## Facts

- Greycas, Inc., a finance company, agreed to lend Wayne Crawford approximately $1.37 million, purportedly secured by Crawford’s farm machinery.
- Crawford was in severe financial distress and had already granted prior, perfected security interests in much of the same machinery to other lenders.
- As a condition of closing, Greycas required a letter from Crawford’s attorney assuring that there were no prior liens on the collateral.
- Theodore S. Proud, Jr., an Illinois attorney and Crawford’s brother-in-law, sent Greycas an opinion letter stating he had conducted UCC, tax, and judgment searches and was satisfied there were no prior security interests in the machinery.
- Proud had not performed the stated searches, and the collateral was in fact encumbered by prior perfected liens.
- Greycas funded the loan in reliance on Proud’s letter.
- About a year later, Crawford defaulted and later died by suicide.
- In subsequent proceedings determining priorities, Greycas lacked first priority on most collateral and recovered only a small portion of the loan.
- Greycas sued Proud in federal court; after a bench trial, the court entered judgment for Greycas for $833,760, measured by the value Greycas would have realized absent the prior liens Proud represented did not exist.

## Issues

1. Whether an attorney who issues an opinion letter for a transaction may owe a duty of care to a nonclient lender, even though the lender is on the opposite side of the client.
2. Whether Proud’s false statements in the opinion letter support liability for negligent misrepresentation (and/or fraud) without contractual privity.
3. Whether Greycas’s failure to conduct an independent lien search made its reliance unreasonable or reduced recovery.

## Decision

- The Seventh Circuit affirmed the judgment for Greycas.
- The court held Proud liable under negligent misrepresentation principles (and on the facts, his conduct was also consistent with fraud).
- The court rejected a strict privity bar and concluded Proud owed a duty to Greycas because the letter was directed to Greycas for the specific purpose of inducing reliance in a particular loan transaction.
- The court found Greycas’s reliance on the opinion letter reasonable, despite Greycas’s ability to conduct its own search.
- The court upheld damages of $833,760 based on the loss attributable to Greycas not receiving the first-priority collateral position represented in the letter.
- A concurring opinion agreed with affirmance on the ground that Proud was plainly liable for fraud.

## Legal Principles

- An attorney may owe a duty of care to a nonclient when the attorney makes representations to an identified third party for the known purpose of influencing that party’s conduct in a specific transaction.
- Lack of contractual privity does not categorically preclude liability where duty arises from foreseeable, intended reliance by a specific third party.
- Negligent misrepresentation liability is appropriately limited when the communication is made directly to a known party, for a single transaction, to induce reliance, avoiding exposure to an indeterminate class of claimants.
- A party’s reliance on a formal attorney opinion letter stating that searches were performed may be reasonable, even if the party could have undertaken independent verification.
- Liability may be framed as professional negligence, negligent misrepresentation, or fraud; on materially similar facts, the label does not defeat recovery when duty, breach, causation, and loss are established.

## Conclusion

The court held that an attorney who sends a lien-status opinion letter to a lender, intending the lender to rely on it in making a loan, can be liable to that nonclient for losses caused by false statements in the letter, and Greycas’s reliance on such an opinion was not unreasonable as a matter of law.


Greycas, Inc. v. Proud, 826 F.2d 1560 (7th Cir. 1987)