Davis v. Mcguigan

Decision Date26 October 2010
Docket NumberNo. M2007-02242-SC-R11-CV.,M2007-02242-SC-R11-CV.
Citation325 S.W.3d 149
PartiesJoseph DAVIS et al. v. Patrick J. MCGUIGAN et al.
CourtTennessee Supreme Court



Daniel P. Berexa, C. Bennett Harrison, Jr. and Brian W. Holmes, Nashville, Tennessee, for the appellants, Joseph Davis and Kimberli Davis.

Michael G. Hoskins, Nashville, Tennessee, for the appellees, Patrick J. McGuigan and McGuigan & Associates.


JANICE M. HOLDER, J., delivered the opinion of the Court, in which GARY R. WADE and SHARON G. LEE, JJ., joined. WILLIAM C. KOCH, JR., J., filed a separate dissenting opinion, in which CORNELIA A. CLARK, C.J., joined.


This appeal arises from a trial court's grant of summary judgment in an action against a real estate appraiser for fraudulent misrepresentation and for violation of the Tennessee Consumer Protection Act. A husband and wife alleged that the appraiser, who was hired by the bank financing the husband and wife's home construction, recklessly overestimated the value of their proposed construction and that they reasonably relied on the appraisal value to their detriment. The Court of Appeals affirmed the trial court's ruling, holding that an appraisal is an opinion that cannot form the basis for a fraudulent misrepresentation claim. We hold that an opinion can form the basis of a fraudulent misrepresentation claim. We further hold that genuine issues of material fact preclude summary judgment as to the husband and wife's claims against the appraiser. We reverse the Court of Appeals and remand the case to the trial court for further proceedings consistent with this opinion.

I. Facts and Procedural History

Joseph and Kimberli Davis (“the Davises”) purchased an unimproved, corner lot in the Horseshoe Bend subdivision near Nashville, Tennessee, for $135,500. They subsequently retained an architect to design a custom home for the lot and selected Frawood Custom Builders as the contractor. After working extensively with the Davises to refine the home's design and to select amenities, furniture, and fixtures for the home, the contractor calculated that the cost of building the home to the Davises' specifications was $595,394.50, resulting in a total cost of $730,894.50 for the lot and construction.

To finance the construction, the Davises contacted Alene Gnyp, a loan consultant at SunTrust Bank (“SunTrust”) and submitted a Uniform Residential Loan Application to SunTrust for a $580,000 residential loan. The loan application states, in part, “The [Davises] specifically acknowledge and agree that: ... (9) the Lender, its agents, successors and assigns make no representation or warranties, express or implied, to the Borrower(s) regarding the property, the condition of the property, or the value of the property.” As part of the loan application, the Davises also signed a document entitled “Disclosure Notices-Right to Receive A Copy of Appraisal,” which states, “You have the right to a copy of the appraisal report used in connection with your application for credit.” SunTrust began processing the Davises' loan application on May 15, 2002.

On June 18, 2002, an employee of SunTrust faxed an Appraisal Request to Patrick McGuigan, an appraiser whom SunTrust regularly used. The employee had written “Rush!” at the top of the request, and the request stated that the “sales price” for the Davises' proposed house was $735,000. Mr. McGuigan was provided the contractor's plans and specifications for the Davises' custom home. Mr. McGuigan accepted the assignment and executed a Uniform Residential Appraisal Report the next day.

According to the appraisal report, Mr. McGuigan used two approaches to appraise the property: the “cost approach” and the “sales comparison approach.” Pursuant to the cost approach, Mr. McGuigan consulted the “Marshall & Swift Residential Cost Handbook, local builder estimates, and [his] own cost files” to estimate the cost per square foot to reproduce the home. Mr. McGuigan then multiplied the estimated cost per square foot by the total square feet of the home, added the product to the estimated site value, and added an ‘As-is' Value of Site Improvements.” Using the cost approach, Mr. McGuigan appraised the property's value as $731,000 if the home were completed according to the contractor's plans and specifications.

