Also known as: negligent misrepresentation · negligently misrepresent
Written by attorneys · grounded in primary & secondary sources — see below
A tort claim permitting recovery of pecuniary losses caused by reliance on a false statement of fact made without reasonable care. The measure of damages is limited to out-of-pocket loss consisting of the difference between the value received and the price paid plus any consequential pecuniary harm but excludes expectation damages or the benefit of any bargain.
Select any source to read its text and confirm it supports the definition.
Nolan Nunez retained Norton Bank to value a radio station portfolio for acquisition. The bank report asserted current advertising contracts supported a fifty million dollar price although internal data showed declining revenue. Nunez purchased the stations for that amount and later learned their true value was twenty five million dollars. He recovered the difference as pecuniary loss caused by reliance on the report.
Naomi Norton commissioned Delta Education to forecast enrollment for a new campus. The report overstated regional demand and Norton shared it with Nile Shipping to obtain financing. Nile Shipping approved a twelve million dollar loan but later suffered a shortfall after enrollment collapsed. Nile Shipping could not recover the interest it expected under its separate loan agreement with Norton.
Nalini Narula purchased stock in a company after reviewing an audit report prepared by Navarro Industries. The firm knew the report would be supplied to investors like Narula. When the company entered bankruptcy Narula sued the auditor for losses caused by reliance on the report. Liability attached because Narula was an intended beneficiary of the audit.
Noreen Nguyen purchased securities after reviewing financial statements audited by Northern Manufacturing. She alleged the audit was negligent but offered no evidence the auditors acted with intent to deceive. The court dismissed the claim because negligent misrepresentation alone does not satisfy the scienter element required under the securities statute.
Nigel Nelson operated an airline near a rail yard operated by Consolidated Rail. A chemical spill at the yard forced closure of nearby roads and Nelson lost substantial revenue during the shutdown. The court permitted recovery because the economic loss was a foreseeable consequence of the railroad's negligent conduct.
Nina Nielsen a public figure sued a publisher after an article contained false statements about her business dealings. The statements were made without reasonable investigation into their accuracy. The court held that negligent misrepresentation could support liability when the publisher failed to exercise due care in verifying facts about a public figure.
Recovery is limited to pecuniary loss of which the misrepresentation is a legal cause. This includes the difference between the value received and the price paid plus any additional consequential pecuniary harm. Expectation damages and the benefit of any bargain are excluded.
Supporting sources
…cases cited in n. 12, supra . Compare, e. g. , Comment, Scienter and Rule 10b-5, 69 Col. L. Rev. 1057, 1080-1081 (1969); Note, Negligent Misrepresentations under Rule 10b-5, 32 U. Chi. L. Rev. 824, 839-844 (1965); Note, Securities Acts, 82 Harv. L. Rev. 938, 947 (1969); Note, Civil Liability Under Section 10B and Rule 10B-5: A Suggestion for…
…duty of care regarding the conduct of an audit to persons who are not its client. An auditor may, however, be held liable for negligent misrepresentations
…by the information it possessed. In the second and eighth causes of action, appellant seeks to recover on the theory of negligent misrepresentation
…before weighing in on the omissions theory. [^maj-12]: At the time of the Act’s passage, the common law did not permit suit for
…and the individual or business deprived of economic expectations. Many of these cases are recognized as involving the tort of
Lost profits calculated by comparing actual performance to the performance promised in the misrepresentation constitute expectation damages. Such recovery is barred because the rule excludes the benefit of any bargain and limits recovery to out of pocket and consequential pecuniary loss.
Supporting sources
A prominent disclaimer that restricts the report to the original client and disclaims responsibility to third parties ordinarily prevents liability to a subsequent purchaser. The disclaimer severs the duty and negates justifiable reliance by parties outside the intended scope of the report.
Supporting sources
Projected interest that would have been earned under a separate loan agreement with a third party is treated as expectation damages. The rule excludes such contractual benefits even when the misrepresentation was a substantial factor in the decision to extend credit.
Supporting sources
Repair costs are recoverable when they represent the difference between the value received and the price paid or constitute consequential pecuniary loss directly caused by reliance. The plaintiff must establish that the misrepresentation was a legal cause of the need for repairs.
Supporting sources