Misrepresentation in general is a legal term that means "a false statement of fact that has the effect of inducing someone into a contract." For example, telling someone a stereo is "practically new" so that they buy it, when it is in fact 5 years old and heavily used.
Negligent misrepresentation is one of the three recognized varieties of misrepresentations in contract law (along with innocent and fraudulent misrepresentation). Basically, it means that you did not directly lie (say something you KNOW to be false), but you made a representation about something while having no reasonable reasons for believing it to be true, such as when Sygenta claimed that its GMO corn could be sold in all major markets for American-grown corn.
Example: A real estate broker tries to sell a house to a buyer, who stresses his need for peace and quiet. The broker promises that the house is very quiet. In reality, the house next door is undergoing a very noisy reconstruction. Although the broker did not know this, her promise that the house was quiet was made without her having any reason to believe that that was the case. She simply assumed it. This would be a negligent misrepresentation (had she known about the construction and lied about it, however, that would be a much more serious fraudulent misrepresentation).
What Constitutes Negligent Misrepresentation?
The essential elements of a claim of negligent misrepresentation are:
- Someone made a false representation as to a past or existing fact. Statements about the future do not count, nor do opinions or typical "car-salesman" type phrases ("This is a great car," "This is a real deal," and the like).
- The person making the belief must have no reasonable ground for believing it to be true. So in the real estate broker example, if the broker had lived in the house for 10 years, and always found it to be quiet in the past, then her misrepresentation would not have been negligent (in that case it would have been an innocent misrepresentation).
- The representation must have been made with the intent to induce the other party to rely upon it. Basically, you had to be using your misrepresentation in order to help you make the deal.
- The other party must have believed the misrepresentation and reasonably relied on it. Most courts are hesitant to protect a buyer if he is unreasonable in relying on whatever the seller told him (for example, in trying to sell him a car, the seller assured him it could go "a million miles an hour," and the buyer believes this). The buyer must also rely partly (or in many courts, wholly), on the misrepresentation in deciding to go ahead with the transaction.
- As a result of the reliance on the misrepresentation, the other party suffered damages. This means the buyer must be actually harmed by the final transaction, otherwise there is no liability.
There is an important distinction to be made here, however. The more serious variety of misrepresentation (fraudulent misrepresentation, or fraud), has nearly identical elements, so the line between the two is very fine. The only difference is that fraudulent misrepresentation requires “reckless disregard” as to the truth of something”, while negligent disregard only requires “no reasonable ground” to assume something is true. It is essentially a matter of degree.
So in the real estate broker example, for instance, it was not a reckless disregard for the truth to say the house was quiet, since many homes may be considered so, even if it was negligent of her as a broker to discover this fact before making any claims.
But if the buyer had said “I am deathly allergic to common pine wood, is there any pine wood in this house?” and she had responded “no, not at all” when in fact she has no idea what kind of wood the house is made of, then this would be a reckless disregard for the truth of something, especially considering the possibly consequences.
Remedies for Negligent Misrepresentation
Misrepresentations are civil offenses, meaning you can only sue for them in civil court (the criminal equivalent of these offenses is called "false pretenses"). The general remedy in civil court for all types of misrepresentations is that of rescission. This means the court will act like the transaction or contract never existed, and everyone goes back to the way they were.
Example: You sell someone a stereo for $50 telling them that it is fully functional (which you think is true), and it turns out to be broken. The deal is rescinded; the buyer returns the stereo, and you return the money.
However, negligent misrepresentation is aptly named, as it requires negligence (which is by itself a separate civil offense) on the part of the perpetrator. It is therefore considered a more serious offense than mere innocent misrepresentation, and can have its own separate set of remedies under the tort of negligence. See that article for more details.
How Can an Attorney Help?
While negligent and fraudulent misrepresentation are serious civil offenses, they are also very difficult to prove. Demonstrating someone’s "intent" or past beliefs is always a tricky task, since most people will simply say "I didn't know it was a lie at the time!" If you have been the victim of a misrepresentation, an experienced contract lawyer will be essential in pursuing the case. Each state has its own laws regarding the topic, so a good business attorney will know how best to proceed and can explain what kind of remedies you can expect.