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Also known as:Restatement (Second) of Torts section 552 · §552 · § 552 · negligent misrepresentation
Written by attorneys · grounded in primary & secondary sources — see below
A rule prescribing the measure of damages recoverable for negligent misrepresentation in the supply of information for business transactions. The measure compensates the plaintiff for pecuniary loss legally caused by reliance on the misrepresentation, including the difference between value received and value given plus other consequential pecuniary losses. The rule excludes recovery of the benefit of the plaintiff's contract with the defendant.
Sources & Authorities
How it applies
Common Examples
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Bank Loan Based on Faulty Appraisal
Mountain Campus relied on an enrollment forecast prepared by Delta Education and extended a twelve-million-dollar construction loan to Liberty School. After the campus underperformed, the bank foreclosed and recovered only seven million dollars on the sale of the property while incurring sixty thousand dollars in due diligence costs. The court awarded the bank the difference between the loan amount advanced and the property's realized value plus its out-of-pocket expenses but denied any claim for the interest the loan would have earned if fully performed.
Office Building Purchase Relying on Appraisal
Delta Housing obtained a copy of Republic Estates' appraisal stating that major tenant leases were long-term and stable and paid ten million dollars for the building. After closing, several key tenants terminated and an independent valuation showed the property was worth only seven million dollars solely because of the shortened leases. The court permitted recovery of the three-million-dollar difference in value but refused any additional recovery measured by expected rental income under the purchase contract.
Select any source to read its text and confirm it supports the definition.
Restatements
Casebooks
Airline Economic Loss from Rail Spill
People Express Airlines suffered a shutdown when Consolidated Rail released a chemical cloud near its terminal. The airline lost ticket revenue and incurred extra expenses to reroute passengers and maintain operations. The court allowed recovery of those documented pecuniary losses shown to be a direct consequence of reliance on the railroad's failure to contain the hazard.
People Express Airlines, Inc. v. Consolidated Rail Corp.(1985) 100 N.J. 246 [495 A.2d 107]
Investor Reliance on Audit Opinion
Investors purchased stock in a company after reading Arthur Young's unqualified audit opinion included in the annual report. When the company later filed for bankruptcy, the investors lost their entire investment. The court limited recovery to the difference between the price paid and the actual value of the shares at purchase and denied any claim for expected profits from holding the stock.
Bily v. Arthur Young & Co.834 P.2d 745 (Cal. 1992)
Publisher's Statement on Coach Conduct
A university coach relied on a magazine article that quoted a source claiming the coach had fixed games. After the article appeared, the coach lost endorsement contracts and speaking fees. The court measured damages by the actual pecuniary loss the coach proved resulted from the false statement rather than any anticipated future earnings from those contracts.
Curtis Publishing Co. v. Butts388 U.S. 130, 164 (1967)
Pension Fund Reliance on Offering Statement
A pension fund purchased bonds after reviewing Omnicare's registration statement that omitted known regulatory risks affecting drug sales. When the risks materialized, the bonds declined sharply in value. The court permitted recovery of the difference between the price paid and the bonds' true value at purchase but excluded any recovery for the interest or gains the fund expected under the bond indenture.
Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund575 U.S. 175, 183–184 (2015)
Common questions
Frequently Asked
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What measure of damages applies to a negligent misrepresentation claim under the Restatement?+
The rule awards the difference between the value received and the value given in the transaction plus any additional pecuniary loss that is a legal consequence of reliance. It does not award the benefit of any contract the plaintiff formed with the defendant.
Supporting sources
Does the rule permit recovery of lost profits or expected interest from a third-party contract?+
No. The rule expressly excludes the benefit of the plaintiff's contract with the defendant. Only out-of-pocket losses and consequential pecuniary harms caused by reliance are recoverable.
Supporting sources
When is reliance on a negligent misrepresentation considered justifiable?+
Reliance is justifiable when the recipient is not negligent in relying and the information was supplied for the recipient's guidance in a transaction of the type in which reliance occurred. A prominent disclaimer limiting use to another party can defeat justifiable reliance by a third-party user.
Supporting sources
834 P.2d 745 (Cal. 1992)Torts
…1983, the company filed for bankruptcy. Plaintiffs lost their investment. Plaintiffs sued Arthur Young for negligence, negligent misrepresentation, and fraud. The jury returned a verdict in favor of plaintiffs on the negligence and negligent misrepresentation causes of action. The trial court granted judgment notwithstanding the…