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Lack of Reasonable Reliance as a Defense for Business Misrepresentation

Even the best businesses are susceptible to claims of misrepresentation, especially when selling goods or property. But there are defenses available for businesses facing this type of claim in Michigan.

One defense against a misrepresentation claim is a lack of “reasonable reliance” or “justifiable reliance.” How does this defense work, and when can a business use it effectively against a misrepresentation claim?

What is misrepresentation?

In general, misrepresentation occurs when a plaintiff relies on and suffers damages from a defendant’s false statement. The defendant may know that their statement is false, or they may have made the statement without knowing if it was true or not.

Under Michigan law, a plaintiff claiming misrepresentation against a business must prove that (1) the business made a material representation; (2) this representation was false; (3) the business either knew it was false or recklessly stated it without knowledge of its truth; (4) the business made the representation with the intent that the plaintiff would act upon it; and (5) the plaintiff did act, suffering damages as a result.

For example, a vendor selling expensive black jackets might falsely tell a buyer that they are blue to make a sale. Alternatively, they might state that the jackets are blue without knowing if their statement is true. The buyer in either case may be able to make a claim of misrepresentation against the seller.

What is reasonable reliance?

In Michigan, misrepresentation also requires a plaintiff to prove that their reliance on the representation was “reasonable” given the circumstances (see Nieves v Bell Indus, Inc, 204 Mich App 459, 464 (1994)). In other words, a business-defendant may use a lack of “reasonable reliance” as a defense when the plaintiff could not have reasonably relied on their statement.

Specifically, Michigan courts have ruled that a lack of reasonable reliance may be an effective defense when the plaintiff:

  • Had information they chose to ignore (see Novak v Nationwide Mut Ins Co, 235 Mich App 675, 599 (1999)).
  • Signed a contract with details that contradicted the defendant’s oral statement (see Novak).
  • Possessed knowledge that the statement was false (see Nieves).
  • In some cases, had the ability to discover that the statement was false (see Cummins v Robinson Twp, 283 Mich App 677, 770 (2009)).

Consider the case of Farris v Am Creditors Life Ins Co, where a plaintiff bought an automobile and later brought a misrepresentation claim against an automobile salesman regarding disability insurance benefits. The plaintiff had previously signed a contract with the salesperson confirming that disability insurance was “not applicable” to their situation. Thus, the plaintiff could not claim that they had “reasonably relied” on the salesperson’s promises to the contrary (see Farris v Am Creditors Life Ins Co, No 258980, 2006 WL 1290421, at *2–3 (Mich Ct App May 11, 2006) unpublished).

Using lack of reasonable reliance as a defense

A lack of reasonable reliance can be a powerful defense for businesses facing misrepresentation claims. If you are facing a misrepresentation claim and want to know more about this defense, contact the experienced attorneys of Drew Cooper & Anding at (616) 454-8300.

Amanda Narvaes

Amanda Narvaes

Amanda P. Narvaes, a Partner, joined Drew Cooper & Anding in 2011. Ms. Narvaes is a civil litigator in the areas of complex commercial litigation, lender liability, copyright litigation, and consumer protection. She graduated cum laude from Carleton College with a bachelor’s degree in history. She earned her law degree at WMU-Thomas M. Cooley Law School, graduating magna cum laude, and received Cooley’s Distinguished Student Award. Ms. Narvaes represents clients before Michigan trial courts across the state and in the Michigan Court of Appeals, and before the United States District Courts for the Western and Eastern District of Michigan. Ms. Narvaes has been a guest speaker in Ron Foster’s “Litigation for Paralegals” class. Ms. Narvaes discusses differences between Federal civil discovery rules and Michigan civil discovery rules.