Cook Consultants, Inc. v. Larson

• Citation: 700 S.W.2d 231
• Decision Date: 13 August 1985
• Docket Number: No. 05-83-00451-CV,05-83-00451-CV
• Parties: COOK CONSULTANTS, INC., Appellant, v. Jean M. LARSON, Appellee.
• Court: Court of Appeals of Texas

Page 231

700 S.W.2d 231

COOK CONSULTANTS, INC., Appellant, v. Jean M. LARSON, Appellee.

No. 05-83-00451-CV.

Court of Appeals of Texas,

Dallas.

Aug. 13, 1985.

Rehearing Denied Oct. 16, 1985.

William R. Allensworth, Daniel E. Westbrook, Haynes & Boone, Dallas, for appellant.

Robert E. Luna, Law Offices of Earl Luna, P.C., Edmund R. Wood, Chancellor, Wood & Martin, Dallas, for appellee.

Before AKIN, SPARLING and GUILLOT, JJ.

ON REMAND FROM THE SUPREME COURT

SPARLING, Justice.

Defendant/appellant, Cook Consultants, appeals a judgment of liability for negligently surveying property owned by appellee, Larson. Cook argues that (1) absent privity of contract, it owed no duty to Larson; (2) the claim was barred by the two-year statute of limitations; (3) the actual damages issues were improper; (4) the court erred by refusing to submit its requested issue and instructions on avoidable consequences; (5) the evidence of gross negligence was legally and factually insufficient; (6) evidence of Larson's physical and emotional distress was irrelevant; and (7) the award of exemplary damages was excessive. We hold that (1) Cook is liable for negligent misrepresentation; (2) the statute of limitations did not bar the claim; (3) the evidence of cost of demolition was legally insufficient; (4) the refusal to submit the requested issue and instruction on avoidable consequences was not error; (5) there was no evidence of gross negligence; (6) any error in admitting the evidence of physical and emotional injury was harmless; and (7) the award of exemplary damages was excessive. We modify the judgment and affirm.

Facts

In 1970, Commonwealth Development Corporation, the builder of Larson's home, contracted with Cook to execute a completion survey to locate all improvements on the lot. The survey indicated that the house was within the lot lines. Consequently, Modern American Mortgage Corporation approved Larson's loan, and Larson purchased the property. In 1977, Larson's neighbor, Bates, suspected an encroachment and hired Robert West to resurvey Larson's lot. West discovered that Larson's house encroached on Bates' property by two and one-half to six feet. Bates sued Larson, and the court ordered Larson to "remove all improvements encroaching upon [Bates'] property" within ninety days of the judgment.

The parties stipulated that removal of a portion of the house was economically and physically infeasible. Accordingly, Larson, in October 1979, hired a demolition company to tear down the entire structure. She sued Stewart Title Co. for breach of contract, alleging that her title insurance policy covered the encroachment, and joined Cook, alleging negligence, breach of contract to a third party beneficiary, and breach of express and implied warranties. The judge granted Stewart's motion for instructed verdict. We affirmed this judgment. Cook Consultants, Inc., et al. v. Larson, 677 S.W.2d 718 (Tex.App.--Dallas 1984), affirmed, 690 S.W.2d 567 (Tex.1985). The jury found Cook grossly negligent and awarded Larson $32,150.00 in actual damages and $230,000.00 in exemplary damages. We reversed the trial court's judgment, holding that no evidence supported the jury's finding that Larson discovered the error within two years of filing suit. 677 S.W.2d at 721. The supreme court held that "some evidence" supported the jury's finding. Larson v. Cook Consultants, Inc., et al., 690 S.W.2d at 569. On remand from the supreme court, we address Cook's remaining points of error.

A. Negligent Misrepresentation

1. Duty of Care

a. In General

Cook concedes that its survey was erroneous but argues that it is not liable to Larson because, absent privity of contract, it did not owe Larson a duty of care. We need not address Larson's theory that she was a third-party beneficiary of the Cook/Commonwealth contract because we hold that Cook owed Larson a common law duty of care.

Actionable negligence presupposes the existence of a legal relationship between the parties through which the wrongdoer owed a duty to the injured party. State v. Brewer, 141 Tex. 1, 169 S.W.2d 468, 471 (1943); Bennett v. Span Industries, Inc., 628 S.W.2d 470, 473 (Tex.App.--Texarkana 1981, writ ref'd n.r.e.); Rushing v. International Underwriters, 604 S.W.2d 239, 243 (Tex.Civ.App.--Dallas 1980, writ ref'd n.r.e.); Lumpkins v. Thompson, 553 S.W.2d 949, 952 (Tex.Civ.App.--Amarillo 1977, writ ref'd n.r.e.). The duty may be imposed by contract or, irrespective of privity of contract, by law. Thus, although contractual privity assures a sufficiently close nexus between the parties upon which fairly to predicate liability, it is not, as Cook argues, indispensable to the imposition of a legal duty of care.

