Opinion ID: 2507989
Heading Depth: 1
Heading Rank: 4

Heading: Formula for computing damages for negligent misrepresentation

Text: Many jurisdictions that have considered the appropriate standard of damages for negligent-misrepresentation causes of action have adopted damage formulations based upon out-of-pocket damages. [7] We join those jurisdictions and embrace the notion that damage awards in connection with negligent-misrepresentation cases include (1) the difference between the value of what the plaintiff received in the induced transaction and the value given for it, [8] and (2) pecuniary loss sustained in consequence of the plaintiff's reliance upon the false representation. [9] Goodrich asks us to adopt a benefit-of-the-bargain formula for damages. This court has defined benefit-of-the-bargain damages in the fraud context as the value of what [the plaintiff] would have received had the representations been true, less what he actually received. [10] This damage measure is akin to damages available in a contract action for breach of warranty. [11] The benefit-of-the-bargain rule is a punitive measure which compels [a] party guilty of fraud to make good his or her representations, and under its operation, the parties are placed in the same position as if the contract and representations had been fully performed. [12] We reject this damage formulation in favor of the out-of-pocket formula for cases of negligent misrepresentation. In BDO Seidman, LLP v. Mindis Acquisition, [13] a case with facts similar to those presented here, the Georgia appellate court drew the following distinction between the two formulas: The out-of-pocket measure of damages ... seeks to place the injured party in the same place it would have been had there been no injury or breach of duty.... A benefit-of-the-bargain standard gives the wronged party the benefit of the contract he made, but it also ensures that the fraudfeasor does not enjoy any fruits of his misdeeds. The dual purposes of this standard have no application in a negligent misrepresentation case where there was no privity because the defendant was not a party to the transaction and thus, has not been unjustly enriched. [14] We agree with the Georgia court in drawing a distinction between fraud and negligence for the purpose of awarding damages, particularly when the defendant, for consideration, negligently performs a service, which serves to induce the plaintiff into a failed or flawed transaction with a third party. Here, the district court found no fraud in connection with the appraisal. Further, Woolard was not a party to the failed loan transaction and was not, as in the context of a fraud committed as between parties to a transaction, unjustly enriched. Accordingly, we hold that the out-of-pocket formula applies in this instance.