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Legal Memorandum: Measure of Damages in Misrepresentation Cases

Issue: Under Minnesota law, what is the proper method of calculation of damages in misrepresentation when dealing with real property?

Area of Law: Litigation & Procedure, Real Estate Law
Keywords: Measure of damages; Misrepresentation cases; Out-of-pocket-loss rule
Jurisdiction: Federal, Minnesota
Cited Cases: 136 Minn. 386; 257 N.W.2d 324; 238 N.W. 686; 226 A.2d 329; 162 N.W. 472
Cited Statutes: None
Date: 01/01/2010

In Lobe Enterprises v. Dotsen, 360 N.W.2d 371 (Minn. Ct. App. 1985), the court explained that Minnesota recognizes the “out-of-pocket-loss” rule as the proper measure of damages in misrepresentation cases.  Id. at 373.  The out-of-pocket-loss rule compensates parties injured as a result of a misrepresentation to the extent of the natural and proximate losses that they sustained.  Id. at 373.  The damage in such cases, the Dotsen court stated, includes (the court’s language) the difference in value between what was given and what was received.  Id.  at 372, 373. 

In the Dotsen case, the plaintiffs argued that the defendants had misrepresented the age of the roof of an apartment building that the plaintiffs purchased from the defendants.  The plaintiffs further argued that, as damages, they were entitled to the cost of replacing the roof.  The court disagreed.  Under the circumstances presented in that case, the court explained, repair costs did not accurately reflect the loss proximately arising from the misrepresentation; rather, under those circumstances, the damages were limited to the difference between what the plaintiffs paid and what the property was worth in the condition in which it was sold, without the new roof.  Id.  Installation of a new roof, the court observed, may include costs that are not reflected, dollar-for-dollar, in a market-value increase.  Because the plaintiffs had not presented any evidence at trial as to the actual value of the property in the condition received, the court concluded, they were unable to prove loss.  Id.    […]

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