ARLINGTON INVESTMENT COMPANY v. TARCHER

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Court of Appeal, First District, Division 2, California.

ARLINGTON INVESTMENT COMPANY, Plaintiff and Appellant, v. Benjamin D. TARCHER et al., Defendants and Respondents.

No. A075357.

Decided: October 02, 1997

Law Offices of James J. Cherry, James J. Cherry, Karren L. Easton, William A. Wasko, Oakland, for Plaintiff and Appellant. Stephen M. Fuerch, Michael J. Greathouse, Rifkind & Fuerch, A.P.C., Hayward, for Defendants and Respondents.

Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 44 Cal.Rptr.2d 352, 900 P.2d 601 holds that a lender's acquisition of secured property by full credit bid at a nonjudicial foreclosure sale does not bar the lender as a matter of law from maintaining a fraud action against third party non-borrowers who fraudulently induced the lender to make the loans.   The question tendered by the present case is whether the holding in Alliance applies not simply to fraud claims but as well to a cause of action for negligent misrepresentation.   We hold that it does.

I.

In 1989 Benjamin Tarcher sought a loan from Arlington Investment Company (Arlington) offering as security three unimproved lots on Panoramic Way in Oakland.   Before making the loan, Arlington asked Tarcher to have the land appraised.   Tarcher requested such an appraisal from Glenn T. Graham, a professional real estate appraiser.   Graham appraised the three parcels and provided a letter of opinion estimating the value of the land to be $96,500.   Relying on that appraisal, Arlington loaned Tarcher $50,000 and recorded a deed of trust on the property.   When, the following year, Tarcher requested the loan of additional sums, Arlington requested another appraisal of the properties.   At Tarcher's request, Graham reappraised the property and estimated that its value was then $204,000.   Relying on this appraisal, Arlington extended additional loans to Tarcher, secured by the same deed of trust, of $25,000 and $27,000.   In all, Arlington loaned Tarcher $102,000.

When Tarcher defaulted on the loans Arlington foreclosed on the lien, acquiring all three lots at a nonjudicial foreclosure sale through a full credit bid of approximately $110,000.1  When Arlington tried to sell the lots and recoup its losses it learned the lots could not be developed due to a sewer hookup moratorium and because the aggregate size of the three lots fell under the minimum size necessary to develop under applicable zoning laws.   Alison Teeman, a licensed real estate appraiser, stated in a declaration submitted in opposition to the motion for summary judgment that because the properties were “unbuildable” they had “no value except as a garden.”   She further opined that “comparable sales would establish [an actual value of the land] in the range of $5,000.”   Ms. Teeman stated that while Graham's appraisals greatly overstated the value of the property, Arlington could have reasonably relied on them.

Arlington sued Tarcher and Graham.   Arlington proceeded against Tarcher on a fraud theory, among other grounds, contending that he knew the lots could not be developed.   So far as the record reveals, the claims against Tarcher are still pending below.   More germane to this appeal, Arlington's claim against Graham for negligent misrepresentation was based on the allegation that he “had no reasonable ground for believing [his appraisals] were true and knew or should have known that such representations were false,” and that he made these representations with the knowledge and intent that Arlington would rely upon them in making the loans to Tarcher.

Disputing none of the facts alleged against him in the complaint, Graham moved for summary judgment, claiming Arlington's full credit bid “extinguished its claims that there was inadequate security.”   According to Graham, the full credit bid operated to “set the value of the property at an amount sufficient to satisfy the indebtedness.”   The trial court agreed and granted the motion.   As did Graham, the court explicitly relied on Pacific Inland Bank v. Ainsworth (1995) 41 Cal.App.4th 277, 48 Cal.Rptr.2d 489, which holds that “absent a fraud claim, a full credit bid estops a plaintiff from establishing damages.”  (Id., at p. 283, 48 Cal.Rptr.2d 489.)   As will be seen, we believe Pacific Inland Bank rests upon much too narrow a reading of the seminal opinion in Alliance Mortgage Co. v. Rothwell, supra, 10 Cal.4th 1226, 44 Cal.Rptr.2d 352, 900 P.2d 601.

II.

