Greycas, Inc. v. Proud
826 F.2d 1560 (1987)
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Rule of Law:
An attorney owes a duty of care to a non-client third party when the primary purpose and intent of the attorney-client relationship is to provide information to that third party for the purpose of influencing a business transaction.
Facts:
- Wayne Crawford sought a large loan from Greycas, Inc., offering his farm machinery as collateral.
- Greycas conditioned the loan on receiving an opinion letter from an attorney assuring it that the machinery was free of prior liens.
- Crawford retained his brother-in-law, attorney Theodore S. Proud, Jr., to prepare the required letter.
- Proud sent a letter on his firm's letterhead directly to Greycas, explicitly stating he had "conducted a U.C.C., tax, and judgment search" and that, with minor exceptions, the collateral was free of liens.
- In fact, Proud had not conducted any search and relied solely on Crawford's verbal assurances.
- The farm machinery was already pledged as collateral to other lenders who held perfected security interests.
- Relying on Proud's letter, Greycas disbursed a loan of $1,367,966.50 to Crawford.
- A year later, Crawford defaulted on the loan and committed suicide, at which point Greycas discovered the pre-existing, superior liens on the collateral.
Procedural Posture:
- Greycas, Inc. sued Theodore S. Proud, Jr. in federal district court, alleging negligent misrepresentation and professional malpractice.
- Following a bench trial, the district court entered a judgment against Proud for $833,760.
- Proud, as appellant, appealed the judgment to the U.S. Court of Appeals for the Seventh Circuit.
- Greycas, Inc. appeared as the appellee.
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Issue:
Does an attorney owe a duty of care to a non-client lender when the attorney, on behalf of his client-borrower, provides a letter containing negligent misrepresentations directly to the lender for the sole purpose of inducing the lender to make a loan?
Opinions:
Majority - Posner, Circuit Judge
Yes. An attorney owes a duty of care to a non-client when the attorney provides information intended to influence that non-client. Under Illinois law, the requirement of privity has been discarded for professional malpractice claims. A non-client can sue an attorney for negligence if the non-client proves that the primary purpose and intent of the attorney-client relationship was to benefit or influence that third party. In this case, the sole purpose of Crawford hiring Proud was to prepare the opinion letter to influence Greycas to make the loan, which precisely fits this standard. The same result is reached under a theory of negligent misrepresentation, which holds a professional liable for supplying false information for the guidance of others in their business transactions. The court also rejected Proud's argument that Greycas was contributorily negligent, holding that due care does not require a party to take duplicative precautions, and Greycas acted reasonably in relying on an attorney's explicit representation that a lien search had been conducted.
Concurring - Bauer, Chief Judge
Yes. While in agreement with the majority, this opinion asserts that Proud's conduct went beyond negligence and constituted fraud or intentional misrepresentation. Proud was lying when he stated he had performed U.C.C., tax, and judgment searches. He intended this misrepresentation to induce Greycas's reliance, Greycas justifiably relied on it, and it was injured as a result, which are the classic elements of fraud.
Analysis:
This decision solidifies an important exception to the traditional rule that an attorney's duty is owed only to their client. It establishes that when an attorney's work product, such as an opinion letter, is created with the specific intent to be relied upon by a known third party in a transaction, the attorney's duty of due care extends to that third party. This holding merges the standards for professional malpractice and negligent misrepresentation in the context of attorney opinion letters, increasing the potential liability for transactional lawyers. It warns practitioners that they can be held directly accountable to the non-clients their legal opinions are intended to influence.
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