Negligent Misrepresentation Law Definition Elements & Defenses – California

Negligent misrepresentation may occur if a party to a contract makes an unwarranted and untrue assertion, believing the assertion to be true and intending to induce another party to enter into the contract. Civ. Code § 1572(2).


Negligent misrepresentation may also occur outside a contractual setting if a person asserts, as a fact, that which is not true, having no reasonable ground for believing it to be true, intending that the plaintiff rely upon the assertion. Civ. Code §§ 1709-1710.


When fraud occurs during contract formation or performance, a plaintiff may recover under both statutes. (Harris v. Atlantic Richfield Co. (1993) 14 Cal.App.4th 70.)

Note: Plaintiff must plead every element of the cause of action both factually and specifically. The policy of liberal construction of pleadings will not be invoked. (Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4th 513.)

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ELEMENT 1: Misrepresentation of Material Fact

The defendant must have made an untrue representation as to a past or existing material fact. (Oravecz v. New York Life Ins. Co. (2009) 174 Cal.App.4th 1114.)

Defendant Must Make A Positive Assertion

To state a cause of action for negligent misrepresentation, the defendant must have made a positive assertion. Civ. Code § 1572(2).

No Liability for Implied Negligent Misrepresentation

The statement must be an actual assertion. There is no liability for an implied negligent misrepresentation. (OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835.) (An implied assertion or representation is not enough).

Seller Stating He Is Unaware of Defects Is Merely An Implied Negligent Misrepresentation

A statement that a seller was not aware of any defects in a building’s foundation was not actionable; at most it was an implied negligent misrepresentation. (Robinson v. Grossman (1997) 57 Cal.App.4th 634.)

Publisher Not Liable for Statements Regarding Commercial Products

Generally, a publisher is not liable for statements regarding commercial products; however, the analysis of liability tends to be very fact specific. (McCulloch v. Ford Dealers Adver. Ass’n (1991) 234 Cal.App.3d 1385.)

Company Logo Not Enough to Constitute An Assertion

Although the defendant’s logo appeared on promotional materials for a race, the defendant was not liable when the promoters, who were clearly identified on the materials, failed to pay the winner. (Id.) (logo did not constitute an assertion that promoters’ statements were true; thus there was no affirmative statement on which to rely and no liability).

Opinion Statements May Be Treated as Positive Assertions of Fact

A statement in the form of an opinion may nevertheless be treated as a positive assertion of fact if it is “not a casual expression of belief” but “a deliberate affirmation of matters stated.” (Neu-Visions Sports v. Soren/McAdam/Bartells (2000) 86 Cal.App.4th 303.)

Predictions of the Future Are Not Actionable as Negligent Misrepresentations

The statement must relate to past or existing facts; predictions of the future are not actionable as negligent misrepresentation. (Public Employees’ Retirement System v. Moody’s Investors Service, Inc. (2014) 226 Cal.App.4th 643.)

Exception to Bar on Future Statements

A false statement of opinion as to the future made by one with knowledge of the facts may be actionable, but not as negligent misrepresentation. (Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th.)

Representations Must Be Made in the Course of One’s Business

Generally, the representation must be made in the course of one’s business or profession. (Garcia v. Superior Court (1990) 50 Cal.3d 728.)

A defendant may be liable for a statement made in the course of business or profession, even if furnished gratuitously, if the speaker intended the plaintiff to rely on it. (Id.)

Misrepresentations Involving Risk of Physical Harm

Where the misrepresentation involves the risk of physical harm, the duty to use reasonable care applies more broadly. There may be liability even if the statement is made gratuitously and results in no benefit to the speaker. (Id.) (parole officer told woman that parolee was not threatening her safety although parolee had in fact told officer he would harm the woman, and then did kill the woman).

ELEMENT 2: No Reasonable Ground for Believing Representation True

Regardless of the defendant’s actual belief, the defendant must have made the statement without any reasonable ground for believing it to be true (Civ. Code §1710) or in a manner not warranted by his information (Civ. Code §1572).

No Liability for A Reasonable Misrepresentation

There is no liability where defendant’s erroneous belief is reasonable. (Quality Wash Group V v. V Hallak (1996) 50 Cal.App.4th 1687.) 

Defendant Later Learns His Statements to Be False

If the defendant speaker learns his statements have become false, even if they were true when made, he must disclose the new conditions to the plaintiff relying on the original statement. (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858.)

ELEMENT 3: Intent that Plaintiff Rely

The representation must have been made with the intent to induce the plaintiff to act in reliance on it. Civ. Code § 1572.

Defendant Must Have Intended to Induce Reliance

A defendant is liable for damages arising from the action that defendant intended to induce. A defendant need only intend to induce reliance; he need not intend to deceive the plaintiff. (Murphy v. BDO Seidman (2003) 113 Cal.App.4th 687.)

Intent May Be Inferred

Intent can be inferred from the fact that defendant knew the plaintiff would act in reliance upon the representation. (Moncada v. West Coast Quartz Corp. (2013) 221 Cal.App.4th 768.)

Drug Manufacturer’s Intent to Induce Public to Use Drug

A drug manufacturer can be liable of indirect reliance by giving misrepresentations to physicians about the safety of its drug in order to get consumers to use it. (Lovejoy v. AT&T Corp. (2001) 92 Cal.App.4th 85.)

Defendant Liability to Third Parties

Whether a defendant is liable to a third party with whom he did not have direct contact depends on whether the defendant knew of the class to which the third party belonged and intended that members of that class rely on the defendant’s information. (Id.)

Contractual or Fiduciary Relationship Not Required

A contractual or fiduciary relationship is not necessary for liability. (Agricultural Ins. Co. v. Superior Court (1999) 70 Cal.App.4th 385.)

