281 F.2d 596 (4th Cir. 1960), 8071, United States v. Neustadt

Docket Nº:8071.
Citation:281 F.2d 596
Party Name:UNITED STATES of America, Appellant, v. Stanley S. NEUSTADT and Rose-Barbara Y. Neustadt, Appellees.
Case Date:August 19, 1960
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit

Page 596

281 F.2d 596 (4th Cir. 1960)

UNITED STATES of America, Appellant,


Stanley S. NEUSTADT and Rose-Barbara Y. Neustadt, Appellees.

No. 8071.

United States Court of Appeals, Fourth Circuit.

August 19, 1960

Argued May 31, 1960.

Page 597

Morton Hollander, Atty., Dept. of Justice, Washington, D.C. (George Cochran Doub, Asst. Atty. Gen., Joseph S. Bambacus, U.S. Atty., Richmond, Va., Samuel D. Slade and William A. Montgomery, Attys., Dept. of Justice, Washington, D.C., on brief), for appellant.

Lawrence J. Latto, Washington, D.C., for appellees.

Before SOPER and BOREMAN, Circuit Judges, and BARKSDALE, District judge.

SOPER, Circuit Judge.

The question in this case is whether the purchaser of a single residence property covered by a mortgage under § 203(a) of the National Housing Act as amended, 12 U.S.C.A. § 1 709(a), is entitled under the Federal Tort Claims Act, 28 U.S.C. § 2671 et seq., to recover damages occasioned by the negligence of an agent of the Federal Housing Commissioner in making an appraisal of the property under the provisions of the statute and the regulations issued pursuant thereto. See 12 U.S.C .A. § 1709 and 24 C.F.R. § 200 .4. The United States does not deny that the appraisal was faulty or that the purchasers were injured thereby but defends on the ground that the plaintiffs' claim arises out of misrepresentation which is excluded from the coverage of the Tort Claims Act by 28 U.S.C. § 2680 .

The property is located in Alexandria, Virginia. The former owners, in anticipation of selling it, caused an approved lender to make application under 12 U.S.C.A. § 1709 of the Act for a conditional commitment to insure the mortgage and pursuant thereto the property was inspected by an FHA appraiser, who reported that the property was eligible for mortgage at the appraised value of $22, 750. The plaintiffs as prospective purchasers were apprised of this fact. Thereupon a contract of sale was executed conditioned upon the purchasers obtaining loan secured by an FHA mortgage in the sum of $18, 800. Therein the sellers agreed to furnish the plaintiffs a written statement of the appraised value as so determined, and this was done upon the settlement date when the purchasers took title to the property.

The purchasers took possession of the house and several days later substantial cracks appeared in the interior walls and ceilings in all of the rooms, as well as in the cinder blocks in the basement walls. It was then found by FHA officials that cracks were appearing in the exterior walls, and that the one-story sun porch was separating from the east wall, and that the foundations were settling in an unusual manner. These conditions were found to have been caused by the character of the subsoil, which contained a type of clay that quickly disintegrates when exposed to water; and it was ascertained that the underpinning of the foundations would require the expenditure of several thousand dollars.

The pending case was then brought and tried before the District Judge without a jury, who rendered a verdict in favor of the plaintiffs for $8000. The judge called attention to the amendment to the statute by the act of Congress of August 2, 1954, codified in 12 U.S.C.A. § 1715q, whereby the seller of a dwelling approved for mortgage insurance under the statute is required to agree to deliver to the purchaser prior to the sale a written statement setting forth the

Page 598

amount of the appraised value of the property as determined by the Commissioner. The Judge held that the statute as amended imposes upon the United States the duty to appraise the property with ordinary care and diligence as a gauge of the fairness of the price to be paid by the purchaser and that neglect of this duty makes the United States liable to the purchaser. He was of the opinion that the appraisal involves not merely a representation on the part of the United States but the performance of a positive act by the government as a direct and immediate service to the purchasers. He found that in this case the plaintiffs, in good faith, relied upon the appraisal in consummating the purchase and, since serious structural defects in the house subsequently appeared which reasonable care by a qualified appraiser would have discovered, the negligence of the government to perform its statutory duty entitled the plaintiffs to recover the direct loss of $8000 resulting therefrom. Accordingly, a judgment for this amount was rendered against the United States.

The United States on this appeal relies upon the exclusionary section of the Tort Claims Act, which declares in 28 U.S.C. § 2680(h) that the provisions of the statute shall not apply, inter alia, to any claim rising out of misrepresentation or deceit. It has been uniformly held that 'misrepresentation' in this context, since it appears in the act in juxtaposition to 'deceit', means negligent as well as wilful misrepresentation. 1 We are in accord with this view especially as it is reasonable to suppose that Congress intended to exempt the Government from liability for misinformation carelessly given by its agents to the public in the wide field of its manifold activities. 2 The Government therefore contends that it has no liability in the pending case, and in support of its position cites a number of cases in the federal courts, analyzed in footnote, 3 in which,

Page 599

under varying circumstances, it has been exonerated from liability for damages caused by negligent misrepresentation of its agents. We can discern no clear line running through these cases which serves as a guide to the solution of the present controversy. In most of them liability could be based only upon misrepresentation by agents of the government since the actions complained of were carried on for the benefit of the public at large and not in the performance of a specific duty owed to the injured party, Clark v. United States, 9 Cir., 218 F.2d 446; Anglo-American & Overseas Corp. v. United States, 2 Cir., 242 F.2d 236; or the statute or contract governing the activity expressly exempted the government from liability for the acts of its agent, Jones v. United States, 2 Cir., 207 F.2d 563, certiorari denied 347 U.S. 921, 74 S.Ct. 518; National Mfg. Co. v. United States, 8 Cir., 210 F.2d 263.

On the other hand, it has been held that if the government assumes a duty and negligently performs it, a party injured thereby may recover damages from the United States even though the careless performance of the duty may have been accompanied by some misrepresentation of fact. Thus in Otness v. United States, D.C.Alaska, 178 F.Supp. 647, a shipowner sued to recover for the loss of his vessel due to collision with submerged channel light which the Coast Guard undertook to locate but negligently failed to find, whereupon it issued an erroneous bulletin that no part of the light remained above the bottom of the sea. It was held that although the bulletin contained a misrepresentation of facts, this

Page 600

did not bring the case within the exemption of the Tort Claims Act or absolve the United States from liability for the negligent performance of a duty which it had voluntarily assumed. In like manner, the United States was held liable under the Federal Tort Claims Act for the negligent operation of a lighthouse in Indian Towing Co. v. United States, 350 U.S. 61, 76 S.Ct. 122, 100 L.Ed. 48, and for the negligent marking of a wreck in Somerset Seafood Co. v. United States, 4 Cir., 193 F.2d 631. In each...

To continue reading