Chapter 1-7 Negligent Misrepresentation

• Jurisdiction: United States

1-7 Negligent Misrepresentation

1-7:1 Introduction

The claim of negligent misrepresentation allows plaintiffs to recover for misrepresentations made, absent a contractual relationship, that proximately cause pecuniary harm in the course of business.²⁰⁷ This cause of action is nearly identical to fraud, except that it has a lower scienter, ordinary negligence, and is narrower in scope.²⁰⁸ Only those defendants who fail to exercise reasonable care in obtaining or supplying information to known parties for a known purpose are potentially liable under this tort.²⁰⁹

1-7:1.1 Related Causes of Action

Breach of Contract, Business Disparagement, Statutory Fraud, Common Law Fraud, Fraud by Non-Disclosure, DTPA, Negligence

MUST READ CASES

D.S.A., Inc. v. Hillsboro Indep. Sch. Dist., 973 S.W.2d 662 (Tex. 1998)

McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787 (Tex. 1999)

Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913 (Tex. 2010)

LAN/STV v. Martin K. Eby Constr. Co., Inc., 435 S.W.3d 234 (Tex. 2014)

1-7:2 Elements

(1) The defendant made a representation to the plaintiff in the course of the defendant's business or in a transaction in which the defendant had a pecuniary interest.²¹⁰
(2) The defendant supplied false information for the guidance of others in their business.²¹¹

• The "false information" contemplated in a negligent misrepresentation case must be a misstatement of an existing fact rather than a promise of future conduct.²¹²
• Negligent misrepresentation action is available only when information is transferred to a known party for a known purpose.²¹³
• Negligent misrepresentation can be based on silence rather than an affirmative misrepresentation when there is a duty to speak.²¹⁴
• Negligent misrepresentation is not analogous to either a professional malpractice or negligence claim because liability is based on the defendant's awareness and intention that the non-client rely on the defendant's representations, rather than on the breach of a duty owed by law or contract.²¹⁵

(3) The defendant did not exercise reasonable care or competence in obtaining or communicating the information.²¹⁶
(4) The plaintiff suffered pecuniary loss by justifiably relying on the representation.²¹⁷

• The plaintiff must show actual and justifiable reliance based on the "plaintiff's individual characteristics, abilities, and appreciation of facts and circumstances at or before the time of the alleged fraud" as well as any "'red flags' indicating such reliance is unwarranted."²¹⁸
• Unlike fraudulent inducement, with negligent misrepresentation the benefit-of-the-bargain measure of damages is not available; the plaintiff is limited to out-of-pocket pecuniary damages.²¹⁹
• There must be an independent injury, other than a breach of contract, to support negligent misrepresentation (in order to avoid converting every contract interpretation dispute into a negligent misrepresentation claim).²²⁰
• The economic loss rule may bar recovery for negligent misrepresentation in a contractual setting, depending "on an analysis of [the economic loss rule's] rationales in a particular situation."²²¹

1-7:3 Damages and Remedies

1-7:3.1 Actual Damages

Defendant may only recover for pecuniary loss.²²² See Chapter 11, Sections 11-3 and 11-9.

1-7:3.2 Exemplary Damages

Exemplary damages are recoverable in accordance with Chapter 41 of the Texas Civil Practice and Remedies Code.²²³ For negligent misrepresentation, however, the Texas Supreme Court has stated that exemplary damages are not recoverable for grossly negligent misrepresentations posing an extreme degree of risk in the absence of evidence of actual physical harm.²²⁴

1-7:3.3 Interest

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