on a negligently false statement in agreeing to consummate a business transaction may have a claim against the other party for negligent misrepresentation. An experienced business litigation attorney can provide helpful advice on the strength of the evidence and on the likelihood of prevailing in a lawsuit seeking damages.