Blog & News

Does the Buyer Have a Right to Rely?

August 21, 2017 Posted in Blog

In 2010, the Florida Supreme Court case of Butler v. Yusem [44 So. 2d 102 (Fla. 2010)] distinguished fraudulent misrepresentation from negligent misrepresentation, specifically in regard to the element of reliance. To prove a fraudulent misrepresentation, it is not necessary to establish justifiable reliance. There must merely be reliance. The Court stated:

a recipient may rely on the truth of a representation, even though its falsity could have been ascertained had he made an investigation, unless he knows the representation to be false or its falsity is obvious to him. As we have explained, the policy behind our holding in Besett is to prohibit one who purposely uses false information to induce another into a transaction from profiting from such wrongdoing.

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The same reasoning does not apply, however, when a party transmits false information but is not aware of the falsehood, giving rise to a negligent misrepresentation claim. As to negligent misrepresentation claims, although justifiable reliance on the misrepresentation is required as an element of the claim, justifiable reliance on a representation is not the same thing as failure to exercise due diligence. One does not necessarily translate into the other.

In citing Gilchrist, the Court went on to say that

While a recipient of information will not have to investigate every piece of information furnished, he or she is responsible for investigating information that a reasonable person in the position of the recipient would be expected to investigate. Thus, a recipient of an erroneous representation cannot “hide behind the unintentional negligence of the misrepresenter when the recipient is likewise negligent in failing to discover the error. (citations and quotes omitted)

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In a recent case before the federal district court for the middle district of Florida [Mendez v. Land Investment Corp., 2014 WL 68486 (M.D. Fla. 2014)], the court dealt with a situation involving the sale of lots to French investors.

The promoters advised the plaintiff French investor that the value of the lots “would double or triple within three years” and “the lots were a much better investment than the rental income property plaintiff sought.”

subdivision lots

The court reviewed Gilchrist’s finding that justifiable reliance “does not require the recipient of information to investigate every piece of information furnished, however, the recipient is responsible for ‘investigating information that a reasonable person in the position of the recipient would be expected to investigate.’”

The court found the plaintiff justifiably relied upon the sellers’ statements in her decisions to purchase the lots, even where she had an attorney confirm the existence of the lots: “Although further investigation may have been prudent, further diligence is not required. Because the misrepresentations came from seemingly credible sources and an investigation into the lots' existence was conducted, the Court concludes that a reasonable person would not be expected to conduct a more extensive investigation under similar circumstances.”

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