Wolther v. Schaarschmidt, 85CA0783

• Citation: 738 P.2d 25
• Decision Date: 31 December 1986
• Docket Number: No. 85CA0783,85CA0783
• Parties: Matt WOLTHER, Plaintiff-Appellant, v. Donald SCHAARSCHMIDT, d/b/a Schaarschmidt Engineering, Defendant-Appellee, and West Way Associates, a partnership, and Andi Are, Defendants. . I
• Court: Court of Appeals of Colorado

Page 25

738 P.2d 25

Matt WOLTHER, Plaintiff-Appellant, v. Donald SCHAARSCHMIDT, d/b/a Schaarschmidt Engineering,

Defendant-Appellee,

and

West Way Associates, a partnership, and Andi Are, Defendants.

No. 85CA0783.

Colorado Court of Appeals,

Div. I.

Dec. 31, 1986.

Rehearing Denied Jan. 29, 1987.

Certiorari Denied (Schaarschmidt) July 13, 1987.

Rector, Retherford, Mullen & Johnson, L. Dan Rector, Colorado Springs, for plaintiff-appellant.

Cleveland, Wengler & Robbins, P.C., Edward D. Cleveland, Colorado Springs, for defendant-appellee Donald Schaarschmidt, d/b/a Schaarschmidt Engineering.

CRISWELL, Judge.

Plaintiff, Matt Wolther, appeals the summary judgment that dismissed his negligent misrepresentation claim against defendant, Donald Schaarschmidt. Because we conclude that there are genuine issues of fact still to be resolved, we reverse.

Plaintiff entered into a contract with a third party (West Way) to purchase an older home and applied to a lending institution for a purchase money loan. The appraiser hired by the lender to appraise the property engaged defendant, an engineer, to make a "walk through" inspection of the premises and to render an opinion upon its condition.

It is undisputed that plaintiff knew of defendant's inspection of the property for purposes of the loan inasmuch as he saw defendant on the property on the day he inspected it. At that time, plaintiff asked defendant whether he was going to "approve" the house, so that the loan could be made. In response, defendant pointed out certain conditions in the property, told plaintiff that he thought the house had been constructed upon expansive soils and that there might be further soil movements in the future, but said that it would be up to the lender to approve the loan. Defendant finally advised plaintiff that he would "call it the way I see it."

After his inspection, defendant prepared a written report which he sent to the real estate broker, rather than to the lender's appraiser who had engaged him. In this report, defendant referred to his "structural inspection" of the dwelling and noted that the floors of the structure were sloping, but stated that, in his opinion, they did not constitute a "structural hazard." The ultimate conclusions of this report were that the house was "well-maintained and basically structurally sound" and that defendant felt that no "remedial repairs" were necessary.

After receiving this report, the lender approved plaintiff's loan and a closing upon plaintiff's house purchase was held. At the time of closing, plaintiff had not seen the defendant's report. He claims, however, that the lender's approval of the loan led him reasonably to believe that defendant's report approved the structure's soundness.

After the closing, plaintiff took possession of the premises. He then discovered that certain floor supports underneath the house were rotten and termite infested, requiring their replacement at considerable cost to him. As a result, he instituted suit against West Way for fraud and against defendant for negligent misrepresentation under Restatement (Second) of Torts § 552 (1977) (Restatement § 552).

Initially, the trial court, relying upon this court's decisions in Strong v. Retail Credit Co., 38 Colo.App. 125, 552 P.2d 1025 (1976), and Birkenmayer & Co. v. Homestead Minerals, 32 Colo.App. 258, 510 P.2d 449 (1973), granted defendant's motion for summary judgment upon the ground that plaintiff was not in privity with defendant, a prerequisite for any misrepresentation action based on simple negligence. On reconsideration, the court modified this ruling and, instead, held that plaintiff could not recover from defendant because the undisputed evidence established that he was not one of the persons for whose benefit defendant supplied the information contained in his written report.

We conclude that the entry of summary judgment on either basis was improper.

I. The Necessity for Privity

Restatement § 552, in pertinent part, reads as follows:

"(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.

(2) Except as stated in Subsection (3), the liability stated in Subsection (1) is limited to loss suffered

(a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and

(b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction."

Comments b and e to this section make clear that the "information" referred to includes a professional opinion, as well as the facts which underlie such an opinion.

The rationale of Restatement § 552 was expressly adopted by this court in First National Bank v. Collins, 44 Colo.App. 228, 616 P.2d 154 (1980), in which we noted that the claim of negligent misrepresentation had been "discussed" in the earlier opinion in Birkenmayer & Co. v. Homestead Minerals, supra. Prior to First National Bank, supra, the court in Strong v. Retail Credit Co., supra, had suggested that, in relying upon Judge Cardozo's decision in Ultramares Corp. v. Touche, 255 N.Y. 170, 174 N.E. 441 (1931), Birkenmayer had adopted the rule that a supplier of information was not liable for his simple negligence to any person not in privity with him.

The Restatement rule does not require privity in order to render a provider of information liable to the limited groups of persons described in Restatement § 552(2). Thus, this court's express adoption of Restatement § 552 in First National Bank, supra, necessarily rejected any requirement for privity. To the extent that either Birkenmayer or Strong may be read as requiring privity as one of the elements of a negligent mispresentation claim, we decline to follow them.

II. Plaintiff as Intended Beneficiary

In support of his motion for summary judgment, defendant submitted an affidavit in which he declared that it was not his intention that any prospective purchaser would act in reliance on his report and that he was not informed that such a prospective purchaser would receive a copy of his report. Based upon these allegations, which plaintiff did not directly controvert, the trial court concluded that the undisputed evidence established, as a matter of law, that plaintiff was not one of the intended beneficiaries of defendant's report under...