Greycas, Inc. v. Theodore S. Proud

826 F.2d 1560 · Court of Appeals for the Seventh Circuit · 1987

Facts

Wayne Crawford, a financially distressed farmer, sought a large loan from Greycas, Inc., offering farm machinery as collateral. Greycas required a letter from Crawford's counsel assuring no prior liens on the machinery. Crawford's brother-in-law, attorney Theodore S. Proud, prepared and sent this letter to Greycas, falsely stating he had conducted a UCC, tax, and judgment search and that the machinery was unencumbered. Proud had not conducted any search, relying solely on Crawford's word. Greycas relied on Proud's letter, disbursed the loan, and later discovered most of the collateral was already pledged to other lenders after Crawford defaulted and committed suicide, resulting in minimal recovery.

Procedural history

A judgment was entered against Theodore S. Proud for $833,760 after a bench trial in a lower court. Proud appealed this judgment to the Circuit Court.

Issue

Can an attorney be held liable to a non-client for negligent misrepresentation when the attorney provides a letter intended to induce the non-client's reliance in a business transaction?

Holding

Yes, the attorney is liable to the non-client for negligent misrepresentation. The court affirmed the judgment against Proud.

Rule

Under Illinois law, a non-client can sue an attorney for negligent misrepresentation if the attorney, in the course of their profession, supplies information for the guidance of others in their business transactions, and the primary purpose and intent of the attorney's service was to benefit or influence that third party. The court reasoned that Proud's letter was directly addressed to Greycas, intended to induce reliance, and Proud failed to exercise due care in verifying the information, thereby establishing a duty and breach. The court also held that Greycas was not contributorily negligent for relying on Proud's professional representation.

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