In Martens Chevrolet v. Seney, 292 Md. 328 (1982), the Court of Appeals affirmed the existence of a tort of negligent misrepresentation in Maryland separate from the tort of fraud/deceit.
The Court interpreted the record in the light most favorable to the plaintiffs in rendering its ruling, since the trial court entered on the count of negligent misrepresentation a directed verdict at trial. In the Court’s factual summary, would-be buyers of a car dealership received from the sellers an informal financial statement to the effect that the dealership was mildly profitable and, believing that they could make a weak but technically profitable business better, agreed to purchase and ultimately purchased the dealership. The sellers’ accountants had prepared more rigorous financial statements that showed very substantial losses, but the sellers did not provide those statements to the buyers nor any notice of their existence. Upon learning of the true financial position of the dealership. the plaintiffs sued for inter alia deceit and negligent misrepresentation.
The Court noted that at common law, no tort of negligent misrepresentation existed; one needed to prove outright fraud or deceit in order to prevail. In 1938, the Court of Appeals did recognize a tort of negligent misrepresentation in cases where there was a physical injury, but by implication the holding in that case, Virginia Dare Stores v. Schuman, 175 Md. 287 (1938), was limited to physical injury. The Court allowed for pecuniary losses from negligent misrepresentation in the 1960s, but expressed some reason for doubt regarding the viability of that tort in a prior case Delmarva Drill Co. v. Tuckahoe Shopping Center, 268 Md. 417 (1973). In this case, the Court overruled Tuckahoe to the extent that it appeared to eliminate the tort of negligent misrepresentation.
The Court proceeded to state the elements of the tort of negligent misrepresentation:
(1) the defendant, owing a duty of care to the plaintiff, negligently asserts a false statement;
(2) the defendant intends that his statement will be acted upon by the plaintiff;
(3) the defendant has knowledge that the plaintiff will probably rely on the statement, which, if erroneous, will cause loss or injury;
(4) the plaintiff, justifiably, takes action in reliance on the statement; and
(5) the plaintiff suffers damage proximately caused by the defendant’s negligence.
and emphasized that it was permissible to plead both deceit and negligent misrepresentation in the same pleading under the Maryland Rules. The Court ruled that the Circuit Court erred in entering a directed verdict on the negligent misrepresentation tort against the plaintiffs, in that the evidentiary record was sufficient to allow a jury to find in favor of the plaintiffs and that the tort did indeed exist in this State. The Court also entered rulings on more collateral evidentiary issues in the case on remand.
This case matters for four reasons. First, it represents the development of Maryland common law in derogation of, or supplement to, the common law of England as it stood on Independence Day 1776, which law is until changed by statute or ruling an entitlement of the people of Maryland. Second, it represents an effort by the Court to reverse a (mis?)interpretation of its fairly recent prior precedent. Third, it moves the public policy of Maryland away from the overall rule of caveat emptor to a rule mandating the same sorts of duties of reasonably prudent care in speech inducing reliance that we apply in the most of the rest of human endeavors. Finally, it does a nice job (as the Court of Appeals often does in its “signaling” cases) of providing to the law student or practitioner a concise black-letter law kernel for pleadings and practice going forward.