 Alliance was an action by a real estate lender against a real estate appraiser and broker, a title insurer, and others, alleging, among other things, that the defendants fraudulently induced the plaintiff to make loans to purchasers of real property.   The trial court granted motions to strike portions of the complaint, concluding that the plaintiff's full credit bids for the properties at the nonjudicial foreclosure sales barred claims for damages resulting from fraudulent representations as to the adequacy of the security, and entered judgment on the pleadings for the defendants.   We reversed.   Expressly disagreeing with Western Fed. Savings & Loan Assn. v. Sawyer (1992) 10 Cal.App.4th 1615, 13 Cal.Rptr.2d 639 and GN Mortgage Corp. v. Fidelity Nat. Title Ins. Co. (1994) 21 Cal.App.4th 1802, 27 Cal.Rptr.2d 47, which supported the trial court ruling in Alliance, but which we thought “wrongly decided,” we held that “[a] full credit bid does not establish the value of the property for all purposes, but only for the purpose of foreclosure proceedings against a borrower.”   In our view, “[t]here is no basis in law or policy upon which to permit a rule designed to protect debtors from the untoward effects of an economic downturn to be extended to insulate non-debtor tortfeasors, particularly fiduciaries, from liability.”   We continue to adhere to that view, which we believe implicit in the analysis of the full credit bid rule adopted by the Supreme Court in unanimously affirming our decision in Alliance.   Although the Alliance court decided only that full credit bids do not as a matter of law bar claims for fraudulent misrepresentations as to the adequacy of the security, because that was the only issue the court needed to decide, the rationale of Alliance, as well as the authorities the court relied upon, strongly suggest such bids also do not as a matter of law bar any other tort claims against third parties who are not persons whose interests are subject to the lien of a mortgage.

After reviewing certain background principles regarding mortgages and deeds of trust, the discussion in Alliance commences with a description of the “elaborate and interrelated set of foreclosure and antideficiency statutes relating to the enforcement of obligations secured by interests in real property.”  (Alliance Mortgage Co. v. Rothwell, supra, 10 Cal.4th at p. 1236, 44 Cal.Rptr.2d 352, 900 P.2d 601.)   Most of these statutes, the court observed, “were enacted as a result of ‘the Great Depression and the corresponding legislative abhorrence of the all too common foreclosures and forfeitures [which occurred] during that era for reasons beyond the control of the debtors.’  [Citation.]”  (Ibid.) The court noted, however, that while these statutes “have been broadly interpreted to protect the debtor,” they “do not preclude an action against a borrower for fraud in the inducement of a loan.”  (Id., at p. 1237, 44 Cal.Rptr.2d 352, 900 P.2d 601.)   There are three reasons for this exception.  “First, ‘[a] suit for fraud obviously does not involve an attempt to recover on a debt or note.   As such, it stands separate and apart from any action which the antideficiency legislation seeks to preclude.’  [Citations.]  ‘Furthermore, the antideficiency laws were not intended to immunize wrongdoers from the consequences of their fraudulent acts.   Finally, assuming that the court applies a proper measure of damages, fraud suits do not frustrate the antideficiency policies because there should be no double recovery for the beneficiary.’  [Citation.]”  (Id., at pp. 1237-1238, 44 Cal.Rptr.2d 352, 900 P.2d 601.)

Alliance discusses the liability for fraud of a borrower, which was established by Guild Mortgage Co. v. Heller (1987) 193 Cal.App.3d 1505, 1508, 239 Cal.Rptr. 59, to show how anomalous it would be to bar such a claim against non-borrowers.   Everything the Alliance court said about fraud can also be said about negligence.   A suit for negligence is as separate a remedy from a suit on a promissory note secured by a deed of trust as a suit for fraud.   The antideficiency statutes were no more designed to immunize parties from liability for negligence than they were designed to protect anyone from the consequences of fraud.   Like suits for fraud, negligence actions against non-debtors will not result in double recovery for the creditor and therefore also do not frustrate the antideficiency policies.

