International Products Co. v. Erie Railroad Co.
155 N.E. 662 (1927)
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Rule of Law:
A party who negligently provides false information to another may be liable for the resulting damages when there is a special relationship between the parties, the informant knows the information is desired for a serious purpose, and knows the recipient intends to rely on it.
Facts:
- International Products Co. was expecting a shipment of goods and arranged for Erie R.R. Co. to receive, transfer, and store them at its warehouse docks.
- To obtain insurance coverage for the goods once stored, International Products Co. asked Erie R.R. Co. on August 17th where the goods would be located.
- Erie R.R. Co. informed International Products Co. that the goods were docked at 'dock F, Weehawken.'
- Based on this information, International Products Co. procured an insurance policy that specified the goods were located at dock F.
- In reality, Erie R.R. Co. had not yet received the goods on August 17th.
- Erie R.R. Co. later received the goods between August 27th and August 31st and stored half of them at 'dock D,' not dock F.
- In November, a fire destroyed dock D and the goods stored there.
- The insurance policy was voided due to the misdescription of the goods' location, preventing International Products Co. from recovering its loss from the insurer.
Procedural Posture:
- International Products Co. sued Erie R.R. Co. in a New York court of first instance to recover its losses.
- Following a judgment for International Products Co., Erie R.R. Co. appealed to an intermediate appellate court.
- The intermediate appellate court affirmed the judgment in favor of International Products Co.
- Erie R.R. Co. (appellant) then appealed to the New York Court of Appeals, the state's highest court.
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Issue:
Does a party who is about to enter into a bailment contract have a duty to exercise reasonable care when providing information to the other party, when it knows the information is requested for a serious purpose and will be relied upon?
Opinions:
Majority - Andrews, J.
Yes. A party has a duty to exercise reasonable care in providing information under these circumstances and can be held liable for a negligent misstatement. While English law generally rejects liability for negligent words absent fraud, American courts have adopted a more liberal view. Liability for negligent language arises when there is a duty to speak with care. This duty exists when there is knowledge that the information is desired for a serious purpose, that the recipient intends to rely upon it, that injury will result if it is false, and the relationship between the parties creates a right to rely. Here, Erie R.R. Co. was about to become a bailee of International's goods, knew the location information was specifically for obtaining insurance, and understood that its answer would be relied upon. This special relationship created a duty to provide correct information, and its negligent failure to do so was the proximate cause of the plaintiff's loss.
Analysis:
This case is significant for formally establishing in New York the tort of negligent misrepresentation causing purely economic loss, distinct from fraud or contract claims. It expands negligence liability beyond physical acts to include spoken or written words where a 'special relationship' exists between the parties. The decision sets a precedent that in commercial dealings, a party that provides information knowing the other party will rely on it for a serious purpose has a duty of care, thereby broadening the scope of duties in business transactions.
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