Gilchrist Timber Co. v. ITT Rayonier, Inc.

• Decision Date: 26 June 1997
• Docket Number: No. 89015,89015
• Citation: 696 So.2d 334
• Parties: 22 Fla. L. Weekly S365 GILCHRIST TIMBER COMPANY, et al., Appellants, v. ITT RAYONIER, INC., et al., Appellees.
• Court: Florida Supreme Court

Page 334

696 So.2d 334

22 Fla. L. Weekly S365

GILCHRIST TIMBER COMPANY, et al., Appellants, v. ITT RAYONIER, INC., et al., Appellees.

No. 89015.

Supreme Court of Florida.

June 26, 1997.

Leonard E. Ireland, Jr. of Clayton, Johnston, Quincey, Ireland, Felder, Gadd & Roundtree, P.A., Gainesville, for Appellants.

Thomas M. Baumer, Dana G. Bradford and Rebecca B. Creed of Baumer, Bradford & Walters, P.A., Jacksonville, for Appellees.

OVERTON, Justice.

We have for review the following question of Florida law certified by the United States Court of Appeals for the Eleventh Circuit that is determinative of a cause pending in the federal courts and for which there appears to be no controlling precedent:

WHETHER A PARTY TO A TRANSACTION WHO TRANSMITS FALSE INFORMATION WHICH THAT PARTY DID NOT KNOW WAS FALSE, MAY BE HELD LIABLE FOR NEGLIGENT MISREPRESENTATION WHEN THE RECIPIENT OF THE INFORMATION RELIED ON THE INFORMATION'S TRUTHFULNESS, DESPITE THE FACT THAT AN INVESTIGATION BY THE RECIPIENT WOULD HAVE REVEALED THE FALSITY OF THE INFORMATION.

Gilchrist Timber Co. v. ITT Rayonier, Inc., 95 F.3d 1033, 1033 (11th Cir.1996). We have jurisdiction. Art. V, § 3(b)(6), Fla. Const. For the reasons expressed, we answer the question with a qualified affirmative, finding that the party who negligently transmitted the false information may be held liable when the recipient is able to establish a negligent misrepresentation cause of action as set forth in the Restatement (Second) of Torts section 552 (1977). We also conclude that the doctrine of comparative negligence applies to an action for negligent misrepresentation.

The pertinent facts of this case as set forth by the Court of Appeals are as follows. Gilchrist Timber Company (Gilchrist) bought a 22,641-acre tract of timberland from ITT Rayonier, Inc. (ITT). In selling that property to Gilchrist, ITT provided Gilchrist with a year-old appraisal of the property. The appraisal listed the property as being zoned agricultural, which allowed residential usage. In fact, a vast majority of the property was zoned "preservation," which permits no residential use. After learning of the zoning restrictions, Gilchrist unsuccessfully tried to have the zoning changed. The zoning restriction thwarted Gilchrist's plans to cut the timber on the property and then sell portions for residential use. Gilchrist subsequently brought this suit in the United States District Court.

A jury found in favor of Gilchrist, but the federal district court granted judgment notwithstanding the verdict in favor of ITT. Gilchrist appealed and the Eleventh Circuit certified the aforementioned question to this Court. In certifying the question, the circuit court explained that the rule in Florida under Besett v. Basnett, 389 So.2d 995 (Fla.1980), specifies that, in cases involving fraudulent misrepresentations, "the recipient of a fraudulent misrepresentation of fact is justified in relying upon its truth, although he might have ascertained the falsity of the representation had he made an investigation." 95 F.3d at 1035 (quoting Restatement (Second)of Torts § 540 (1977)). The court, however, was unclear whether this rule should apply to situations like the instant case, which only involves a negligent rather than fraudulent misrepresentation. The court stated that Florida's standard jury instructions suggest that only in the case of a fraudulent misrepresentation is the recipient justified in relying on its truth, even where an investigation might have revealed its falsity. See Standard Jury Instructions--Civ. Cases, 613 So.2d 1316, 1319 (Fla.1993). The court noted, however, that at least one Florida district court had applied Besett 's logic regarding fraudulent misrepresentations to a case involving negligence claims. See Lynch v. Fanning, 440 So.2d 79 (Fla. 1st DCA 1983).