The full credit bid rule, like the antideficiency statutes, is not concerned about the relationship between the lender and third parties but only the relationship between the lender and the borrower or a successor whose interests are also subject to the lien of a mortgage.   As stated in Alliance, when the property is acquired through a full credit bid, “the lender pays the full outstanding balance of the debt and costs of foreclosure to itself and takes title to the security property, releasing the borrower from further obligations under the defaulted note.”  (10 Cal.4th at p. 1238, 44 Cal.Rptr.2d 352, 900 P.2d 601, italics added.)   The Alliance court explained the purpose of the full credit bid rule by reiterating the statement in Smith v. Allen (1968) 68 Cal.2d 93, 96, 65 Cal.Rptr. 153, 436 P.2d 65 that “[I]t is clear that the Legislature intended that a properly conducted [nonjudicial] foreclosure sale should constitute a final adjudication of the rights of the borrower and the lender.”  (Id., italics added.)   It is for this reason unsurprising that other than the two Court of Appeal decisions discredited in Alliance (Western Fed. Savings & Loan Assn. v. Sawyer, supra, 10 Cal.App.4th 1615, 13 Cal.Rptr.2d 639 and GN Mortgage Corp. v. Fidelity Nat. Title Ins. Co., supra, 21 Cal.App.4th 1802, 27 Cal.Rptr.2d 47), and Pacific Inland Bank v. Ainsworth, supra, 41 Cal.App.4th 277, 48 Cal.Rptr.2d 489, which we shall discuss presently, no California case imposes the bar of the full credit bid rule in actions that are not on the note, for damages not caused by breach of the loan agreement, from persons who are not borrowers or otherwise party to that agreement or the successor in interest of such a person.

Cornelison v. Kornbluth (1975) 15 Cal.3d 590, 125 Cal.Rptr. 557, 542 P.2d 981 is the only case other than Alliance in which our Supreme Court has attempted to explicate the full credit bid rule in the context of a nonjudicial foreclosure sale.  Cornelison, which is cited with approval and discussed in Alliance, was an action for damages by the lender against a successor in interest of the borrower alleging breach of covenants in the trust deed and waste caused by the defendant's alleged failure to properly care for the property securing the deed.   The plaintiff lender regained possession of the property by purchasing it by a full credit bid at a nonjudicial foreclosure sale.   The Supreme Court affirmed the grant of summary judgment for the defendant.   In material part, the court held that an action for waste following a foreclosure sale under a purchase money trust deed is barred by Code of Civil Procedure section 580b,2 prohibiting deficiency judgments, if the acts of the defaulting borrower that give rise to the claim of waste were in fact caused by a downturn in land values.   If, however, the waste was caused by “bad faith,” an action for waste will lie.   The court additionally held that section 580d, which prohibits a deficiency judgment after foreclosure by private sale, also bars recovery for waste against the borrower if the waste results from depressed real estate values but not if the waste is caused by “bad faith” acts.   The court rejected the plaintiff's contention that such rules were inapplicable to a successor in interest of the borrower.

The full credit bid rule is discussed in Cornelison solely in connection with the claim of waste, which is among a relatively small species of actions the damages for which are limited to those for impairment of security.3  By statute, the tort of waste can only be committed by a “person whose interest is subject to the lien of a mortgage.”  (Civ.Code, § 2929.)   Thus, insofar as it involves protection for the security interest of mortgagees, the cause of action for waste “is limited to protection against harm committed by persons in possession of the property subject to the lien.”   (Cornelison, supra, 15 Cal.3d at p. 598, fn. 3, 125 Cal.Rptr. 557, 542 P.2d 981.) Moreover, “[t]he measure of damages is limited to the ․ value of the mortgage security, not to the injury to the property itself.”  (Sheneman, California Foreclosure, Law and Practice (1994) § 6.16, pp. 6-70 to 6-71.)   The cases suggest that a lender cannot sue a borrower for damages for waste prior to foreclosure without first commencing an action to compel a judicial foreclosure sale under section 726.  (Ibid., citing American Sav. & Loan Assn. v. Leeds (1968) 68 Cal.2d 611, 68 Cal.Rptr. 453, 440 P.2d 933 and Krone v. Goff (1975) 53 Cal.App.3d 191, 127 Cal.Rptr. 390.)

