Two Measures of Loss

Liability for negligent misrepresentation arises only in limited circumstances, but when it arises it compensates economic loss, and most misrepresentation litigation grows out of commercial dealings rather than personal relations.¹ That setting explains why the remedy speaks in prices and values. The statement behind the claim need not be a flat assertion of fact, either. Under § 539, an opinion carries implied factual assertions: that the facts the speaker knows are not incompatible with the opinion, and that the speaker knows facts sufficient to justify forming it.² When Hearst called shoes “good ones” worthy of its seal, it also asserted that it had some basis for that judgment.³ Whatever form the statement took, once the plaintiff establishes the misrepresentation the damages question is the same: how much has the plaintiff lost?

Section 552B(1) answers with one principle and two illustrations. Recoverable damages are those necessary to compensate the plaintiff for the pecuniary loss of which the misrepresentation is a legal cause, “including” two named items.⁴ The first is the difference between the value of what the plaintiff received in the transaction and the price or other value given for it.⁵ The second is any other pecuniary loss the plaintiff suffered as a consequence of relying on the misrepresentation.⁶ Because “including” introduces examples, a court first asks whether the loss is pecuniary and legally caused, and only then asks which clause describes it.

A misrepresentation can hurt a plaintiff in two places, and the two clauses follow them. Overpayment happens inside the exchange: the plaintiff hands over a price and gets back something worth less, so the loss appears when the two values sit side by side. Reliance spending happens outside the exchange: a plaintiff who trusts the statement may ship, install, or prepare, and those outlays never show up in a comparison of price and worth. Clause (b) reaches them with the word “otherwise,” which sends the court to every pecuniary harm that reliance produced beyond the value gap.⁷

Neither clause pays for the deal the statement promised. The Restatement excludes the benefit of the plaintiff’s contract with the defendant,⁸ and a later section takes up that exclusion. The first clause, which sets price against value, comes first.

Value Differential Measure

Clause (a) awards the difference between the value of what the plaintiff received in the transaction and its purchase price or other value given for it.⁹ This comparison is the out-of-pocket rule, which the Restatement adopts as the measure for negligent misrepresentation. It looks to the loss the plaintiff suffered in the transaction and subtracts the value of what the plaintiff received from the value of what the plaintiff parted with.¹⁰

The clause is a subtraction with two inputs. One is what the plaintiff gave, whether a cash price or some other value surrendered in a swap. The other is the actual worth of what the plaintiff got. The clause never asks what the thing would have been worth had the statement been true.¹¹

A buyer induced to pay $5,000 for a chattel (an item of movable personal property) worth only $4,000 recovers $1,000.¹² The $5,000 left the buyer’s pocket and $4,000 in value came back, so the $1,000 gap measures how far the statement inflated the price. Paying that gap equalizes the exchange and leaves the buyer’s expected gain unpaid.¹³

The excluded alternative shows what the clause leaves out. The benefit-of-the-bargain measure gives the plaintiff the benefit of what was promised: the difference between the actual value received and the value the thing would have had if it had been as represented.¹⁴ Take property bought for $10,000, represented as worth $12,000, and in fact worth $10,000. The out-of-pocket measure subtracts the value received ($10,000) from the price paid ($10,000) and awards nothing, because the plaintiff received exactly what was paid for. The benefit-of-the-bargain measure subtracts the value received ($10,000) from the value as represented ($12,000) and awards $2,000.¹⁵ Section 552B adopts the first measure and excludes the second,¹⁶ so the buyer in that example recovers nothing under clause (a). The $2,000 is a gain the statement promised, not a loss the buyer took on, and the same zero follows whenever the price does not exceed the actual value.

The comparison freezes at the moment the transaction closes: what the plaintiff paid against what the plaintiff received at the time the transaction was completed.¹⁷ A variant called rescissory damages runs the subtraction at the date of judgment, so that the award matches the financial position rescission would have produced on the date of the court’s decree.¹⁸ Suppose a buyer pays $100,000 for shares worth $80,000 on the purchase date, and by judgment a year later the market has dropped and the shares are worth $50,000. The traditional measure awards $20,000, while rescissory damages would award $50,000. The extra $30,000 is the market decline after the sale, and only the rescissory variant charges it to the speaker.¹⁹

Clause (a) also presupposes an exchange in which the plaintiff gave value and received something back. Suppose a franchisor’s agent carelessly tells an applicant that her franchise has been approved, she rents a storefront, and the franchise is then refused. She paid no price and received nothing to value, so clause (a) has no figures to subtract. Her rent belongs to the second clause, the subject of the next section.

Reliance Losses

Clause (b) awards “pecuniary loss suffered otherwise as a consequence of the plaintiff’s reliance upon the misrepresentation.”²¹ Clause (a) compares two values inside the exchange, while clause (b) follows the plaintiff’s money outward. The court that quoted both clauses treated them as two descriptions of out-of-pocket damages, and it quoted the Restatement’s commentary on the second. Clause (b) applies when a buyer, relying on the statement, uses the thing for a purpose for which it is harmfully inappropriate, or incurs expenses preparing for a use the thing would have served had the statement been true.²²

Both paradigms can appear in one purchase. A manufacturer who buys a machine on a seller’s misrepresentations may recover, in addition to the loss on the price, shipping costs, installation costs, expense resulting from the machine’s failure to do the job, and damage to raw materials the machine destroyed while the manufacturer tried to make it work, subject to the usual scope-of-liability rules.²³ The spoiled materials fit the first paradigm, because the manufacturer put the machine to a job it could not safely do. Shipping and installation fit the second, since they were outlays preparing for a use the machine would have served had it been as described.

Clause (b) does not depend on a completed purchase. One secondary source notes that reliance expenses can be recovered even if the transaction is never completed.²⁴ The franchise applicant’s rent shows why: she lost that money by trusting the statement just as surely as a buyer who closed on an overpriced asset, and a comparison of price and value never captures it.

Reliance items can overlap with other awards, and courts police the overlap. In one case involving lost wages and benefits, the jury’s total, counting a separate misrepresentation award, would have been $30,422. The final judgment cut it to $28,864, an amount representing only lost wages and benefits. The defendants called the damages excessive. The reviewing court said the argument would have been valid had the misrepresentation item actually been awarded, but the trial court never entered it, and the trial judge had told the jury she would make any adjustments needed to prevent double recovery.²⁵

Four limits keep clause (b) tied to real outlays. The usual scope-of-liability rules apply, as the machine example notes.²⁶ The plaintiff must prove the loss with reasonable certainty, and the item may not duplicate an out-of-pocket award. The loss must also be realized or more likely than not to be realized in the future, so a paper loss that may never materialize does not qualify.²⁷

A stem that describes a careless statement, reliance, and spending but no completed sale is asking which clause carries the recovery. Clause (a) needs a price and a received value to subtract, so with no exchange it yields nothing and the spending falls under clause (b). When the stem includes a completed purchase, the plaintiff may need both clauses, the price gap under (a) and the collateral outlays under (b), with each dollar counted once. Either way, every reliance item must still pass the pecuniary, legal-cause, and certainty screens.