Dinn, Hochman & Potter, L.L.C.
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What is justifiable reliance on a representation?

Recently we have been covering the topic of misrepresentation -- in both its intentional and negligent forms -- as part of the broader subject of business torts under Ohio law. In this post we continue with our coverage by examining what constitutes justifiable reliance on a representation.

For a legal claim of misrepresentation to be successful, it is not enough to demonstrate that your business has suffered harm that can be measured in money damages. You must be able to prove that you relied on the misrepresentation, and that such reliance was justifiable under the circumstances. In this respect, you need to be aware that courts in this state and elsewhere will hold you, as a business person, to a higher standard of knowledge and awareness than an individual. This is because business-to-business transactions often have characteristics that require a party relying on a representation by the other party to be savvier. 

These characteristics can include:

  • An expectation of better awareness going into the transaction. Due diligence going into an agreement means that if you could have discovered a misrepresented statement or other information using your own devices, a court will likely hold that against you when it comes to reliance.
  • Better negotiating leverage. Sometimes the written expression of the parties' agreement will include language stating that you are not relying on the representations of the other side. If you let such a term stand in a business contract, a court will usually conclude that you agreed to such an effective waiver of reliance as part of the negotiations leading to the final arrangement. 

This post cannot address all of the factors that will affect how or whether you can demonstrate that your business justifiably relied on a misrepresented statement by someone else. The important thing to keep in mind is that as part of your due diligence in any important business agreement, you should consider acquiring the assistance of legal counsel experienced with commercial transactions, which can assist you in avoiding potential pitfalls during the negotiating process.

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5910 Landerbrook Drive, Suite 200
Cleveland, OH 44124
-6500

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