Cornelison is important for present purposes because it establishes that the remedies available to a lender claiming waste against the borrower are constrained by the debtor protection policies of the antideficiency laws.   As applied to waste, the full credit bid rule provides debtors protection against the same evil sought to be prevented by the antideficiency statutes.  “Damages for waste would burden the defaulting purchaser with both loss of land and personal liability and the acts giving rise to that liability would have been caused in many cases by the economic downturn itself.   For example, a purchaser caught in such circumstances may be compelled in the normal course of events to forego the general maintenance and repair of the property in order to keep up his payments on the mortgage debt.”  (Cornelison, supra, at p. 603, 125 Cal.Rptr. 557, 542 P.2d 981.)

The Cornelison court was aware of an important difference between waste and other actions that may be brought to protect a lender's security interest, and the difference between lender claims against borrowers and those against third parties.   After noting that waste is limited to protection against harm committed by persons in possession of the property and subject to the lien, the court observed that “it is equally clear that a mortgagee's security interest can be impaired by harm to the property committed by third persons not in possession and that a mortgagee can recover damages in tort for such impairment of his security interest.  [Citations.]   This recovery against third parties involves different considerations and rules because the person sued is not the debtor-mortgagor, who is afforded a variety of legislative and judicial protections.  [Citations.]”  (Cornelison, supra, 15 Cal.3d at p. 598, fn. 3, 125 Cal.Rptr. 557, 542 P.2d 981.) Among the authorities cited in Cornelison for this proposition was U.S. Financial v. Sullivan (1974) 37 Cal.App.3d 5, 112 Cal.Rptr. 18, where the court found “nothing in principle or public policy” which militates against the imposition of liability for negligent acts “to a mortgagee or beneficiary of a deed of trust when negligent conduct has resulted in the impairment of the mortgagee's or beneficiary's security interest.”  (Id., at p. 13, 112 Cal.Rptr. 18.)   As noted in U.S. Financial, the cases support “the general proposition that a [lender] may maintain an action against a third party tortfeasor for conduct which has impaired his security.”  (Id., at p. 15, 112 Cal.Rptr. 18.)

Cornelison therefore provides no reason to think that a full credit bid establishes the value of the property for any purpose other than a determination whether the borrower subject to the lien has satisfied the secured obligation.   To say, as the Cornelison court did, that a lender's full credit bid extinguishes the lien and therefore bars a claim against the borrower for waste 4 is completely different from saying that such a bid also deprives a lender of claims against others who were never subject to the lien nor protected by he antideficiency statutes.   As stated in Cale v. Transamerica Title Insurance (1990) 225 Cal.App.3d 422, 275 Cal.Rptr. 107, Cornelison holds only that “a nonjudicial foreclosure sale under the statute is determinative of the value of the property as between the lender and borrower under a deed of trust.  [Citation.]”  (Id., at p. 428, fn. 1, 275 Cal.Rptr. 107, italics added.)

