In the recent case of Power v. Smith, a court held that a contractor was not liable for fraudulent misrepresentation because the contractor’s misrepresentations were not statements of fact but were, instead, statements of opinion, which were not actionable.
Thomas Power (“Power”) was the owner of Power Plumbing. While working on a construction project, Power met Robert L. Smith (“Smith”), who was the owner of Smith Construction, which performed water and sewer jobs in California. Power and Smith entered into an oral agreement wherein Power Plumbing would bid on a number of jobs, Smith would receive an hourly wage for his work, and the remaining profits would be divided between Power and Smith. Pursuant to their agreement, Power and Smith formed T.R. Equipment, Inc. (“T.R.”) to bid on water and sewer jobs.
Smith and Power decided to bid on a job called the South Fork job. They both reviewed the bid and agreed that Smith would rewrite the bid so it would be legible for typing the following day. Smith, however, changed several line items in the bid and, as a result, the bid was $207,188 less than the bid approved by Power. T.R. was ultimately awarded the South Fork job. After Power learned of the changes to the bid, Smith explained to Power that he had made the changes because he was positive they could lay 300 feet of pipe per day instead of 200 feet, as indicated in the original bid. Smith assured Power that the job would make a profit.
Power subsequently filed suit against Smith, alleging that Smith was liable for fraudulent misrepresentation because Smith stated to Power that he had the expertise to determine a price for the project which would cover all the expenses for the job and allow a profit. Power alleged that, in reliance on Smith’s statements, Power allowed Smith to determine the bid price and later, after Smith calculated the bid price, Smith, without Power’s knowledge or consent, lowered the bid price by about $200,000.
The court rejected Power’s argument that Smith was liable for fraudulent misrepresentation. The court noted that generally a mere statement of opinion will not support an action for fraud and found that Smith’s statement that the job would be profitable was merely a statement of opinion. Smith’s statement that he was certain they could lay 300 feet of pipe per day was a prediction and was not based on any firm evidence or special knowledge. Therefore, the court concluded that Smith was not liable for fraudulent misrepresentation.
The Smith case demonstrates that a statement of an opinion cannot form the basis of a claim for fraudulent misrepresentation. In order for a misrepresentation to be actionable, the misrepresentation must be one of fact. If you have any questions regarding whether a statement may constitute a fraudulent misrepresentation, please contact a member of the firm.