A business tort is not a chocolate cake you bring to the office, Part 2: misrepresentation
As a general matter, misrepresentation = a consumer was told a fact (not an opinion) about a product that misled the consumer into buying the product. Put another way, if the manufacturer flat out lies about a key quality of the product to get the consumer to buy it, the manufacturer exposes itself to misrepresentation liability. Normal sales puffery such as “this machine will last for years and years” is not enough to create misrepresentation liability - facts are the key. Specifically, you will always need (a) the manufacturer to make a “representation of fact” to the consumer; (b) the representation must be false; and (3) the consumer relied, to her detriment, on the false representation.
Wisconsin recognized three specific types of misrepresentation classifications, which we’ll take a peek at: (1) intentional misrepresentation (aka fraud); (2) negligent misrepresentation; and (3) and strict liability.
Intentional Misrepresentation - fraud requires, in addition to the original three elements, that the manufacturer know his statements are false and that s/he intended to deceive the consumer. All of these elements sound avoidable because it simply requires a seller to not lie.
However, things are not that simple - in some cases, the producer has a duty to disclose latent defects in a product. The rub here is that there is no clear-cut rule on when this duty exists. The lesson: if there is some huge gap in bargaining power between the manufacturer and the consumer, a duty to disclose probably exists on behalf of the manufacturer. From a sales standpoint, the duty to disclose is pure torment. Generally speaking, if a product has a latent defect, either don’t sell it or disclose it.
Negligent misrepresentation - obviously, negligence is required with this flavor of misrepresentation. The required negligence must occur in the making of the representation - the key is that everyone doing sales/etc must be made fully aware of benefits and drawbacks of product, otherwise, a manufacturer may be held liable for its negligence in not notifying sales staff of those facts.
Strict Liability misrepresentation - always bad news for a business. Negligence and state of mind do not matter; if the manufacturer or seller should have had personal knowledge of the details and the product and stood to gain financially from the sale, strict liability exists.
Misrepresentation liability is, from a business standpoint, somewhat nebulous. Yet, it is also possesses some clarity. As always, it’s good to check with an attorney as to what passes muster and what does not. I mention “preventative medicine” for businesses and this is a prime area for such measures.
Chris Moander is an Attorney handling business law matters, business litigation, and collections matters throughout Wisconsin.
