Arizona Court of Appeals Division One holds that one with a pecuniary interest in a land transaction owes a duty to exercise reasonable care and competence when communicating the existence of restrictions on the land to others who might justifiably rely on those representations.

A developer met with a City planner to ascertain what zoning and land use restrictions existed on a parcel of land for sale. The City planner failed to inform the developer of certain stipulations on the parcel. Relying on the City planner’s representations, the developer purchased the parcel. Thereafter, the City informed the developer of additional zoning restrictions. These restrictions allegedly rendered the parcel undevelopable as planned, causing the developer significant lost profits.

The developer sued the City in superior court, alleging negligent misrepresentation. The superior court dismissed the complaint, concluding that neither a special relationship between the City and the developer nor a public policy reason existed to impose a duty on the City under the circumstances. The superior court noted in particular that the City’s public duty to supply factual information—as opposed to legal advice—did not extend, here, to what the superior court deemed legal advice regarding the City’s zoning ordinance.

The court of appeals reversed. While acknowledging the distinction between the duty to supply factual information and the lack of duty to provide legal advice, it explained that public policy, derived from Restatement (Second) of Torts § 552(1), did impose a duty on the City under the circumstances to exercise reasonable care in communicating the existence of restrictions on the land to the developer. Particularly, § 552 (1) states,

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.

The Court elucidated that the information sought by the developer—whether stipulations existed on the parcel—was a request for factual information, rather than legal advice. Further, in support, it noted the Restatement creates an exception to the no-duty-owed principle regarding representations of law when those representations include, expressly or by implication, representations of fact.

Judge McMurdie authored the opinion, in which Judges Williams and Thumma joined.

Posted by: BriAnne Illich Meeds