The explanation in Cornelison of the relationship between the full credit bid rule and the antideficiency statutes was not in any way disturbed by the opinion in Alliance Mortgage Co. v. Rothwell, supra, 10 Cal.4th 1226, 44 Cal.Rptr.2d 352, 900 P.2d 601, which, we agree, “left Cornelison intact.”   (Pacific Inland Bank v. Ainsworth, supra, 41 Cal.App.4th 277 at p. 283, 48 Cal.Rptr.2d 489.)   Moreover, the Alliance court relied on other cases which, like Cornelison, also employ the relationship between the full credit bid rule and the antideficiency statutes as the reason not to extend the bar of the full credit bid rule to non-debtors.   The Alliance court referred, for example, to our opinion in Brown v. Critchfield, supra, 100 Cal.App.3d 858, 161 Cal.Rptr. 342.  Critchfield was an action by a property owner alleging negligence and fraud by an attorney and real estate broker hired by the plaintiff to negotiate a sale of his property and to represent his interests until the sale was complete.   The trial court granted the defendants' motion for summary judgment on the ground the plaintiff had alleged no cognizable damages and had therefore failed to state a cause of action.   As in the present case, the court reasoned that the suit sought damages for impairment of security but there were no such damages because the plaintiff's full credit bid extinguished the lien and the security interest.   The trial court in effect accepted the defendants' contention that the claims constituted an attempt to obtain a deficiency judgment under the guise of an action for negligence or fraud and, as such, run contrary to the antideficiency statutes.   We rejected that analysis and reversed the judgment, concluding that neither the antideficiency statutes nor the policies motivating their enactment “indicate that they should bar recovery of damages caused by a fiduciary's wrongdoing merely because the transaction concerned real property.”  (Id., at p. 870, 161 Cal.Rptr. 342.)   We emphasized that the plaintiff in Critchfield, like the plaintiff in the case now before us, “is not seeking to recover on a debt, nor is this a situation where there are conflicting claims by a mortgagor and mortgagee to the same funds.   If the plaintiff is allowed to prosecute his claim, and be compensated for his damages, a downward spiral of land values will not be encouraged;  mortgagors will not be liable for double recovery and overvaluation of security will not prevail.   The risk inherent in secured land transactions will remain on the mortgagee, but that risk should not be expanded to include the assumption of damages resulting from a fiduciary's negligence or fraud.”  (Id., at pp. 870-871, 161 Cal.Rptr. 342.)

Because negligence or fraud claims against third parties do not compromise any of the policies reflected in the antideficiency statutes, we held in Critchfield that such claims were also not barred by the full credit bid rule.  (Id., at p. 871, 161 Cal.Rptr. 342.)   The gravamen of Critchfield lies in the manner in which we distinguished between the damages the lender seeks from a defaulting borrower in a suit on the note and those the lender seeks from a third party tortfeasor.   In response to the defendants' contention that the plaintiff's full credit bid in effect gave him the benefit of his bargain, we pointed out that the plaintiff had entered into two bargains and the defendants were looking at the wrong one.  “It is true that, under the bargain with the [borrowers] plaintiff received all that was contracted for.   Under his bargain with his fiduciaries, however, he did not receive the full benefit, namely, fulfillment of the duty of highest good faith and of full disclosure.  [Citation.]”  (Id., at p. 871, 161 Cal.Rptr. 342.)

The Cornelison court indulged the fiction that a full credit bid necessarily establishes the value of the security as being equal to the outstanding indebtedness, and ipso facto the nonexistence of any impairment of security, not only because the dispute involved a defendant subject to the lien of the mortgage whose conduct was apparently caused by a downturn in land values, but because the measure of damages for waste was limited by the amount to which the lender's security had been impaired.   As we noted in Foggy v. Ralph F. Clark & Associates, Inc. (1987) 192 Cal.App.3d 1204, 238 Cal.Rptr. 130, cases like Cornelison are “inapposite” to tort claims precisely because damages in such cases are limited to those arising out of foreclosure under a security instrument, i.e., impairment of the security.   In contrast, we pointed out in Foggy, “the instant action is one in tort where plaintiffs allege that defendants' negligence or fraud caused them to enter into a loan agreement.”  (Id., at p. 1214, 238 Cal.Rptr. 130.)   In Foggy, as in all cases in which it is alleged that an appraiser tortiously induced a loan, the claim is not that the value of the security was impaired, but that the security property did not have the value attributed to it by the appraiser in the first place.   The measure of damages for tort claims is therefore not defined by the impairment of security.  Alliance confirms this view.

The defendants in Alliance argued that the lender failed to allege actual damages, because they assumed the measure of damages for fraudulent inducement of a loan is the impairment of the lender's security or the balance of the outstanding indebtedness.  (Alliance Mortgage, supra, 10 Cal.4th at p. 1249, 44 Cal.Rptr.2d 352, 900 P.2d 601.)   The Supreme Court rejected that assumption:  “Alliance does not allege here that defendants impaired its security or caused the value of the properties to decrease after the loans were made.   Rather, it alleges that defendants' intentional misrepresentations regarding the properties' characteristics and values induced it to make loans that far exceeded the properties' actual worth at the time the loans were made, and that as a result of these misrepresentations Alliance purchased the properties.   In other words, defendants did not damage or impair Alliance's security interest;  rather they deceived Alliance at the outset as to what that security was.”  (Ibid., italics in original.)   The court emphasized that “[t]his is a wholly different claim from that which we considered in Cornelison.   Once again, just as a suit for fraud against a borrower ‘is a completely separate remedy than a suit on the promissory note secured by the deed of trust,’ and hence not barred by the antideficiency statutes [citation], a lender's suit against its fiduciaries or agents for fraudulently inducing it to make loans and purchase property is a completely separate cause of action from a suit for impairment of its security.”  (Id.) What the Alliance court said about a suit for intentional misrepresentation can be said with equal force about a suit for negligent misrepresentation.