Using the sales comparison approach, Mr. McGuigan estimated the amount that a reasonable buyer would pay for the home by evaluating recent sales of comparable properties and adjusting the comparable properties' sales prices based on the subject home's specifications. Mr. McGuigan did not use any homes from the Horseshoe Bend subdivision for comparison and instead chose the recent sales of three properties in the LaurelBrooke subdivision, located approximately one mile from the Horseshoe Bend subdivision. According to the appraisal report,

These sales were chosen due to their similarity to the subject [property] in size, quality, and appeal and are deemed the best and/or the most similar sales available as of the date of this report. All sales were given site adjustments due to the known difference in site values. Design/Appeal adjustments were given to all sales because the subject [property] is one story and cost[s] more to build. Equal weight was given to all sales in estimating the market value for the subject property.

Using the sales comparison approach, Mr. McGuigan appraised the Davises' property value as $735,000 if the home were completed according to its plans and specifications.

The appraisal report estimates the market value of the home as $735,000. It reconciles the differences in value resulting from the cost approach and the sales comparison approach by stating that [b]ecause buyers rely heavily on comparisons, the direct sales comparison approach is considered the best indicator of market value” but that [t]he cost approach supports the sales comparison approach.”

Mr. McGuigan forwarded a copy of his appraisal report to SunTrust on June 21, 2002, including the Uniform Standards of Professional Appraisal Practice Compliance Addendum with the report. Under the heading “Purpose of the Appraisal,” Mr. McGuigan included the following statement: “This appraisal report is prepared for the sole and exclusive use of the lender as mentioned in the client section of this report, to assist with the mortgage lending decision. It is not to be relied upon by third parties for any purpose, whatsoever.” SunTrust was the only entity identified in the Lender/Client section of the appraisal report.

Ms. Gnyp informed the Davises by telephone that their proposed home had been appraised for $735,000 and that their loan application for $580,000 had been approved. At some time between June 21 and June 24, 2002, the Davises signed a cost-plus contract with Frawood Custom Builders to construct their home. The Davises had not obtained a copy of the appraisal report before they signed the contract with Frawood Custom Builders, nor did they read the appraisal report when they received a copy of it at the loan closing on July 2, 2002.

After living in the completed home for more than a year, Mr. Davis returned to SunTrust seeking a home equity line of credit. SunTrust ordered another appraisal of the Davises' home as part of the loan approval process, and the second appraisal stated that the home's value was $510,000. The bank denied the Davises' loan application. After inquiring into the denial, Mr. Davis learned of the second appraisal. Around the same time, Ms. Davis became unemployed.

The Davises subsequently decided to sell their home. They consulted six real estate agents, each of whom told them that the home would sell for between $590,000 and $625,000. The Davises hired real estate agent Michael Hays to sell the property. On Mr. Hays's advice, the Davises listed the property for sale at $679,000 on November 30, 2004. The Davises accepted an offer on the home from the first prospective buyer and, on April 8, 2005, closed on the sale of the property for $660,000. On April 13, 2005, Mr. Davis filed a complaint for divorce, stating that he and Ms. Davis had separated on November 11, 2004.

On April 20, 2005, Mr. and Ms. Davis filed a complaint against Mr. McGuigan in the Circuit Court of Davidson County. The Davises asserted that Mr. McGuigan had intentionally or negligently misrepresented the market value of their home when he appraised it in June 2002 and that he had also violated the Tennessee Consumer Protection Act. After discovery, the trial court entered an order granting Mr. McGuigan summary judgment with regard to the Davises' intentional misrepresentation and Tennessee Consumer Protection Act claims. The Davises subsequently filed a notice of voluntary dismissal of their negligent misrepresentation claim.

The Davises appealed the summary judgment as to the intentional misrepresentation and Tennessee Consumer Protection Act claims to the Court of Appeals. The intermediate appellate court affirmed summary judgment, holding in part that because “appraisals are not considered facts, but rather estimates or opinions,” an appraisal cannot provide the basis for an intentional misrepresentation claim. Davis v. McGuigan, No. M2007-02242-COA-R3-CV, 2008 WL 4254150, at *6 (Tenn.Ct.App. Sept. 10, 2008). We granted the Davises permission to appeal.

II. Analysis

Summary judgment may be granted only if the record shows “that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Tenn. R. Civ. P. 56.04. Because the granting or denying of summary judgment is a question of law, we apply a de novo standard of review. Blair v. W. Town Mall, 130 S.W.3d 761, 763 (Tenn.2004). We first address whether the trial court properly granted Mr. McGuigan summary judgment on the Davises' intentional misrepresentation claim before turning to whether summary...

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