33 Negligent Misrepresentation
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33 Negligent Misrepresentation
A. Definition
Negligent misrepresentation has been described as an "emerging and developing field of law."1 Recovery in a negligent misrepresentation action is "based upon negligent conduct and predicated upon a negligently made false statement where a party suffers either injury or loss as a consequence of relying upon the misrepresentation"2 inducing him or her to enter a contract or business transaction.3 While it is an action in negligence, not fraud and deceit, reliance on the misrepresentation, as in fraud, is an essential element of the tort.4Negligent misrepresentation is distinguishable from fraud in that to prove the latter the plaintiff must show the defendant conveyed a "known falsity."5
B. Elements
(1) a false representation made by the defendant to the plaintiff
(2) a pecuniary interest by the defendant in making the statement
(3) a duty of care owed by the defendant to see that truthful information was communicated to the plaintiff
(4) the defendant breached the duty by failing to exercise due care
(5) the plaintiff justifiably relied on the representation
(6) the plaintiff suffered a pecuniary loss as a direct and proximate result of reliance on the representation.6
C. Elements Defined
1. A False Representation Made by the Defendant to the Plaintiff
There must be a false representation of material fact.7 An integral component of the element is that the representation be false at the time it is made.8 The representation generally cannot be based on unfulfilled promises or statements of future events.9 There is an exception to the rule for a promise made when the promisor has at the time no intention of keeping the agreement.10 The Federal Fourth Circuit Court of Appeal decided the South Carolina Supreme Court would find that an exception exists to the general rule that a negligent misrepresentation must relate to a present or preexisting fact when the misrepresentation is a professional opinion given by a person who intends it for the guidance of others, and a third party detrimentally relies on it.11 Generally, however mere statements of opinion,12commendation of goods or services,13 or statements that a transaction will be satisfactory do not give rise to liability, nor do casual statements, representations as to matters of law or those which the plaintiff could determine for himself in the exercise of due diligence.14 The plaintiff has the burden of proving the statement was false when made.15 One procedural difference between the actions for fraud and negligent misrepresentation is that to survive a motion for summary judgment, the former requires proof by clear and convincing evidence, but the latter requires only a "scintilla" of evidence.16
An action will generally not lie for a misrepresentation as to a matter of law, for example a statement by a governmental official about the zoning status of property.17
2. A Pecuniary Interest by the Defendant in Making the Statement
The South Carolina Supreme Court18 has recently adopted § 552 of the Restatement (Second) of Torts (1977) which provides in pertinent part:
One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transaction, is subject to liability ...
Evidence that the statement at issue was made in the course of the defendant's business, profession or employment is sufficient to show the element of pecuniary interest, even though the defendant does not actually receive consideration for it.19
3. A Duty of Care Owed by the Defendant to See That Truthful Information Was Communicated to the Plaintiff
A duty of care is "that standard of conduct the law requires of an actor in order to protect others against the risk of harm from his actions. It embodies the principle that the plaintiff should not be called to suffer a harm to his person or property which is foreseeable
and which can be avoided by the defendant's exercise of reasonable care."20 The duty of care in negligent misrepresentation arises when the defendant possesses expertise or special knowledge that would ordinarily make it reasonable for the plaintiff to rely on the defendant,21 and the defendant has a pecuniary interest in the transaction.22 In negligent misrepresentation, the duty is not one requiring the defendant to take every possible care, much less to be right.23 It is simply the duty to exercise the care of a reasonable person would under the circumstances.24
A failure to disclose may also be the basis for negligent misrepresentation; however, only where there is a preexisting definite fiduciary relation between the parties, where one party expressly reposes a trust and confidence in the other in the particular transaction in question, where from the circumstances of the case, the nature of the dealings, or the position of the parties towards each other, trust and confidence in the particular case is necessarily implied, or where the very contract or transaction itself, in its essential nature, is intrinsically fiduciary.25
4. The Defendant Breached the Duty by Failing to Exercise Due Care
Generally in a negligence action the plaintiff must show the defendant did not use the amount of care required by the duty owed the plaintiff.26
5. The Plaintiff Justifiably Relied on the Representation
The plaintiff must present evidence of reliance27 that is justifiable.28 The requirement of justifiable reliance makes class actions problematic in misrepresentation cases.29 There can be no reasonable reliance on a misstatement where the plaintiff knows the truth,30or was in a superior position concerning the alleged misrepresented information.31 There is also generally no right to rely on a matter of law when the official records could have been consulted.32 On the other hand, a plaintiff is not necessarily precluded from claiming justifiable reliance for failing to read a contract33 or examine the public records.34 In cases of fraud it has been held that if the plaintiff would have entered the transaction regardless of the truth of the representation,35 or did what was legally required then there is no fraudulent inducement.36
It has been held that reliance by an agent of the plaintiff amounts to reliance of the principal in an action for negligent misrepresentation.37
A disclaimer in a document containing an alleged misrepresentation may preclude the right to rely on the information in that document.38
6. The Plaintiff Suffered a Pecuniary Loss as a Direct and Proximate Result of Reliance on the Representation
In an action for negligent misrepresentation the plaintiff must show a pecuniary loss,39and as in any negligence action, that the breach of duty was the proximate cause of the injury. The South Carolina Supreme Court has said:
Proximate cause requires proof of: (1) causation in fact and (2) legal cause.
Causation in fact is proved by establishing the injury would not have occurred "but for" the defendant's negligence. [citation omitted] Legal cause is proved by establishing foreseeability. [citation omitted] Although foreseeability of some injury from an act or omission is a prerequisite to establishing proximate cause, the plaintiff need not prove that the actor should have contemplated the particular event which occurred. The defendant may be held liable for anything which appears to have been a natural and probable consequence of his negligence. [citation omitted] A plaintiff therefore proves legal cause by establishing the injury in question occurred as a natural and probable consequence of the defendant's negligence.40
Unless the evidence shows reasonable persons could not disagree, the question of proximate cause is one for the jury.41
D. Defenses
The statute of limitations applicable to negligence actions is three years for actions arising on or after April 5, 1988, and six years for those arising before that date.42
Contributory negligence is applicable to a cause of action for negligent misrepresentation43 and is defense in a negligence action that requires the defendant show the plaintiffwas negligent44 and that the negligence was the proximate cause ofthe injuries.45Traditionally, contributory negligence was a total defense to the cause of action; however, South Carolina has adopted comparative negligence under which the plaintiff may recover if his or her negligence is not greater than the defendant's in which case the plaintiff's recovery is reduced in proportion to his or her negligence.46 Punitive damages, however, are not reduced by the proportion of the plaintiff's negligence under comparative negligence.47
Assumption of the risk is a defense to negligence which is recognized in South Carolina in two forms: express assumption and implied assumption.48 Express assumption derives from an agreement to waive liability49 whereas implied assumption applies where the plaintiff voluntarily encounters a risk, understands and appreciates the nature and extent of a known danger created by the defendant, indicates a willingness to accept it, and freely and willingly exposes himself to it.50 A plaintiff is not barred from recovery by an implied assumption of the risk unless the degree of fault is greater than the negligence of the defendant.51
The South Carolina Tort Claims Act52 waives the immunity of the State, its agencies, political subdivisions, and governmental entities from liability in tort. The Act is the exclusive and sole remedy for any tort committed by an employee of a governmental entity while acting within the scope of his or her official duty and must be liberally construed in favor of limiting the liability of the governmental entity.53 It contains, however, many limitations on liability and damages which may preclude or restrict a plaintiff's cause of action.54 One limitation is that governmental entities55 are not liable for a loss resulting from "employee conduct...
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