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An appraisal report can serve as basis for a negligent misrepresentation claim by lender who relied on the report in making a loan.

This case arises from an appraisal conducted for Bryant Bank. Wallace Seafood Traders (WST) submitted a loan application in September 2007 with Bryant Bank for the purchase of property WST was renting and from which WST was operating its business.

At the time of WST's loan application, Bryant Bank was in possession of an appraisal of the property that had been prepared for another bank by a different appraiser in July 2007. That appraisal report indicated the property had a market value of $2,400,000.

Bryant Bank requested an additional appraisal of the property. On November 26, 2007 a second appraiser (the Appraiser) signed an engagement letter agreeing to provide an appraisal report estimating market value of the property as defined by USPAP. On December 10, 2007, the Appraiser provided Bryant Bank an appraisal report indicating that the property had a market value of $1,700,000. The report contained a certification stating the report was in conformity with USPAP.

Bryant Bank employees responsible for approving WST's loan application suspected the Appraiser might have overstated the value of the property but approved the loan on December 18, 2007.

On October 28, 2008, WST defaulted on the loan. Bryant Bank obtained another appraisal of the property from a different appraisal firm. This third appraisal indicated the property had a value of $205,000.

On July 3, 2010, Bryant Bank sued the Appraiser for breach of contract and negligent misrepresentation arising from the bank's reliance on the appraisal report in issuing the loan to WST.

On October 19, 2012, the Appraiser filed a motion for partial summary judgment as to the negligent misrepresentation claim because (1) the opinion in the appraisal report could not be a basis for negligent misrepresentation, (2) Bryant Bank did not rely upon the opinion in the report, and (3) the claim was barred by the applicable statute of limitations.

In response, Bryant Bank argued an appraisal report could serve as the basis of a negligent misrepresentation claim under Alabama law because the Appraiser conducted the appraisal for Bryant Bank and owed a duty to Bryant Bank. Bryant Bank relied on the appraisal to its detriment when it issued the loan to WST, using the property as collateral. Bryant Bank argued the statute of limitations did not begin to run until WST defaulted on the loan and caused Bryant Bank to incur a legal injury.

The circuit court granted the Appraiser's partial summary judgment motion. Bryant Bank appealed.

The Supreme Court of Alabama held the Appraiser was not entitled to summary judgment on the negligent misrepresentation claim based on the statute of limitations. A negligent misrepresentation constitutes legal fraud and is subject to a two-year statute of limitations in Alabama. The statute beings to run when the plaintiff discovers or should have discovered the facts constituting the fraud. Under Alabama precedent, the question is when a person of reasonable prudence would have discovered the alleged fraud and this is generally a question for the jury.

Bryant Bank argued that its negligent misrepresentation claim accrued when it incurred damage as a result of WST's default. Bryant Bank argued it was not until WST's default that it began to investigate its mitigation options and became aware of facts that led it to believe the Appraiser had negligently conducted the appraisal. The Appraiser argued that the claim accrued when Bryant Bank approved WST's loan application in December 2007 or alternatively in April 2008 when Bryant Bank reconsidered the value of the property in deciding to extend WST's line of credit.

The Supreme Court of Alabama found there was no evidence indicating Bryant Bank had actual knowledge for more than two years before commencing this action that the appraisal was conducted negligently. Therefore, the issue of statute of limitations was not appropriate for summary judgment.

The elements for a misrepresentation claim are (1) a misrepresentation of material fact, (2) made willfully to deceive, recklessly, without knowledge, or mistakenly, (3) which was justifiably relied on by the plaintiff under the circumstances, and (4) which caused damage as a proximate consequence.

The Alabama Supreme Court held that the Appraiser's opinion of the value of the property, as stated in the appraisal report, could serve as the basis of Bryant Bank's negligent misrepresentation claim. Additionally, the court found that Bryant Bank presented substantial evidence that it relied on the appraisal of the property. The Alabama Supreme Court reversed the granting of partial summary judgment for the Appraiser on the negligent misrepresentation claim and remanded the case for further proceedings.

Bryant Bank v. Talmage Kirkland Co.

Supreme Court of Alabama

May 23, 2014

2011 WL 11742121
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Title Annotation:Recent Court Decisions; Bryant Bank v. Talmage Kirkland Co
Publication:Appraisal Journal
Geographic Code:1U6AL
Date:Sep 22, 2014
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