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§30.1A Claim Made on Basis of Statement Made to Another

The Case: Davis v. McGuigan, 312 S.W.3d 149 (Tenn. 2010).


The Basic Facts:  Plaintiff homeowners sued Defendant appraiser alleging that he intentionally and negligently over-stated the value of their home.  The appraisal was done based on construction drawings because the home had not yet been built. Defendant argued that Plaintiffs could not prove that they reasonably relied on the appraisal.

The Bottom Line:

  • “The Davises must prove six elements to establish their claim of intentional misrepresentation at trial: (1) that Mr. McGuigan made a representation of an existing or past fact; (2) that the representation was false when it was made; (3) that the representation involved a material fact; (4) that Mr. McGuigan made the representation recklessly, with knowledge that it was false, or without belief that the representation was true; (5) that the Davises reasonably relied on the representation; and (6) that they were damaged by relying on the representation. Walker v. Sunrise Pontiac-GMC Truck, Inc., 249 S.W.3d 301, 311 (Tenn. 2008) (citations omitted).”  312 S.W.3d at 154.
  • “Whether a person’s reliance on a representation is reasonable generally is a question of fact requiring the consideration of a number of factors. E.g., City State Bank v. Dean Witter Reynolds, Inc., 948 S.W.2d 729, 737 (Tenn. Ct. App. 1996). The factors include the plaintiff’s sophistication and expertise in the subject matter of the representation, the type of relationship – fiduciary or otherwise – between the parties, the availability of relevant information about the representation, any concealment of the misrepresentation, any opportunity to discover the misrepresentation, which party initiated the transaction, and the specificity of the misrepresentation. See, e.g., id.; accord Allied Sound, Inc. v. Neely, 58 S.W.3d 119, 122-23 (Tenn. Ct. App. 2001).”  Id. at 158.
  • “The cause of action alleged by the Davises, however, differs from most intentional misrepresentation claims. The Davises do not allege that Mr. McGuigan directly represented to them the value of the home. Instead, Mr. McGuigan provided the appraisal to SunTrust, and Ms. Gnyp, a SunTrust employee, conveyed the result of Mr. McGuigan’s appraisal to the Davises. The Davises in turn contend that they relied on the figure conveyed to them by Ms. Gnyp, not the appraisal report prepared by Mr. McGuigan, when they decided to execute the construction contract.” Id.
  • “Recovery should be determined based on the defendant’s representation, not on how the representation was relayed. To that end, we adopt section 533 of the Restatement (Second) of Torts, which states in its entirety,

 

The maker of a fraudulent misrepresentation is subject to liability for pecuniary loss to another who acts in justifiable reliance upon it if the misrepresentation, although not made directly to the other, is made to a third person and the maker intends or has reason to expect that its terms will be repeated or its substance communicated to the other, and that it will influence his conduct in the transaction or type of transaction involved.”

 

Id. at 159.

  • “To show at trial that they reasonably relied on Mr. McGuigan’s representation, the Davises therefore must show that (1) they could have reasonably relied on Mr. McGuigan’s appraisal report, (2) Mr. McGuigan intended or had reason to expect that the terms or substance of his appraisal report would be repeated to the Davises, and (3) Mr. McGuigan intended or had reason to expect that his appraisal would influence the Davises’ conduct in deciding to proceed with the construction.” Id.

Other Sources of Note:   Goodall v. Akers, No. M2010-01584-COA-R3-CV, 2011 WL 721494 (Tenn. Ct. App. Mar. 1, 2011) (trial court abused its discretion in excluding two expert witnesses’ opinions on the reasonableness of Plaintiff’s reliance in misrepresentation case).

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The foregoing is an excerpt from Day on Torts: Leading Cases in Tennessee Tort Law, published by John A. Day, Civil Trial Specialist, Fellow in the American College of Trial Lawyers, recipient of Best Lawyers in America recognition, Martindale-Hubbell AV® Preeminent™ rated attorney, and Top 100 Tennessee Mid-South Super Lawyers designee. Read John’s full bio here.

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