[textbook]Traversing the Ethical Minefield Problems, Law, and Professional Responsibility by Susan R. Martyn (z-lib.org)(1) (1)

The availability of professional liability insurance has mandated that lawyers understand
tort liability to both clients and nonclients. Overall, courts apply fairly consistent rules to
govern tort suits against lawyers. Client remedies require proof of a client-lawyer
relationship, breach of a professional fiduciary duty or duty of care, causation, and damage.
Similar nonclient remedies follow if imposing a duty on a lawyer will not harm the clientlawyer
relationship. Courts recognize nonclient liability when lawyers commit intentional
torts or violate generally applicable statutes. They also impose lawyer duties to nonclients
when the lawyer or client invites reliance on the lawyer’s services, when the client intends a
third-party beneficiary, when limited nonclients are harmed by the lawyer’s negligent
misrepresentation, and when nonclients are harmed by the lawyer’s aiding and abetting of a
client’s breach of fiduciary duty or a client’s fraud.
C. Nonclient Duties Model Rules 1.1, 2.3, 4.1, 8.4(c) RLGL §§ 51, 95, 98
Greycas, Inc. v. Proud
826 F.2d 1560 (7th Cir. 1987), cert. denied, 484 U.S. 1043 (1988)
POSNER, Circuit Judge.
Theodore S. Proud, Jr., a member of the Illinois bar who practices law in a suburb of
Chicago, appeals from a judgment against him for $833,760, entered after a bench trial.
The tale of malpractice and misrepresentation that led to the judgment begins with Proud’s
brother-in-law, Wayne Crawford, like Proud a lawyer but one who devoted most of his
attention to a large farm that he owned in downstate Illinois. The farm fell on hard times
and by 1981 Crawford was in dire financial straits. He had pledged most of his farm
machinery to lenders, yet now desperately needed more money. He approached Greycas,
Inc., the plaintiff in this case, a large financial company headquartered in Arizona, seeking a
large loan that he offered to secure with the farm machinery. He did not tell Greycas about
his financial difficulties or that he had pledged the machinery to other lenders, but he did
make clear that he needed the loan in a hurry. Greycas obtained several appraisals of
Crawford’s farm machinery but did not investigate Crawford’s financial position or
discover that he had pledged the collateral to other lenders, who had perfected their liens in
the collateral. Greycas agreed to lend Crawford $1,367,966.50, which was less than the
appraised value of the machinery.
The loan was subject, however, to an important condition, which is at the heart of this
case: Crawford was required to submit a letter to Greycas, from counsel whom he would
retain, assuring Greycas that there were no prior liens on the machinery that was to secure
the loan. Crawford asked Proud to prepare the letter, and he did so, and mailed it to
Greycas, and within 20 days of the first contact between Crawford and Greycas the loan
closed and the money was disbursed. A year later Crawford defaulted on the loan; shortly
afterward he committed suicide. Greycas then learned that most of the farm machinery that
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