Gilchrist argues that the rule should be the same for both a fraudulent misrepresentation and a negligent misrepresentation, asserting that the focus should be on the effect of the misrepresentation on the recipient rather than on the culpability of the misrepresenter. Under this contention, the fact that the misrepresenter did not know of the misrepresentation would be irrelevant, and the misrepresenter would be equally culpable whether the misrepresentation was the result of intentional fraud or negligence. Gilchrist also asserts that a contrary finding would require all recipients of information to assume a representation is false and require such recipients to verify each representation. We disagree.

In addressing a fraudulent misrepresentation in Besett, we held that "a recipient may rely on the truth of a representation, even though its falsity could have been ascertained had [the recipient] made an investigation, unless [the recipient] knows the representation to be false or its falsity is obvious." 389 So.2d at 998. In reaching that conclusion, we specifically adopted the Restatement of Torts' position contained in sections 540 and 541, which apply to fraudulent misrepresentations. Further, our opinion in Besett dealt with a factual situation involving the intentional misrepresentation of a vendor to a purchaser of real property. In fact, in discussing the intentional misrepresentation, we stated:

A person guilty of fraud should not be permitted to use the law as his shield. Nor should the law encourage negligence. However, when the choice is between the two--fraud and negligence--negligence is less objectionable than fraud. Though one should not be inattentive to one's business affairs, the law should not permit an inattentive person to suffer loss at the hands of a misrepresenter.

Id. (emphasis added). While we were discussing the negligence at issue in Besett in the context of the negligence of the purchaser, the axiom is still the same--"negligence is less objectionable than fraud." Simply stated, the policy behind our holding in Besett is to prohibit one who purposely uses false information to induce another into a transaction from profiting from such wrongdoing. That is not the situation presented here.

In this case, the federal court has specifically asked us to consider whether the standard we adopted in Besett applies to a party who "transmits false information which that party did not know was false." Gilchrist Timber Co., 95 F.3d at 1034 (emphasis added). This question involves a situation much different from that at issue in Besett because here the misrepresentation was not intentional. In this regard, as in Besett, the Restatement of Torts provides specific guidance, by providing:

§ 552. Information Negligently Supplied for the Guidance of Others.

(1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.

(2) Except as stated in Subsection (3), the liability stated in Subsection (1) is limited to loss suffered

(a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and

(b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction.

(3) The liability of one who is under a public duty to give the information extends to loss suffered by any of the class of persons for whose benefit the duty is created, in any of the transactions in which it is intended to protect them.

Restatement (Second) of Torts § 552 (1977). Under this provision, a misrepresenter is liable only if the recipient of the information justifiably relied on the erroneous information. The comment to section 552 explains why a negligent misrepresenter should be considered less culpable than a fraudulent misrepresenter.

The liability stated in this Section is ... more restricted than that for fraudulent misrepresentation.... When there is no intent to deceive but only good faith coupled with negligence, the fault of the maker of the misrepresentation is sufficiently less to justify a narrower responsibility for its consequences.

The reason a narrower scope of liability is fixed for negligent misrepresentation than for deceit is to be found in the difference between the obligations of honesty and of care, and in the significance of this difference to the reasonable expectations of the users of information that is supplied in connection with commercial transactions.

Id. cmt. a (emphasis added). Additionally, under section 552A, ordinary rules of negligence liability apply. § 552A cmt. a. While the Restatement discusses the issue in terms of contributory negligence, a majority of the states that have adopted the comparative negligence doctrine and considered this issue agree that comparative negligence principles are applicable to cases involving negligent misrepresentation actions. Sonja Larsen, Annotation, Applicability of Comparative Negligence Doctrine to Actions Based on Negligent Misrepresentation, 22 A.L.R. 5th 464, 471 (1994)("The prevailing view is that comparative negligence principles are applicable to negligent misrepresentations.") ¹ See also Fowler V. Harper, et al., The Law of Torts § 7.6 (2d ed.1986). As noted in the above-cited annotation, the rationale for this majority view "rests on the notion that there is no reason to differentiate negligent misrepresentations from any other forms of negligence." 22 A.L.R. 5th at 471. This view is consistent with Florida law as set forth in section 768.81, Florida Statutes (1995), which provides that comparative fault principles shall apply in negligence cases. That section provides:

768.81....