C. Elements Defined

• Library: Elements of Civil Causes of Action (SCBar) (2021 Ed.)

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,¹² commendation 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 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

The plaintiff must show the defendant owed the plaintiff a duty of care.²⁰ 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."²¹ 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,²² and the defendant has a pecuniary interest in the transaction.²³ In negligent misrepresentation, the duty is not one requiring the defendant to take every possible care, much less to be right.²⁴ It is simply the duty to exercise the care of a reasonable person would under the circumstances.²⁵

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.²⁶

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.²⁷

5. The Plaintiff Justifiably Relied on the Representation

The plaintiff must present evidence of reliance²⁸ that is justifiable.²⁹ The requirement of justifiable reliance makes class actions problematic in misrepresentation cases.³⁰ There can be no reasonable reliance on a misstatement where the plaintiff knows the truth,³¹ or was in a superior position concerning the alleged misrepresented information.³² There is also generally no right to rely on a matter of law when the official records could have been consulted.³³ On the other hand, a plaintiff is not necessarily precluded from claiming justifiable reliance for failing to read a contract³⁴ or examine the public records.³⁵ In cases of fraud it has been held that if the plaintiff would have entered the transaction regardless of the truth of the representation,³⁶ or did what was legally required then there is no fraudulent inducement.³⁷

It has been held that reliance by an agent of the plaintiff amounts to reliance of the principal in an action for negligent misrepresentation.³⁸

A disclaimer in a document containing an alleged misrepresentation may preclude the right to rely on the information in that document.³⁹

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,⁴⁰ and 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.⁴¹

Unless the evidence shows reasonable persons could not disagree, the question of proximate cause is one for the jury.⁴²

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Notes:

^[7] Winburn v. Insurance Co. of North America, 287 S.C. 435, 339 S.E.2d 142 (Ct. App. 1985); Fields v. Melrose Limited Partnership, 312 S.C.102, 439 S.E.2d 283 (Ct. App. 1993); AMA Management Corp. v. Strassburger, 309 S.C. 213, 420 S.E.2d 868, 874 (Ct. App. 1992); Brown v. Stewart, 348 S.C. 33, 557 S.E.2d 676 (Ct. App. 2001) (jury question created as to whether alleged statements could be deemed misleading); Midland Mortg. Corp. v. Wells Fargo Bank, N.A., 926 F. Supp. 2d 780 (D.S.C. 2013) (defendant did not owe duty to plaintiff, and could not, therefore, have breached duty to plaintiff). Hovis v. General Dynamics Corp. (In re Marine Energy Sys. Corp.), 362 B.R. 247 (D.S.C. 2006) (statement to vague to rise to level of material fact and support claim for negligent misrepresentation). See also Jimenez v. Daimler Chrysler Corp., 269 F.3d 439 (4th Cir. 2001). In Jimenez it was alleged that the appellee was liable for negligent misrepresentation because it advertised that a vehicle was safe. However, the evidence did not support a jury finding that the representations made about the particular model at issue. The plaintiff viewed commercials in 1994 shortly before her husband bought a used 1985 vehicle. Thus, there was no evidence that any safety representations made in the commercials were false, concluded the court, because they would have referred to the vehicles depicted in the advertisements and they were more recent models.

^[8] GSM Dealer Services, Inc. v. Chrysler Corp., 32 F.3d 139, 142 (4th Cir. 1994). See also Spires v. Acceleration Nat'l Ins. Co., 417 F. Supp. 2d 750 (D.S.C. 2006) (insurance company became insolvent after broker obtained policy with insurer for plaintiff; that broker may have said insurer was "sound" company was not made false by fact company had "B" rating); Turner v. Milliman, 392 S.C. 116, 708 S.E.2d 766 (S.C. 2011) (where insurance agent allegedly represented that health insurance policy purchased by plaintiff was group policy, summary judgment for defendants was improper when plaintiffs produced evidence that policy provided only individual coverage).

^[9] Fields v. Melrose Limited Partnership, 312 S.C.102, 439 S.E.2d 283 (Ct. App. 1993) (statements about future sales price of club memberships and planned improvements in development project represented defendant's intentions at time and were not false when made); Winburn v. Insurance Co. of North America, 287 S.C. 435, 339 S.E.2d 142 (Ct. App. 1985) (statement by insurance adjustor that he would "make sure" marine mechanic repaired boat was mere broken promise, no more actionable in negligence than in fraud); deBondt v. Carlton Motorcars, Inc., 342 S.C. 254, 536 S.E.2d 399 (Ct. App. 2000) (representations regarding promotional materials not vague promises as to future events); Sauner v. Public Serv. Auth., 354 S.C. 397, 581 S.E.2d 161 (S.C. 2003) (representations based on statements...