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Relying On A Customer’s Representation Of Future Orders Without A Contract Is Very Risky

On Behalf of | Sep 18, 2014 | Business Disputes

In many industries, companies prepare for orders from customers without having a firm purchase order or other contract. This preparation could involve getting inventory in place for the manufacturing expected order or for a reseller ordering the product so that it is ready to ship when the customer asks for it. If the customer does not order the amount of product that it previously stated it was planning to, the question comes down to what remedies, if any, would you have against that customer? Since there is no contract, generally the claim would be a claim of fraudulent misrepresentation which was the claim in the Genesis Strategies, Inc. v. Pitney Bowes, Inc. and ICSN, Inc. in the Massachusetts federal court decision of August 27, 2014. The Massachusetts federal judge had previously ruled that many of Genesis’ claims against the defendants would not be allowed to go a jury and granted summary judgment, yet, ruled that a fraudulent misrepresentation claim could continue. However in the August 27, 2014 decision, the Court agreed with Pitney Bowes that a fraudulent misrepresentation claim failed as well for failure to prove damages. The Court in that Order noted that to make a claim for fraudulent misrepresentation under Massachusetts law, which is similar to New Hampshire law, Genesis would have had to prove that: (1) Pitney Bowes made a false misrepresentation of a material fact with knowledge of its falsity for purposes of inducing Genesis to act; (2) Genesis relied upon the representation; (3) Genesis’ reliance was reasonable under the circumstances; and Genesis was harmed as a result of its reasonable reliance.

In such cases, the difficulty for plaintiffs like Genesis would be that even if the case did go to trial it would need to prove at trial that the customer in this case made false misrepresentations as to what it would need in the future with knowledge of its falsity. In other words, if this case were to proceed forward to trial there would need to be evidence for the jury to conclude that Pitney Bowes misrepresented what it expected to order from Genesis and knew at that time that they would not order such volume of product. In some circumstances the facts may prove to be that, but often the reality is that a customer has optimism as to the success of their business and therefore the representation that it will need product from company is based upon a genuine belief.

Irrespective of the difficulty a company would have in proving that its customer in representing its projections in future orders from your company knew the projections were overstated, the Court ultimately ruled that in cases where the company’s only loss is the opportunity to make a profit that its recovery should be limited to a pecuniary loss only suffered as a result of the representation rather than the loss claimed from disappointed expectations. The evidence in this case showed that Genesis was able to resell the product it ordered. Therefore its only claimed loss was lost profits being able to sell at a mark up to Pitney Bowes since this other customer was willing to buy the product when it could have sold to both that other customer and Pitney Bowes. Since the Court agreed with Pitney Bowes that Genesis could not claim such damages as to the lost opportunity to make profit on the sale of the product to both Pitney Bowes and the replacement customer, the Court granted summary judgment on that remaining fraudulent misrepresentation count leaving Genesis only to its right to challenge that decision on appeal.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].