§ 7.1.3

• Jurisdiction: Arizona

§ 7.1.3 Negligent Misrepresentation

It might be thought that negligent misrepresentation is simply common-law fraud without scienter. Matters are not that simple. The law has approached liability for negligent misstatement with hesitancy.²⁰¹⁶ While the need to deter deliberate fraud through tort remedies is obvious, the argument for imposing liability for negligent words and information is less compelling.²⁰¹⁷ As a result, tort liability for negligent misrepresentation has evolved with limitations not found when the plaintiff sues for fraudulent misrepresentation.²⁰¹⁸

Arizona has recognized liability for negligent misrepresentation since 1971,²⁰¹⁹ adopting § 552 of the Restatement (Second) of Torts²⁰²⁰ as a guidepost for the elements of the tort.²⁰²¹ Under § 552 a person who negligently gathers or supplies false information for the use of another is liable for pecuniary loss caused by justifiable reliance upon the information.²⁰²²

Ordinarily the misrepresentation will precede an investment or some other business transaction about which the recipient was misled. But in some instances the misrepresentation is made after the plaintiff's investment or contract. Examples are where the plaintiff is induced to retain an investment or is persuaded through false information to put more money into a business.²⁰²³

Several limitations on negligent misrepresentation exist. First, the tort applies only to commercial transactions,²⁰²⁴ not casual advice.²⁰²⁵ Second, while privity is not required,²⁰²⁶ the defendant must owe a duty of care to the plaintiff; thus, the speaker is liable only to those whom the speaker intends to supply the information or to the wider class of persons to whom the speaker knows the recipient intends to provide the information.²⁰²⁷ Third, the defendant must have a pecuniary interest in the transaction, which is implied, regardless of consideration, if the information is given in the course of the defendant's business.²⁰²⁸ Fourth, the injured party must rely upon the representation.²⁰²⁹ Fifth, the reliance must be justified, which is inferred if the misstatement is material.²⁰³⁰ Sixth, the plaintiff must prove out-of-pocket or consequential damages,²⁰³¹ but the defendant's misrepresentation need not be the sole cause of the plaintiff's damage.²⁰³² Seventh, a false promise of future conduct will not support a claim of negligent misrepresentation.²⁰³³

Negligent misrepresentation claims are often asserted against professionals.²⁰³⁴ The Court of Appeals has held that negligence by professionals is controlled by the Restatement's rules for negligent misrepresentation.²⁰³⁵ The Restatement's limitations cannot be circumvented by relying on the general law of negligence.²⁰³⁶

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Notes:

^[2016] Epstein, supra note 1979, § 20.13, at 570.

^[2017] Restatement (Second) of Torts § 552 cmt. a (1977) (explaining that it is unreasonable to expect every speaker to assume a duty of care in what is said); cf. Standard Chartered PLC v. Price Waterhouse, 190 Ariz. 6, 30-31, 945 P.2d 317, 341-42 (Ct. App. 1996) (explaining that where a duty of care in supplying information exists, it embraces responsibility for gathering relevant information).

^[2018] See W. Techs., Inc. v. Sverdrup & Parcel, Inc., 154 Ariz. 1, 3, 739 P.2d 1318, 1320 (Ct. App. 1986) (referencing the "relatively restrictive view" of the tort).

^[2019] See Ariz. Title Ins. & Trust Co. v. O'Malley Lumber Co., 14 Ariz. App. 486, 491, 484 P.2d 639, 644 (1971). The first Supreme Court decision to recognize the tort is Van Buren v. Pima Cmty. Coll. Dist. Bd., 113 Ariz. 85, 87, 546 P.2d 821, 823 (1976).

^[2020]...