What happens if one party to a transaction gives the other party information which they believe to be accurate, but which they have not verified, and then the information turns out to be inaccurate?

The Oregon Supreme Court has held that in an arms-length transaction, one party cannot sue for economic losses arising from negligent misrepresentation by the other party. Also, importantly, there must be no facts showing that the party giving the information owed any duty to the other party by virtue of any contractual, professional, or employment relationship or as a result of any fiduciary or similar relationship implied in the law. An example of such a fiduciary relationship would be such as that between an attorney and his/her client. In the Oregon Supreme Court case, which involved a dispute regarding the terms of a real estate development agreement, the court stated that the relationship between the parties in the case was adversarial, and that in an arms-length negotiation, a negligent misrepresentation is not actionable. The injured party would be limited to suing for fraud, which requires a showing of intentional or reckless misrepresentation.

Thus, where neither party has assumed a position of agent for the other party, and where neither party engages in intentional misrepresentations, each party must look after their own interests and exercise due diligence to obtain their own full information about the transaction.

The Court of Appeals has also held in a similar context regarding a real estate negotiation that a party may not claim a right to rely on the other party’s misrepresentations if each party was able to obtain equal means of information without unreasonable difficulty. Whether the parties in a negotiation “have or can obtain equal means of information,” in turn, depends on whether it would be unreasonably difficult under the circumstances for the party to whom the representations had been made to perform an independent investigation. For example, in a case involving valuation of property, each party can obtain independent appraisals.

The flip side of this general rule is that in a real estate transaction, a seller has an affirmative duty of disclosure if the seller knows or has reason to know that the purchaser does not have equal opportunities for obtaining information which he or she may be expected to utilize.

For example, sellers have been held liable in the following situations: 1) failing to disclose that between the time of signing the earnest money agreement and the time of closing, the city had ordered the sellers to replace the roof; 2) failing to disclose that the garage extended four feet over the boundary of the property; 3) failing to disclose that the sellers had received notice that the sand and gravel operation on the land violated the law.

Bruce Coalwell has been an attorney in Roseburg since 1981 and is a shareholder in the Roseburg law firm of Dole Coalwell.

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