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Say, for purposes of conjecture, that "Celine" fraudulently tells "Alice" that something will happen. Also assume for the purposes of this question that, in reasonable reliance on that information, "Alice" enters into a contract with "Bob" (who has no idea that Celine exists, let alone that she mislead Alice). Due to Celine's misrepresentation, this contract turns out to be injuriously disadvantageous to Alice.

What are Alice's options?

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  • Relevant details are missing. What justifies Alice's reliance on Celine's statement? what is it that Celine said will happen? why is that announcement any relevant to the matter underlying Alice's contract with Bob?
    – Iñaki Viggers
    Oct 15 at 23:02
  • Apropos of the explanation given for the edit, just to point out that the edit fails to address the issues, which in any case only the OP can address. Reliance might be foreseeable and yet be short of reasonable, only the latter being relevant in claims of fraud. Case in point: Reliance might be foreseeable simply because Alice is known to be credulous. Let the OP be the one who clarifies the scenario the OP has in mind.
    – Iñaki Viggers
    Oct 16 at 8:26
  • 1
    @IñakiViggers Thanks for pointing that out. I have edited to clarify that Alice's reliance is reasonable.
    – Hamas are war criminals
    Oct 16 at 14:48

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Alice might be able to sue Celine

First, Bob has made no misrepresentation that induced Alice to enter the contract, so that is a valid and binding contract on both of them - assuming Bob is entirely innocent and ignorant of what Celine did.

Since Celine’s statements did not induce Alice to enter a contract with Celine, misrepresentation is the wrong lens here. The correct lenses are negligent misstatement or fraud.

Negligent misstatement

To successfully sue Celine, Alice will need to show that, at the time Celine made the misstatement:

  1. She owed a duty of care to Alice
  2. She failed to live up to the duty imposed, typically the duty to take reasonable care. That is, Celine being wrong is usually insufficient, providing she took reasonable steps not to be wrong
  3. It was foreseeable to Celine that Alice would act on the information provided; in this case, that it would cause her to enter the contract with Bob
  4. That Alice suffered damage
  5. That that damage is directly attributable to the entering of the contract with Bob as opposed to, say, losses that came from poor performance of the contract (by Alice or Bob).

If Celine is just a friend of Alice, then she does not owe Alice any particular duty to be careful in what she says. However, if Celine is in some position of trust, say a business adviser or lawyer reviewing the deal, then she is in such a position.

Fraud

Alice must prove that Celine:

  • Used deception
  • to dishonestly
  • cause financial harm to Alice.

In addition to allowing Alice to sue for damages, fraud is also a crime punishable by the state.

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  • Often negligent misrepresentation and fraud require the misrepresentation to be to the victim. The Restatement of Torts (Second) recognizes a tort of injurious falsehood that covers this fact patter and defamation and the Lanham Act also often provide remedies in this fact pattern. Criminal fraud is another option but doesn't directly help the victim.
    – ohwilleke
    Oct 16 at 17:56

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