Texas Negligent Misrepresentation

By Stephen W. Davis · Last updated July 15, 2026

Sometimes the misrepresentation that caused the loss was not a lie. The accountant who certified financial statements without adequate testing. The appraiser who valued the property without adequate diligence. The professional who passed along information without verifying it. The seller who described the asset based on what was honestly believed rather than what was actually true.

In each case, the misrepresentation may not support a fraud claim because fraud requires intent to deceive or reckless disregard, but it may support a claim for negligent misrepresentation. The Texas tort is narrower than fraud and produces narrower damages, but it fills a real gap in the law where information was supplied carelessly and economic harm followed.

What follows is how the claim works in Texas: the Section 552 elements, the narrow class of plaintiffs who can bring it, how the economic loss rule cuts in, and why the recovery stops at pecuniary loss.

The Section 552 framework

Texas follows the Restatement (Second) of Torts section 552 framework for negligent misrepresentation. The elements are:

1. The defendant provided information in the course of the defendant’s business or in a transaction in which the defendant had a pecuniary interest.
2. The information was false.
3. The defendant failed to exercise reasonable care or competence in obtaining or communicating the information.
4. The plaintiff justifiably relied on the false information.
5. The reliance caused the plaintiff pecuniary loss.

The framework is narrower than fraud in several ways. The defendant must have a pecuniary interest in the transaction or be acting in the course of business. The plaintiff must have been in the specific category of people whose reliance was reasonably foreseeable to the defendant. And the recoverable damages are limited to pecuniary loss.

How negligent misrepresentation differs from fraud

Three principal differences distinguish the two claims:

Mental state. Fraud requires intent to deceive or reckless disregard for truth or falsity. Negligent misrepresentation requires only that the defendant failed to exercise reasonable care in obtaining or communicating the information. The lower mental state requirement makes negligent misrepresentation available in some cases where fraud cannot be proven.

Damages. Fraud allows the plaintiff to elect between out-of-pocket and benefit-of-the-bargain damages and supports exemplary damages on a clear and convincing showing of malice. Negligent misrepresentation is limited to pecuniary out-of-pocket loss and generally does not support exemplary damages.

Available plaintiffs. Fraud allows recovery by anyone who relied on the misrepresentation and was foreseeably harmed. Negligent misrepresentation under Texas law is limited to a narrower class, those whose use of the information was specifically foreseeable to the supplier at the time.

The choice between the claims comes down to proof of intent. Plaintiffs who can prove the intent element of fraud usually plead both and let the court sort it out at trial. Plaintiffs who lack that proof plead negligent misrepresentation and accept the narrower damages.

Who can sue: the limited class of foreseeable users

The Texas Supreme Court has been careful about limiting who can sue for negligent misrepresentation. The court has rejected the broader foreseeability rule applied in some other jurisdictions and adopted a narrower test.

Under the Texas approach, the plaintiff must establish that the defendant knew or had reason to know:

• The recipient was the specific person or one of a specific class of persons whom the supplier intended to influence with the information, or
• The recipient was a person who would obtain the information through ordinary channels and rely on it.

A general member of the public who happens to encounter information not specifically intended for the public typically cannot sue.

This limitation has substantial implications for professional liability cases. An accountant who certifies financial statements for use by a specific lender may be liable to that lender if the statements were negligently prepared, but generally not to investors who later acquire the company on the strength of the same statements (absent specific circumstances bringing them within the foreseeable class).

The economic loss rule application

Texas applies the economic loss rule to negligent misrepresentation claims. The rule limits tort recovery for purely economic losses arising out of contractual relationships.

In the negligent misrepresentation context, the question is whether the defendant owed an independent duty separate from any contract between the parties. If the only duty arose from the contract, the plaintiff is limited to contract remedies and cannot recover in tort.

The independent duty most often comes from:

• The defendant’s professional role (accountant, appraiser, engineer, surveyor).
• A pre-formation context where the defendant supplied information that the plaintiff used in deciding whether to enter the transaction (so that any contract came after the representation).
• A specific tort duty independent of the contract relationship.

Cases where the plaintiff is essentially complaining about the defendant’s post-formation contract performance, failure to perform as promised, delays in performance, deficient performance, generally cannot be repackaged as negligent misrepresentation. The economic loss rule keeps these claims in contract.

Common Texas negligent misrepresentation cases

Professional services. Accountants, appraisers, attorneys, engineers, surveyors, and other professionals who supply information in the course of their work. These cases often turn on whether the professional satisfied the applicable standard of care.

Investment and lending. Lenders who relied on representations about a borrower’s financial condition. Investors who relied on representations about a business opportunity. These cases often involve disputes over whether the information was provided to a specific foreseeable recipient.

Real estate. Sellers who described properties based on information they obtained from third parties without verification. Brokers who passed along information from sellers without checking. Title companies and surveyors in their professional roles.

Business transactions. Sellers or buyers who passed along information about the business that turned out to be wrong, where the misrepresentation was made without intent to deceive but without adequate care to verify accuracy.

Damages: pecuniary loss only

Texas limits negligent misrepresentation recovery to pecuniary loss. The measure is:

• The difference between the value of what the plaintiff received and the purchase price, plus
• Consequential pecuniary loss suffered as a result of the reliance.

The benefit-of-the-bargain measure available on some fraud claims is not available on negligent misrepresentation. The plaintiff cannot recover what would have been received if the information had been true; only what was actually lost in reliance on the false information.

Exemplary damages are generally not available on negligent misrepresentation because the underlying conduct is by definition not fraud, malice, or gross negligence under the Chapter 41 standard.

Attorney’s fees are not recoverable on the negligent misrepresentation claim itself unless the claim falls within a specific statutory framework or contractual fee-shifting provision. Combining negligent misrepresentation with breach of contract or other fee-bearing claims is one way to capture fee recovery.

Defending the claim

Common defenses:

No false information. Attack the falsity. The statement may have been accurate when made and become false later, or may have been an expression of opinion not actionable as misrepresentation.

Reasonable care exercised. Attack the breach of care. The defendant may have exercised reasonable care under the standard applicable to the defendant’s profession or position even if the information turned out to be wrong.

No justifiable reliance. Attack the reliance. The plaintiff may have had independent reasons not to rely, may have investigated and discovered facts inconsistent with the representation, or may have agreed by contract not to rely on extra-contractual statements.

Beyond the foreseeable class. Attack the foreseeability. The defendant may not have known or had reason to know that the specific plaintiff would rely on the information.

Economic loss rule. Attack the existence of an independent tort duty. If the only duty arose from a contract, the claim should be in contract not in tort.

Statute of limitations. Two years from when the plaintiff discovered or should have discovered the misrepresentation, with the discovery rule applying in many cases.

The independent duty does the heavy lifting

Fraud and negligent misrepresentation overlap in the pleading but diverge in the proof, so we plead both and carry the one the evidence supports. The economic loss rule decides most of these. Counsel who handle it poorly watch their tort claims dismissed at summary judgment, so we identify the independent duty up front and develop it through discovery. Alongside it, discovery focuses on what the supplier knew at the time about who would receive and rely on the information.

Find the independent duty and prove the supplier knew who would rely, and the claim holds. Miss either, and it collapses into a contract claim the rule will not let you dress up as a tort.