Section 552 of the Second Restatement of Torts, recognizing this proposition, provides for imposition, by law, of liability for negligent misrepresentation:

Information Negligently Supplied for the Guidance of Others

(1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.

RESTATEMENT (SECOND) OF TORTS § 552(1) (1977).

The determination whether to hold a particular defendant liable to a person not in privity is a question of policy. Section 552 "realistically recognizes that business [persons] who justifiably rely on the advice and expertise of other business [persons], holding themselves out in the community as possessing unique skills, are entitled to expect that one possessing skill will exercise it with due care in the course of his [or her] business relationships." First National Bank, Henrietta v. Small Business Administration, 429 F.2d 280, 287 (5th Cir.1970). Yet, as the Restatement itself recognizes, the expedition with which misinformation can be circulated and the potential magnitude of the loss require a restricted rule of liability for pecuniary loss caused by negligent misrepresentation. § 552, comment a; see also Prosser, Misrepresentation and Third Persons, 19 Vand.L.Rev. 231, 232 (1966). Unlimited liability can have a profound economic impact:

If liability for negligence exists, a thoughtless slip or blunder, the failure to detect a theft or forgery beneath the cover of deceptive entries, may expose accountants to a liability in an indeterminate amount for an indeterminate time to an inderterminate class. The hazards of a business conducted on these terms are so extreme as to enkindle doubt whether a flaw may not exist in the implication of a duty that exposes to these consequences.

Ultramares Corp. v. Touche, 255 N.Y. 170, 179-80, 174 N.E. 441, 444 (1931).

The conflicting policies are best harmonized by limiting liability to the person or class of persons whom the maker of the representation intends to benefit ¹ or who foreseeably may be expected to rely on the information. ² Limited liability would promote

a "social policy of encouraging the flow of commercial information upon which the operation of the economy rests," RESTATEMENT (SECOND) OF TORTS § 552 comment a (1977), without unreasonably burdening a surveyor's business.

b. Cook's Duty of Care

Since knowledge of the risk is a function of the probability of injury, Bennett, 628 S.W.2d at 473, the nature and scope of the duty owed is determined by scrutinizing the particular risk to which the victim was subjected, which involves weighing such factors as (1) the extent to which the transaction was intended to affect the plaintiff; (2) the forseeability of harm to the plaintiff; (3) the closeness of the connection between the defendant's conduct and the injury suffered; and (4) the potential liability. Aluma Kraft Manufacturing Co. v. Elmer Fox & Co., 493 S.W.2d 378, 383 (Mo.Ct.App.1973); Rozny v. Marnul, 43 Ill.2d 54, 250 N.E.2d 656 (1969); Green, The Duty to Give Accurate Information, 12 U.C.L.A. L.Rev. 464, 472 (1965).

Although we have found no Texas case holding a surveyor liable in negligence to a third party, other jurisdictions have imposed liability on surveyors, ³ and the rationale is applicable to the instant case.

First, the transaction indirectly was intended to benefit Larson, and the harm was reasonably forseeable. ⁴ The survey plat was addressed "TO ALL PARTIES INTERESTED IN PREMISES SURVEYED" and bore the following warranty:

The plat hereon is a true, correct and accurate representation of the property as determined by survey, the lines and dimensions of said property being as indicated by the plat; the size, location and type of buildings and improvements are as shown, all improvements being within the boundaries of the property, set back from property lines the distances indicated, and that the distance from the nearest intersecting street or road is as shown on said plat. There are no encroachments, conflicts or protrusions.

Jack Cook testified that a survey is "part of the cog that moves in a real estate transaction" and that it is used by "a lot of people just for various reasons. A lender, permanent lender wants to have a fixed record of where his money ... has been placed, a title company utilizes an appraiser, ... various financial institutions, insurance companies, just when to insure the people, various and sundry reasons." Robert West testified that the sole purpose of a survey is to protect reliance interests:

Mortgage companies use it to be certain the money they are advancing is going for the imporvements on this particular lot, that there are no encroachments or protrusions on it. The title company uses it to prepare the exceptions and so forth in their title policy and the owner uses it to be sure that his improvements are located on the property that he owns and has a deed for.

Additionally, a...