Brief Fact Summary.
Greycas, Inc. (Plaintiff) argued that Proud’s (Defendant) misrepresentations in his capacity as attorney to Crawford, a party in opposition to Plaintiff, were actionable.
Synopsis of Rule of Law.
An attorney may be professionally liable to a party in opposition to his client.
Crawford was in desperate need of capital for his farm business.Â He went to Greycas, Inc. (Plaintiff) about a loan, offering his farm machinery as collateral.Â Upon Plaintiff’s demand, Crawford retained Proud (Defendant), an attorney (and Crawford’s brother-in-law), to draft a letter stating he had completed a records search and was satisfied that the machinery had no prior security interests.Â This Defendant did, even though he had not in fact performed a search, and the machinery was subject to a prior security interest.Â Based on Defendant’s assertions, Plaintiff loaned Crawford over $1 million.Â The next year, Crawford defaulted and committed suicide.Â Plaintiff, finding that it had no security interest of any value, brought suit against Defendant.Â A district court, sitting in diversity, entered a judgment of $833,760 in Plaintiff’s favor.Â Defendant appealed, arguing he did not owe a duty to Plaintiff.
May an attorney be professionally liable to a party in opposition to his client?
(Posner, J.)Â Yes.Â An attorney may be professionally liable to a party in opposition to his client.Â Courts long ago discarded concepts of contractual privity as requirements for liability, replacing them with more general concepts of duty.Â When the facts of a particular case are enough for the finding of such a duty, the adversarial or non-adversarial relationship of the parties is of little matter.Â In this particular case, Proud (Defendant) made certain misrepresentations to Greycas (Plaintiff), either intentionally or negligently, or both.Â The misrepresentations were intended to encourage reliance and did in fact encourage reliance on the part of Plaintiff, to Plaintiff’s detriment.Â Whether one considers this case to be one of professional liability, negligent misrepresentation or fraud does not matter.Â The bottom line is that, under the facts of this case, Defendant owed a duty of care to Plaintiff, which he breached.Â Affirmed
A nonclient must prove that the primary purpose and intent of the attorney-client relationship is to benefit or influence the third party.View Full Point of Law
(Bauer, C.J.)Â Proud (Defendant) is clearly liable for fraud, making the discussion of professional liability and negligent misrepresentation unnecessary
The court in this case left the reader unsure whether it reached its conclusion based on professional liability principles or more general principles of misrepresentation.Â The court basically admitted this to be so, but disclaimed its importance.Â However, this is not necessarily the case.Â Whether the award was based on malpractice or misrepresentation could affect availability of insurance indemnification, and also whether other professional rules of conduct could be implicated.