Section 5.9.2.2.4 Misrepresentation and Fraud

• Library: Construction Law Practice Manual 3rd Edition 2016

§ 5.9.2.2.4 Misrepresentation and Fraud

In some situations, homebuilders are sued by owners and/or homeowner associations under the theory of misrepresentation. For example, failure to adequately describe the soil conditions at a given subdivision can give rise to a misrepresentation theory of recovery. If the soils are expansive and the builder does not explain such characteristics to the purchasers, then the purchasers may have a valid claim for misrepresentation.

Whether punitive damages are available against the homebuilder depends on whether the misrepresentation was negligent or fraudulent. With respect to mere negligent misrepresentation, Arizona has adopted Section 552 of the Restatement (Second) of Torts (1977),⁵⁹ which states:

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 transactions, is subject to the liability for pecuniary loss caused to them by their justifiable reliance upon the information...