Source: https://www.chanrobles.com/usa/us_supremecourt/366/696/case.php
Timestamp: 2020-07-13 02:11:31
Document Index: 548394136

Matched Legal Cases: ['§ 1346', '§ 203', '§ 2680', '§ 2680', '§ 2680', '§ 226', '§ 226', '§ 226']

Pursuant to the provisions of the National Housing Act of 1934, [Footnote 1] as amended, the Federal Housing Administration (FHA) is authorized, in certain instances, to insure the partial repayment of loans secured by mortgages executed chanrobles.com-red
The question for decision in this case is whether the United States may be held liable, under the Federal Tort Claims Act, 28 U.S.C. § 1346(b), [Footnote 4] to a purchaser of residential property who has been furnished a statement reporting the results of an inaccurate FHA inspection and appraisal, and who, in reliance thereon, has been induced by the seller to pay a purchase price in excess chanrobles.com-red
Early in 1957, the property in question, consisting of a 16-year-old single-family brick house and lot located in Alexandria, Virginia, was offered for sale by its owners. To assure that FHA mortgage insurance would be available to secure a loan in the event that the purchaser, when ascertained, might desire to finance the purchase by that method, the owners requested a qualified lending institution to take the necessary steps to have the property inspected and appraised by the FHA, and, pursuant to the lending agent's application, [Footnote 5] an FHA appraiser visited and inspected the premises. On the basis of that inspection, which disclosed no defects that would disqualify the property for mortgage insurance, the FHA issued to the lending agency a "conditional commitment," [Footnote 6] stating that the property had been approved for mortgage insurance and, for that purpose, had been assigned an appraised value of $22,750. Under § 203(b)(2) of the National Housing Act, [Footnote 7] the maximum amount of chanrobles.com-red
Ten months thereafter, respondents commenced this action against the Government, under the Federal Tort Claims Act, in the United States District Court for the Eastern District of Virginia, seeking recovery of the difference between the fair market value of the property and the purchase price of $24,000. The complaint alleged that the FHA's inspection and appraisal of the property for mortgage insurance purposes had been conducted negligently; that respondents were justified in relying upon the results of that inspection and appraisal; and that they "would not have purchased the property for chanrobles.com-red
(Emphasis added.) The Government's chanrobles.com-red
207 F.2d 564. Following this interpretation in an unbroken line are the cases of National Mfg. Co. v. United States, chanrobles.com-red
274 F.2d 71. [Footnote 13]
In the instant case, the Fourth Circuit took the opposite view, and held that respondents could recover on the sole basis of the underlying negligence. Although it agreed that § 2680(h) embraces both "negligent" and "willful" misrepresentation, and that respondents' claim "might form the basis of an action for misrepresentation under general common law principles," 281 F.2d 601, it deemed § 2680(h) inapplicable here for the reason that the misrepresentation was "merely incidental" to the "gravamen" of the claim, i.e., "the careless making of an excessive appraisal so that [respondents were] . . . deceived and suffered substantial loss." Id. at 602. chanrobles.com-red
Whether or not this analysis accords with the law of States which have seen fit to allow recovery under analogous circumstances, [Footnote 15] it does not meet the question of chanrobles.com-red
To say, as the Fourth Circuit did, that a claim arises out of "negligence," rather than "misrepresentation," when the loss suffered by the injured party is caused by the breach of a "specific duty" owed by the Government to him, i.e., the duty to use due care in obtaining and communicating information upon which that party may reasonably be expected to rely in the conduct of his economic affairs, is only to state the traditional and commonly understood legal definition of the tort of "negligent misrepresentation," as is clearly, if not conclusively, shown by the authorities set forth in the margin, [Footnote 16] and chanrobles.com-red
which there is every reason to believe Congress had in mind when it placed the word "misrepresentation" before the word "deceit" in § 2680(h). As the Second Circuit observed in Jones v. United States, supra, "deceit" alone would have been sufficient had Congress intended only to except deliberately false representations. [Footnote 17] Certainly there is no warrant for assuming that Congress was unaware of established tort definitions when it enacted the Tort Claims Act in 1946, after spending "some twenty-eight years of congressional drafting and redrafting, amendment and counter-amendment." @ 338 U. S. 219-220. Moreover, as we have said in considering other aspects of the Act:
Nor is there any indication that Congress intended, by its 1954 addition of § 226, to modify the legislation's fundamental design from a system of mortgage repayment insurance to one of guaranty or warranty to the purchaser of value received. On its face, § 226 goes no further than to require that a seller of property approved for FHA mortgage insurance shall furnish to the buyer, prior to sale, a written statement disclosing the FHA-appraised value. [Footnote 23] That Congress did not thereby intend to convert the FHA appraisal into a warranty of value, or otherwise to extend to the purchaser any actionable right of redress against the Government in the event of a faulty appraisal, was made irrefutably clear in the Committee Hearings in both Houses of Congress, the pertinent excerpts from which are set forth in the margin. [Footnote 24] chanrobles.com-red
The compulsory disclosure provision of § 226 is but one of numerous instances in which Congress has relegated to a governmental agency the duty either to disclose directly, or to require private persons to disclose, information for the assistance and guidance of other persons in the conduct of their economic and commercial affairs. In practically all such instances, it may be said that the Government owes a "specific duty" to obtain and communicate information carefully, less the intended recipient be misled to his financial harm. While we do not condone carelessness by government employees in gathering and promulgating such information, neither chanrobles.com-red