Sage v. Blagg Appraisal (CA1 4/30/09)

Another day, another new duty. Last week, in Ritchie v. Krasner (CA 1 4/21/09), Division One held that an IME doctor owed a duty of care to non-patient he’d seen for litigation purposes two years before. This week its the appraisers’ turn.

Sage was buying house in Scottsdale. She asked her lender to have Blagg appraise the home; a special clause in her purchase contract allowed her to kill the deal if the property didn’t appraise for at least the purchase price. The lender did hire Blagg, who (the evidence seems to be) didn’t know that he was doing something other than a routine appraisal for the lender’s use. His appraisal came back in excess of the purchase price. A year and a half later, Sage found out that the house was smaller than Blagg thought it was. She sued, arguing that if Blagg had calculated the square footage properly his appraisal would have been below the sales price and she would not have made the purchase. The trial court granted Blagg summary judgment.

The Restatement (Second) of Torts section 552 covers liability for supplying “false information to others in their business transactions.” Arizona courts had twice used this section to deny claims against appraisers. In one case, the appraiser didn’t know that the appraisal would be used in a business transaction; in the other, the buyers were already contractually committed to the transaction. The cases might have been distinguished on that basis but the second case had gone on to say that there was no duty because the appraisal had been for the lender’s purposes, not for the buyers’ use.

Blagg’s appraisal was for the buyer’s use but Blagg apparently didn’t know that. Many cases around the country have held that section 552 imposes liability to a third party only if the professional knows that the recipient of his information intends to supply it to that third party. Those courts have said that because that’s what the Restatement says. A few courts, though, have held that its enough if the professional should have known, or perhaps even that he could have known.

Division One decided to join the latter camp, for three reasons: the “public policy evinced by Restatement section 552” (a public policy most other courts haven’t seen, which you can’t really blame them for since the Restatement seems to say the opposite), “the realities of the loan purchase transaction (which apparently means that sometimes some buyers do look at the lender’s appraisal), and “emerging industry guidelines” (viz., Fannie and Freddie changed the appraisal form – after Bragg did this appraisal – to have the appraiser acknowledge that borrowers “may rely on the report”; a good point, although the fairness of applying it retroactively to a man who knew no such thing isn’t entirely clear).

The court therefore reversed and remanded for further proceedings.

The further proceedings should be lively, if only because one of the issues will be damages. Sage claimed that at the time of the sale her house was worth less than she paid for it. She paid $605,200. Eighteen months later the house was worth – according to appraisers who knew its true size — $700,000. A footnote in the opinion – the need for which is obscure – suggests that her argument is that this second appraisal “was performed during a period of rapidly rising home prices.”

Actually, though, the footnote doesn’t present that as an argument; it states it as a fact, citing as its authority an old article in the Republic.

The court no doubt had in mind Justice McGregor’s January order about finding ways to save money. Now that newspaper articles qualify for judicial notice, we can all dispense with witnesses and just sign up with one of those clipping services that sends you all the articles there are from any newspaper anywhere about whatever subject you want. It is also helpful for an appellate court, on remanding, to find facts that the trier of fact may not have found, or that the parties may be wasting money by arguing about.