Burke v. Harman, 574 N.W.2d 156

Nebraska Court of Appeals

1998

Chapter

21

Title

Misrepresentation

Page

855

Topic

Damages

Quick Notes

A Navajo chiefs blanket was misrepresented to be a Mexican blank that was eventually sold for $290,000. 

Book Name

Torts Cases, Problems, And Exercises.  Weaver, Third Edition.  ISBN:  978-1-4224-7220-0.

Issue

o         Whether the trial court error in directing a verdict for fraudulent misrepresentation?  Yes.  Because out-of-pocket expense comes from Negligent misrepresentation.

Procedure

Trial

o         Trial Court Directed Verdict

Appellant

o         Reversed (directed verdict for fraudulent) and Remanded For a New Trial

Facts

Reasoning

Rules

Pl Burke

Df Harman

What is Ute Style?

o         A Navajo chief's blanket, first phase, Ute style, is a rare and beautiful object because of its historical and ethnographic significance, as well as its art; all of which add to the blanket's great value.

o         Such blankets were hand-woven by Navajo women before 1850.

o         The Ute Indians, with whom the Navajos traded, preferred the ivory, chocolate brown (natural colors from the wool), and indigo (naturally dyed) stripe pattern seen on this blanket--hence the name "Ute style."

What Happened?

o         The plaintiff, John Burke, acquired such a blanket by purchase for $ 115 from an antique mall in Lincoln.

o         He sold the blanket to the defendant, Kenneth Harman, for $ 1,000.

o         Harman sold the blanket to an individual in New York for $290,000.

o         Burke has sued Harman for $289,000, claiming that Harman falsely or negligently misrepresented the blanket as a substantially less valuable Mexican weaving.

Harmans Position

o         Fraudulent misrepresentation cases

o        One was entitled to profits, i.e., expectancies;

o         Negligent misrepresentation cases,

o        The law limits recovery to "out-of-pocket"; and that the plaintiff is "not going to get you the profits you would have made if you hadn't been injured."

Trial Court Directed Verdict

o         The court granted Harman's motion for a directed verdict on the theory of negligent misrepresentation, and the case was submitted to the jury only on fraudulent misrepresentation.

Trial Court Use the Restatement, since nothing is found in Nebraska Case Law.

552B Damages for Negligent Misrepresentation

         (1) The damages recoverable for a negligent misrepresentation are those necessary to compensate the plaintiff for the pecuniary loss to him of which the misrepresentation is a legal cause, including

o        (a)  the difference between the value of what he has received in the transaction and its purchase price or other value given for it; and

o        (b)  pecuniary loss suffered otherwise as a consequence of the plaintiff's reliance upon the misrepresentation.

o         (2)  the damages recoverable for a negligent misrepresentation do not include the benefit of the plaintiff's contract with the defendant.

549 Measure of Damages for Fraudulent Misrepresentation

         (1) The recipient of a fraudulent misrepresentation is entitled to recover as damages in an action of deceit against the maker the pecuniary loss to him of which the misrepresentation is a legal cause, including

o        (a)  the difference between the value of what he has received in the transaction and its purchase price or other value given for it; and

o        (b)  pecuniary loss suffered otherwise as a consequence of the recipient's reliance upon the misrepresentation.

o         (2)  The recipient of a fraudulent misrepresentation in a business transaction is also entitled to recover additional damages sufficient to give him the benefit of his contract with the maker, if these damages are proved with reasonable certainty.

Negligent Misrepresentation

o         It is not whether the truth is known, but, rather, whether reasonable care or competence was exercised in obtaining or communicating the information which forms the alleged misrepresentation.

In this case,

o         Burke's alleged misrepresentation is what Harman said the blanket was and what it was worth.

Amorphous Difference between Out-Of-Pocket vs Benefit of Bargan Rule

Out-Of-Pocket Rule

The out-of-pocket rule looks to the loss which the plaintiff has suffered in the transaction, and gives him the

o         Difference between the value of what he has parted with and the value of what he has received.

o         The loss is usually measured as the difference between what the plaintiff parted with and what the plaintiff received.

Benefit of Bargain Rule

o         The benefit of the bargain rule gives the plaintiff the benefit of what he was promised, and allows recovery of the difference between the actual value of what he has received and the value that it would have had if it had been as represented.

Court Difference between out-of-pocket and benefit of the bargain is amorphous (indefinite, lacking shape)

Courts Calculation Example

o         Burke seeks $ 289,000, which is the difference between the value parted with at the time of the misrepresentation and the value of what he received in return,$1,000 in cash.

Trial Courts Instruction

o         The court instructed the jury that if it found for Burke, it must return a verdict of $ 289,000.

o         In short, the trial court directed what the amount of a verdict would be--a finding as a matter of law as to Burke's out-of-pocket damages--should liability on fraudulent misrepresentation be found.

Court not benefit of the bargain, but a real loss

o         Burke walked into Harman's house with a blanket, which, by stipulation, was worth $290,000.

o         He left Harman's house with $ 1,000 because of a fraudulent or negligent misrepresentation, according to his evidence.

o         Thus, under the parties' stipulation, there is a real loss of $289,000.

Courts Conclusion Trial Court Erred

o         The district court erred in concluding that Burke's damages were not recoverable under negligent misrepresentation, and thereby, the trial court erred in directing a verdict on that claim and refusing to submit the theory of negligent misrepresentation to the jury.

Rules

552B Damages for Negligent Misrepresentation

o         (1) The damages recoverable for a negligent misrepresentation are those necessary to compensate the plaintiff for the pecuniary loss to him of which the misrepresentation is a legal cause, including

o        (a)  the difference between the value of what he has received in the transaction and its purchase price or other value given for it; and

o        (b)  pecuniary loss suffered otherwise as a consequence of the plaintiff's reliance upon the misrepresentation.

o         (2)  the damages recoverable for a negligent misrepresentation do not include the benefit of the plaintiff's contract with the defendant.

549 Measure of Damages for Fraudulent Misrepresentation

o         (1) The recipient of a fraudulent misrepresentation is entitled to recover as damages in an action of deceit against the maker the pecuniary loss to him of which the misrepresentation is a legal cause, including

o        (a)  the difference between the value of what he has received in the transaction and its purchase price or other value given for it; and

o        (b)  pecuniary loss suffered otherwise as a consequence of the recipient's reliance upon the misrepresentation.

o         (2)  The recipient of a fraudulent misrepresentation in a business transaction is also entitled to recover additional damages sufficient to give him the benefit of his contract with the maker, if these damages are proved with reasonable certainty.

Element Fraud based on Misrepresentation

1.       a representation; - Yes

2.       thats false and;  - Not sure

3.       its materiality;  - Yes

4.       Defendants knowledge of the falsity or a reckless disregard (scienter);  Scienter - Bad state of mind   - not sure

5.       intent that the representation be acted upon;   (Same as intent to deceive) not sure

6.       the Pl's ignorance of its falsity;  - Yes

7.       the Pl's justifiable reliance upon the truth;  - Yes

8.       the hearer's right to rely thereon; and   - yes

9.       the Damages where proximate injury.  - $289,000

Class Notes