Under real estate and contract law, negligent misrepresentation is a civil wrong. This means the victim of negligent misrepresentation can sue for money damages in a court of law. Negligence consists of an individual’s duty to act reasonably under a given set of circumstances.

As a result of the failure, the person acting negligently causes a plaintiff to incur money damages. Negligent misrepresentation in the contract setting is the failure to verify whether a statement of fact in a contract is truthful.

What are the Elements of Negligent Misrepresentation?

To prove negligent misrepresentation, a plaintiff must demonstrate the following elements:

  • The defendant made a representation in a contract;
  • The representation was false;
  • The representation was made either carelessly, or without reasonable grounds to believe it was true;
  • The plaintiff reasonably relied on the representation; and
  • The plaintiff’s reliance was the legal cause of plaintiff sustaining damages.

A representation is a statement (e.g., “This car has never failed an inspection”) that can be proven true or false. “Reasonable reliance” is how a person with ordinary intelligence and common sense would believe upon hearing or reading the misrepresentation. If such a person would not believe the representation, there has been no reasonable reliance.

What is Negligent Misrepresentation in Contract Law?

Negligent misrepresentation can occur in a variety of contexts. For example, you and I enter into a contract, under which you will purchase my used bicycle for $400.00. I am an experienced biker rider. You have never rode a bike before. Before we enter the agreement, you are concerned whether the fact that the bike is used may present a safety issue. I represent to you that the brakes on the bike “work just fine.”

In reality, I have no idea whether they work at all, since I have not used the bike in over a decade, possibly because there was a brake problem. I then put my representation in writing into the contract. The buyer, acting on the specific representation that the brakes are working fine, purchases the bike and takes it out for a test drive. Suppose that one minute into the buyer’s riding the bike, the brakes fail. The buyer must now have the brakes replaced for the bike to pass a state mandatory inspection.

Under these hypothetical facts, I have committed negligent misrepresentation. You relied on a representation I carelessly made, my bothering to confirm if it was really true. You, an experienced bike rider, had reason to rely on my representation that the brakes worked. As a result of the misrepresentation, you injured yourself.

What is Negligent Misrepresentation in Real Estate Law?

In the real estate context, negligent misrepresentation can occur when a seller or real estate agent makes a false statement about a piece of property. A plaintiff relies on the false statement, to their detriment.

An example of this is when a prospective buyer asks a seller about whether any of the neighbors engage in loud activities in the evening. The agent, not knowing the answer, assumes the answer is “yes,” and, in wanting to just close the deal, tells the buyer “yes,” and puts that answer into the contract.

On the basis of the agent’s careless assumption, the buyer purchases the house. The buyer, after purchasing the house, is disturbed in their sleep by the loud nightly noises. The agent, by failing to learn the true facts about the neighbor’s evening activities, has committed negligent misrepresentation.

What Remedies are Available for Victims of Negligent Misrepresentation?

A victim of negligent misrepresentation in a contract may sue in court to recover money damages caused by the misrepresentation. For example, the buyer of the bike with the brakes that did not work, may sue the seller for the money the buyer had to pay for the brake inspection. In a breach of contract case for negligent misrepresentation, damages are generally limited to financial damages. Courts do not award damages for personal injury, emotional injury, or pain and suffering in these cases

The victim may also be entitled to an equitable remedy. An equitable remedy is a non-monetary remedy to which a prevailing party may be entitled. One type of equitable remedy is known as contract rescission. Contract rescission occurs when a court orders that a contract be cancelled. Canceling the contract terminates the contract. Under a rescission, a buyer receives a refund, and the seller gets back the property they sold. The purpose of the remedy of rescission is to place each party in the status they were in before the contract was made.

Do I Need a Lawyer If I Am a Victim of Negligent Misrepresentation?

If you believe you have been the victim of negligent misrepresentation, you should consider contacting a business attorney. This type of lawyer concentrates their practice in (among other areas) business disputes, breach of contract, contract drafting, and contract review.

An experienced business attorney near you can evaluate the facts of your case. The attorney can advise you as to whether you may be able to prove, using admissible evidence in court, that defendant made a false statement you relied on, to your detriment. This attorney can assist you with gathering evidence, and can represent you at negotiations and in court proceedings.