Restatement 2d Torts § 525. Liability For Fraudulent Misrepresentation.

Facts

Restatemebt 2d Torts § 525. Liability For Fraudulent Misrepresentation.

One who fraudulently makes a misrepresentation of fact, opinion, intention or law for the purpose of inducing another to act or to refrain from action in reliance upon it, is subject to liability to the other in deceit for pecuniary loss caused to him by his justifiable reliance upon the misrepresentation.

Comment:
a. The rules that determine the fraudulent character of a misrepresentation are stated in §§ 526-530. The rules that deal with the requirement that the representation must be made for the purpose of inducing that conduct of the other from which his harm results are stated in §§ 531-536. The rules that determine whether the recipient of the misrepresentation is justified in relying upon it are stated in §§ 537-545. The measure of damages is stated in § 549.

As to the liability for negligent misrepresentation inducing reliance that causes pecuniary loss, see § 552. As to innocent misrepresentation, see § 552C.

b. Misrepresentation defined. “Misrepresentation” is used in this Restatement to denote not only words spoken or written but also any other conduct that amounts to an assertion not in accordance with the truth. Thus, words or conduct asserting the existence of a fact constitute a misrepresentation if the fact does not exist.

Illustration:

1. A, a dealer in used automobiles, offers a second-hand car for sale in his showroom. Before doing so he turns the odometer back from 60,000 to 18,000 miles. B, relying on the odometer reading, purchases the car from A. This is a misrepresentation.

c. A representation of the state of mind of the maker or of a third person is a misrepresentation if the state of mind in question is otherwise than as represented. Thus, a statement that a particular person, whether the maker of the statement or a third person, is of a particular opinion or has a particular intention is a misrepresentation if the person in question does not hold the opinion or have the intention asserted.

d. Representations of fact, opinion and law. Strictly speaking, “fact” includes not only the existence of a tangible thing or the happening of a particular event or the relationship between particular persons or things, but also the state of mind, such as the entertaining of an intention or the holding of an opinion, of any person, whether the maker of a representation or a third person. Indeed, every assertion of the existence of a thing is a representation of the speaker's state of mind, namely, his belief in its existence. There is sometimes, however, a marked difference between what constitutes justifiable reliance upon statements of the maker's opinion and what constitutes justifiable reliance upon other representations. Therefore, it is convenient to distinguish between misrepresentations of opinion and misrepresentations of all other facts, including intention.

A statement of law may have the effect of a statement of fact or a statement of opinion. It has the effect of a statement of fact if it asserts that a particular statute has been enacted or repealed or that a particular decision has been rendered upon particular facts. It has the effect of a statement of opinion if it expresses only the actor's judgment as to the legal consequence that would be attached to the particular state of facts if the question were litigated. It is therefore convenient to deal separately with misrepresentations of law.

e. Representation implied from statement of fact. A misrepresentation of fact may concern either an existing or past fact. A statement about the future may imply a representation concerning an existing or past fact. (See Comment f). To be actionable, a misrepresentation of fact must be one of a fact that is of importance in determining the recipient's course of action at the time the representation is made. Thus a statement that a horse has recently and consistently trotted a mile in less than two minutes may justifiably be taken as an implied assertion of the capacity of the horse to repeat the performance at the time the statement is made. So, too, a past fact may be one that makes it obligatory or advisable for the recipient to take a particular course of action, as when A falsely tells B that he has caused the arrest of a criminal for whose arrest B has offered a reward, or when in an insurance policy the insured has falsely stated that his father did not die of tuberculosis. A fraudulent misrepresentation of such a fact may be the basis of liability.

f. Representation implied from statement promissory in form. Similarly a statement that is in form a prediction or promise as to the future course of events may justifiably be interpreted as a statement that the maker knows of nothing which will make the fulfillment of his prediction or promise impossible or improbable. Thus a statement that a second-hand car will run fifteen miles on a gallon of gasoline is an implied assertion that the condition of the car makes it capable of so doing, and is an actionable misrepresentation if the speaker knows that it has never run more than seven miles per gallon of gasoline.

Illustrations:

2. A, in order to induce B to buy a heating device, states that it will give a stated amount of heat while consuming only a stated amount of fuel. B is justified in accepting A's statement as an assurance that the heating device is capable of giving the services that A promises.

3. A, knowing that the X Corporation is hopelessly insolvent, in order to induce B to purchase from him shares of its capital stock assures B that the shares will within five years pay dividends that will amount to the purchase price of the stock. B is justified in accepting these statements as an assurance that A knows of nothing that makes the corporation incapable of making earnings sufficient to pay the dividends.

g. Representation implied from statement as to past events. On the same basis, a statement that a particular condition has recently existed or that an event has recently occurred or that a particular person has recently by words or acts expressed a particular opinion or intention, may, if reasonable under the circumstances, be understood and accepted as asserting that the situation has not changed since the time when the condition is said to have existed, the event to have occurred or the opinion or intention to have been expressed.

Illustrations:

4. A, in order to induce B to buy a horse, falsely states that a veterinary surgeon a week before had examined the horse and had pronounced it sound. Unless B knows of something that might have changed the horse's condition in the interim, B is justified in interpreting A's statement as implying that the horse is sound at the time of the sale.

5. A tells B that C had the day before offered him $2000 for a particular piece of land. In the absence of anything known to him that might indicate the contrary, B is entitled to assume that C's opinion as to the value of the land is unchanged.

h. Misrepresentation causing physical harm. This Section (and this Chapter) covers pecuniary loss resulting from a fraudulent misrepresentation, and not physical harm resulting from the misrepresentation. As to the latter, see § 557A, which also covers the economic loss deriving from the physical harm. This type of economic loss is not intended to be included in the term, pecuniary loss, as used in this Chapter. See also § 310 (liability in negligence for a conscious misrepresentation involving risk of physical harm) and § 311 (negligent misrepresentation involving risk of physical harm).