Also known as: Restatement (Second) of Torts § 552 · § 552 · negligent misrepresentation
Written by attorneys · grounded in primary & secondary sources — see below
A rule specifying the measure of damages for negligent misrepresentation. Recovery is limited to compensation for the plaintiff's pecuniary loss of which the misrepresentation is a legal cause. That measure includes the difference between the value received in the transaction and the price paid plus other consequential pecuniary losses but excludes the benefit of any contract with the defendant.
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Ralph Richardson retained Rhapsody Entertainment to appraise an office building for a mortgage loan. Rhapsody's report stated that tenant leases were long-term and stable. Delta Housing obtained the report indirectly, relied on it, and purchased the building for ten million dollars. An independent valuation later showed the building was worth only seven million dollars because several key tenants had already given notice to terminate.
Harbor Coastal retained Judy to inspect a freighter and prepare a condition report for potential charterers. Judy's report omitted extensive hull corrosion. Star Marine received the report, chartered the vessel, and later incurred substantial repair costs plus higher substitute-charter expenses when the corrosion forced the vessel into dry dock.
Consolidated Rail Corp. negligently caused a chemical spill that closed an airport runway. People Express Airlines lost substantial revenue from canceled flights and rerouting. The airline sued for its purely economic losses arising from the negligent conduct.
Arthur Young prepared an audit report for a company that later filed for bankruptcy. Investors who had relied on the report in deciding to purchase stock sued the accountants for negligent misrepresentation after losing their investments.
A university athletic director made public statements about a coach's conduct. A rival institution and its supporters relied on those statements in deciding how to respond, incurring expenses and reputational harm when the statements proved inaccurate.
Omnicare made statements in a securities registration about its compliance practices. Investors purchased the securities in reliance on those statements and later suffered losses when compliance issues surfaced.
The plaintiff recovers the difference between the purchase price paid and the actual value received at the time of the transaction. Additional consequential pecuniary losses directly caused by the reliance are also recoverable. The measure focuses on out-of-pocket loss rather than expected gains from the underlying deal.
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…1983, the company filed for bankruptcy. Plaintiffs lost their investment. Plaintiffs sued Arthur Young for negligence, negligent misrepresentation, and fraud. The jury returned a verdict in favor of plaintiffs on the negligence and negligent misrepresentation causes of action. The trial court granted judgment notwithstanding the…
…by the information it possessed. In the second and eighth causes of action, appellant seeks to recover on the theory of negligent misrepresentation
…and the individual or business deprived of economic expectations. Many of these cases are recognized as involving the tort of
…as to paragraph (2). The only provision in either the 1933 or the 1934 Act that can be read to impose liability for damages for
No. The rule expressly excludes recovery of the benefit of the plaintiff's contract with the defendant or any expectation damages measured by hypothetical performance. Only actual pecuniary loss caused by reliance on the misrepresentation is compensable.
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A prominent disclaimer limiting use to the original client and disclaiming responsibility to third parties can negate the duty or reasonable reliance required for recovery. Courts weigh the disclaimer against the preparer's knowledge that the report would be shared with foreseeable users.
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Yes. Costs incurred to correct the condition misrepresented and expenses for substitute performance qualify as pecuniary loss suffered as a consequence of reliance. These items fall within the compensable measure when they are a direct result of the false information.
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