Defendant Need Not Know Plaintiff’s Actual Identity

The defendant need not know plaintiff’s actual identity. (Soderberg v. McKinney (1996) 44 Cal.App.4th 1760.) (court allowed investors to sue for faulty real estate appraisal).

Law Firm Can Be Liable to Lender for Client Opinion Letter

A lender could sue a law firm for an opinion letter it knew its client would be providing to the lender. (Anderson v. Deloitte & Touche (1997) 56 Cal.App.4th 1468.)

ELEMENT 4: Justifiable Reliance

The plaintiff must have relied on the representation and his reliance must have been justified. (Friedman v. Merck & Co. (2003) 107 Cal.App.4th 454.)

The plaintiff must have acted in reliance on the representation. (Id.)

Reasonableness of Reliance Is Generally a Question of Fact

Whether reliance is reasonable is generally a question of fact. (Broberg v. The Guardian Life Ins. Co. of America (2009) 171 Cal.App.4th 912.) The question and extent of reliance is generally one of fact. (Id.)

Reliance on Representations of Material Facts Will Be Presumed

Where representations have been made in regard to a material matter and action has been taken, in the absence of evidence to the contrary, reliance on the representation will be presumed. (McAdams v. Monier, Inc. (2010) 182 Cal.App.4th 174.)

Misrepresentations Affecting Physical Safety of the Plaintiff

When the misrepresentation could affect the physical safety of the plaintiff, the likelihood that the statements will be taken seriously is a primary factor. (Garcia v. Superior Court (1990) 50 Cal. 3d 728, 735.)

No Reliance If Plaintiff Knew Statement Was False at the Outset

The plaintiff could not possibly have relied on the defendant’s statement if plaintiff knew it to be false when he read it. (Gold v. Los Angeles Democratic League (1975) 49 Cal. App. 3d 365.) (plaintiff was political candidate backed by Democratic party who sued defendant for misrepresenting that another candidate was backed by Democratic party).

No Reliance Where Adoptive Parents Had Their Own Doctor to Examine Child

The parents of an adopted child failed to state a claim against the adoption agency when the child developed health problems. The parents could not have reasonably relied on the agency for information about the child’s health because they had their own doctor examine the child. (Richard P. v. Vista Del Mar Child Care Serv. (1980) 106 Cal. App. 3d 860.)

Publisher of Travel Guide Only Liable for Representations About Hotel

A publisher of a travel guide was not liable to a reader who was murdered in an area immediately outside a hotel recommended by the publisher’s guide. The ratings in the book related only to the accommodations and said nothing about the safety of the area. (Yanase v. Auto Club of Southern California (1989) 212 Cal.App.3d 468.)

ELELMENT 5: Causation and Damage

The plaintiff must suffer damages due to his reliance on the defendant’s representation. (Wilner v. Sunset Life Ins. Co. (2000) 78 Cal.App.4th 952.)

Plaintiff Must Prove Damages Were Due to Reliance on Misrepresentation

The plaintiff must prove that he suffered damages due to his reliance on the defendant’s representation. (Id.)

Limiting Defendant’s Liability

A defendant will be liable only for damages caused by the action he intended to induce. (Lovejoy v. AT&T Corp. (2001) 92 Cal.App.4th 85.)

Defendant’s Misrepresentations Need Not Be Sole Cause of Plaintiff’s Damage

The defendant’s misrepresentations need not be the sole cause of plaintiff’s actions if they substantially influenced them. (Veera v. Banana Republic, LLC (2016) 6 Cal.App.5th 907.)

REMEDIES FOR NEGLIGEGENT MISREPRESENTATION

Compensatory Damages

Where the misrepresentation is merely negligent rather than intentional, recovery is analogous to that available in negligence actions generally, which is the ability to recover compensatory damages. (Branch v. Homefed Bank (1992) 6 Cal.App.4th 793.)

No Emotional Distress Damages

Damages for emotional distress are not recoverable in an action for negligent misrepresentation when the injury other than the emotional distress is only economic. (Id.)

No Punitive Damages

Although punitive damages by definition are recoverable for the tort of deceit, it has been uniformly held that punitive damages are not recoverable in that branch of deceit which is mere negligence. (Id.)

STATUTE OF LIMITATIONS FOR NEGLIGENT MISREPRESENTATION

Because negligent misrepresentation is a form of fraud, the courts generally apply the three-year statute of limitations. Civ. Proc. Code § 338(4).


However, the court will consider the nature of the right sued upon, not just the form of the action, and at least two recent cases have applied a two-year statute of limitations. (Ventura County Nat’l Bank v. Macker (1996) 49 Cal.App.4th 1528.) (in negligent misrepresentation action against accountants, the cause of action was styled as fraud, which has a three-year limitations period under §338(d), but in essence the claim was professional negligence, which has a two-year limitations period under §339(1))

AFFIRMATIVE DEFENSES

Limited Statutory Immunity
Statutory immunity from liability did not apply to parole officer whose negligent misrepresentation regarding danger of parolee involved risk of physical harm. (Garcia v. Superior Court (1990) 50 Cal.3d 728.)


Generally, No Comparative Negligence Defense
Contributory negligence not a defense in negligent misrepresentation cases seeking equitable relief. (Storage Servs. v. Oosterbaan (1989) 214 Cal.App.3d 498.)

No Waiver Defense
All contracts which have for their object, directly or indirectly, to exempt any one from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law. Civ. Code § 1668.

Generally, No “As Is” Disclaimer Defense
Even an “as is” sales disclaimer does not necessarily confer on the seller a general immunity from liability for fraud. (Reveles v. Toyota by the Bay (1997) 57 Cal.App.4th 1139.)

Brad Nakase, Attorney


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