Negligent misrepresentation: Overview, definition and example
What is negligent misrepresentation?
Negligent misrepresentation happens when one party provides false information in a contract or business deal because they failed to take reasonable care in verifying its accuracy. Unlike fraudulent misrepresentation, it doesn’t involve lying on purpose. Instead, it’s about carelessness—one party makes a statement they believe to be true but should have known was incorrect if they had done proper due diligence.
Even though there’s no intent to deceive, negligent misrepresentation can still lead to legal consequences if it causes financial harm to the other party.
Why is negligent misrepresentation important?
Negligent misrepresentation is important because it holds parties accountable for being careless with critical information. In business, decisions often rely on trust and accurate facts. If one side provides inaccurate information without verifying it, and the other party suffers a loss as a result, they can seek legal remedies such as canceling the contract or claiming damages.
This concept reminds businesses to check their facts and ensure the information they provide is accurate. It also highlights the risks of relying on unverified claims in negotiations.
Understanding negligent misrepresentation through an example
Imagine a property developer selling a commercial building to a business. The seller states that the building’s zoning allows for industrial use. They didn’t check the latest zoning laws but assumed the information from a previous sale was still valid. The buyer relies on this statement, only to find out after the purchase that industrial use isn’t allowed. The seller didn’t lie intentionally, but their failure to confirm the zoning laws makes this negligent misrepresentation.
Another example could involve a supplier assuring a manufacturer that their parts meet specific safety standards without verifying the claim. If the parts fail and cause the manufacturer financial harm, the supplier may be held responsible for negligent misrepresentation.
An example of a negligent misrepresentation clause
Here’s how a clause addressing negligent misrepresentation might look in a contract:
“Each party represents that the information provided in connection with this Agreement is accurate to the best of their knowledge. Any negligent misrepresentation resulting in material harm shall entitle the injured party to seek appropriate remedies under the law.”
Conclusion
Negligent misrepresentation occurs when false information is provided due to carelessness, not intentional deceit. While it may not involve bad intentions, the consequences can still be serious if the other party suffers harm because of the incorrect information.
For businesses, this highlights the importance of verifying all claims and information before making promises or entering agreements. Understanding negligent misrepresentation helps ensure fairness and accountability in business dealings while reducing the risk of costly mistakes.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.