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Fraudulent or Negligent Misrepresentation

In the business world today where contracts govern almost every move a employer or employee makes, fraudulent and negligent misrepresentation claims have become much more common in the context of business litigation.

In order to succeed on a claim for fraudulent misrepresentation, the plaintiff must satisfy the following five elements:

  1. Prove the defendant made a false misrepresentation of a material fact,
  2. with knowledge of its falsity,
  3. for the purpose of inducing the plaintiff to act thereon,
  4. the plaintiff relied on the misrepresentation as true, and
  5. the plaintiff acted upon the misrepresentation to his or her detriment.

Some common cases involving fraudulent misrepresentation claims are those of breach of contract due to the fraudulent misrepresentation. For instance, if there is a contract between a buyer and seller, and the seller knowingly misrepresented himself or a company on any material fact such as, his authority in making agreement, or the quantity or quality of products, in order to induce the seller to agree to the terms of the contract. As a result, the buyer suffered damages in relying on the assertions the seller made in the contract.

Another example, if an employee acts beyond their scope of employment and presents themselves to be an expert in said field or position, in order to persuade the plaintiff to purchase something or agree to a binding contract. If the plaintiff then suffers damage, whether it be from breach of contract or reliance on the employees expertise, the plaintiff would have an claim for fraudulent misrepresentation.

In order to succeed on a claim for negligent misrepresentation, the plaintiff must prove that the defendant:

  1. in the course of his/her business,
  2. supplied false information for the guidance of others,
  3. in their business transactions,
  4. causing and resulting in pecuniary loss to those others,
  5. by their justifiable reliance upon the information, and
  6. with the failure to exercise reasonable care or competence in obtaining or communicating the information.

Negligent misrepresentation differs from fraudulent in the sense that the information falsely provided by the defendant does not need to be a material fact but rather just in the guidance of others. An example of a negligent misrepresentation would be is a home improvement store manager advised the independent carpet installer to keep his warehouse open and not move to a smaller space because the home improvement stores were going to be expanding. However, the manager knew that they were not going to be expanding, rather they were actually about to close every store they owned and terminate the installment agreement with the carpet installer. The carpet installer reasonably relied upon the information presented to him by the manager, and suffered monetary loss as a result of keeping the warehouse open and the stores closing. Therefore, the carpet installer would have a negligent misrepresentation claim against the manager because he failed to exercise reasonable care in giving false information to the carpet installer in the course of their business transactions.

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