Negligent Misrepresentation in California Business Deals

Last updated: November 2026

Negligent misrepresentation in California is a false statement of fact made by someone who had no reasonable ground for believing it was true, on which another person justifiably relied to their loss. Unlike fraud, it does not require intent to deceive. A business in Orange County or Los Angeles that was induced into a deal by a careless but honest misstatement can often recover its losses under this claim. Kolmogorov Law, P.C. brings and defends negligent misrepresentation claims in California business disputes.

Call (909) 235-6116 or contact us online to discuss a misstatement that cost your business money.

What negligent misrepresentation is

California's Civil Code defines deceit to include "the assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true." (Civ. Code, § 1710, subd. (2).) That is the statutory home of negligent misrepresentation. The contract chapter says much the same thing, treating as actual fraud a positive assertion "not warranted by the information of the person making it," even if the speaker believed it. (Civ. Code, § 1572, subd. (2).)

The practical difference from intentional fraud is the speaker's state of mind. In a fraud case, you prove the defendant knew the statement was false or made it recklessly. In a negligent misrepresentation case, you prove the defendant had no reasonable basis for it. The second is usually easier to establish.

The firm's fraud claims page covers intentional fraud. This page stays on the narrower, negligence-based claim.

The elements you have to prove

A plaintiff in California must show each of the following:

The defendant made a representation of past or existing fact, not an opinion or a prediction.
The representation was false.
The defendant had no reasonable ground for believing it was true.
The defendant intended the plaintiff, or a class including the plaintiff, to rely on it.
The plaintiff actually and justifiably relied on it.
The plaintiff was harmed, and the reliance was a substantial factor in causing that harm.

The "fact, not opinion" line matters more than most owners expect. "This is the best lead-generation software on the market" is puffery. "This software has 4,000 paying subscribers" is a fact.

One more limit comes from case law. The class of persons who may sue is restricted to those to whom, or for whom, the representation was made; the defendant is not liable to everyone who might foreseeably hear it. (Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 408.) An appraisal prepared for a lender does not become a claim for a later investor who happened to read it.

How it comes up for business owners

Three patterns account for most of the negligent misrepresentation matters I see.

The first is the acquisition. A buyer purchases a small company based on revenue figures the seller pulled from a bookkeeping system nobody reconciled. The numbers are wrong by a third. The seller swears he believed them. He may have. That belief is not a defense if he had no reasonable basis for it. Our guide to buying or selling a small business explains the diligence that avoids this.

The second is the vendor or contractor. A supplier states that a component meets a specification, or a contractor states that a permit has been pulled, without checking. The customer builds on that statement and later tears the work out.

The third is the professional. An accountant, broker, or consultant delivers a figure to a client for a specific transaction, the figure is wrong, and the client acts on it. Here the Bily limit does real work: the professional answers to the client and the group the work was meant to guide, not to the world.

Damages and the fraud-versus-negligence question

For a tort claim, California measures damages as the amount that will compensate for all detriment proximately caused, whether or not it could have been anticipated. (Civ. Code, § 3333.) In a misrepresentation case that usually means the difference between what the plaintiff paid and what it received, plus consequential losses that flow from the reliance.

Punitive damages are generally off the table. They require clear and convincing proof of oppression, fraud, or malice (Civ. Code, § 3294, subd. (a)), and the statute defines fraud as an intentional misrepresentation or concealment. (Civ. Code, § 3294, subd. (c)(3).) A careless statement, however costly, does not meet that bar. If the evidence shows the speaker knew the truth, the claim becomes intentional fraud; see our page on fraudulent inducement.

When the misstatement sits inside a contract relationship, defendants argue that the claim is really a contract claim in disguise. Our page on the economic loss rule explains when that argument succeeds.

The deadline

An action for relief on the ground of fraud or mistake must be brought within three years, and the claim does not accrue until the plaintiff discovers the facts constituting the fraud or mistake. (Code Civ. Proc., § 338, subd. (d).) California courts have not always treated negligent misrepresentation identically to intentional fraud for limitations purposes, so I advise clients to assume the shortest plausible period. Our statutes of limitations guide collects the common periods.

What we do, and where the cases are heard

We start by sorting statements into fact and opinion, then tracing what the speaker knew and when. Emails, text messages, and internal spreadsheets usually decide these cases. We plead the claim alongside intentional fraud where the evidence supports both, because a jury can find negligence even if it rejects intent.

We defend these claims as often as we bring them. The strongest defenses are usually that the statement was opinion rather than fact, that the speaker had a documented basis for it, or that the plaintiff ran its own diligence and did not actually rely.

Cases are filed in the Superior Court: for Orange County, the Central Justice Center in Santa Ana; for Los Angeles, the Stanley Mosk Courthouse. Disputes with out-of-state parties or federal claims may be heard in the Central District of California. The business fraud hub describes the broader practice.

What to bring to the first meeting

Bring the written statement if there is one: the offering memorandum, the email, the spec sheet, the proposal. Bring whatever shows what you did in reliance, such as the signed contract or wire confirmations. Bring your own diligence file, and a short timeline of when you first suspected the statement was wrong.

Frequently asked questions

What are the elements of negligent misrepresentation in California?

A false statement of past or existing fact; no reasonable ground for believing it true; intent that the plaintiff, or a class including the plaintiff, rely on it; actual and justifiable reliance; and resulting harm. The statutory source is Civil Code section 1710, subdivision 2. Opinions, predictions, and sales puffery do not qualify.

Is negligent misrepresentation the same as fraud?

No. Fraud requires knowledge of falsity or reckless disregard for the truth. Negligent misrepresentation requires only that the speaker lacked a reasonable basis for the statement. Both are forms of deceit under California law and are often pleaded together, but negligent misrepresentation will not support punitive damages.

Can I sue for negligent misrepresentation if I signed a contract?

Often, yes. A misstatement that induced the contract is a separate wrong from a breach of its terms. Defendants raise the economic loss rule and non-reliance clauses, and those arguments sometimes win, so the wording of the contract matters.

How long do I have to file?

Fraud-based claims generally carry a three-year period that starts when you discover the facts constituting the misrepresentation. Courts have not treated every negligent misrepresentation claim the same way, and some apply a shorter period, so do not rely on the full three years. Talk to a lawyer as soon as you suspect the statement was wrong.

Talk to a California business fraud attorney

If a careless misstatement led your business into a bad deal, or if your business has been accused of one, call (909) 235-6116 or contact us online. Kolmogorov Law, P.C. is located at 327 Magnet, Irvine, CA 92618, and represents businesses in Orange County, Los Angeles, and throughout California.

This page provides general information about California law and is not legal advice. Outcomes depend on the statement, the facts, and the court.