The fact that it has yet to be determined whether Graham stood in a fiduciary relationship to Arlington, which might bear upon the precise measure of damages under Civil Code section 3333 (ibid., see also, Salahutdin v. Valley of California, Inc. (1994) 24 Cal.App.4th 555, 564-568, 29 Cal.Rptr.2d 463), does not justify the grant of summary judgment.5  This uncertainty also existed in Alliance, where the Supreme Court found it sufficient that, as here, the lender at least sought out-of-pocket damages “when it alleges that it paid more for the properties than they were worth, and incurred certain consequential damages.  [Citation.]   Accordingly, its full credit bids do not establish as a matter of law that it sustained no actual damages.”  (Alliance Mortgage, supra, 10 Cal.4th at p. 1250, 44 Cal.Rptr.2d 352, 900 P.2d 601.)

 As indicated, the court below granted summary judgment in reliance on Pacific Inland Bank v. Ainsworth, supra, 41 Cal.App.4th 277, 48 Cal.Rptr.2d 489, which limited the holding in Alliance to fraud claims and held that absent such a claim a full credit bid estops a plaintiff from establishing damages, even against a nondebtor.  Pacific Inland Bank cannot be reconciled with Cornelison, Alliance, and other pertinent cases.   Refusing to differentiate the relationship between the lender and the borrower from that between the lender and a third party tortfeasor, and ignoring the fact that the measure of damages on a tort claim relating to the inducement of a loan is not the impairment of security, the court divorced the full credit bid rule from public policy concerns relating to the debtor-creditor relationship.  Cornelison does not justify application of the bar of the full credit bid rule in Pacific Inland Bank because, unlike Cornelison, the defendant in Pacific Inland Bank was not subject to the lien of the mortgage.   Also unlike Cornelison, the negligence alleged in Pacific Inland Bank did not result from a downturn in land values (implicating the policies of the antideficiency statutes), and the measure of damages sought was not the impairment of security.   Under Pacific Inland Bank, the bar of the full credit bid rule operates ineluctably, for no discernible purpose and without regard to the injustice that may result.   According to the court, the rule it so slavishly applies is simply “a legal conclusion unmotivated by public policy.”  (41 Cal.App.4th at p. 283, 48 Cal.Rptr.2d 489.)   We disagree.   As the courts of this state have made eminently clear, the full credit bid rule, like all legal rules, does reflect policy.6  However, the pertinent policy, which helps to insure the integrity of foreclosure sales, relates only to the debtor-creditor relationship.   The bar of the rule was not designed to relieve third parties of the consequences of tortious conduct-which is the policy the Pacific Inland Bank court, perhaps unconsciously, erroneously imputes to it.   The fiction that a full credit bid operates to fully satisfy the debt makes sense only when applied for the benefit of the borrower in connection with obligations arising under the note.   Application of the rule to bar claims against tortfeasors not party to the note goes far beyond the purpose of the rule and is legally and equitably unwarranted.7

The only justification the Pacific Inland Bank court offers for the bar it imposes is that the lender in that case “could have taken appropriate steps to ascertain the actual value of the properties before the trustees' sale.”  (Id., at pp. 283-284, 48 Cal.Rptr.2d 489.)   But this presents a factual, not a legal question.   It is true, as pointed out in Pacific Inland Bank, that the Supreme Court observed in Alliance that “ ‘[t]he lender, perhaps more than a third party purchaser with fewer resources with which to gain insight into the property's value, generally bears the burden and risk of making an informed bid.’ ”  (Pacific Inland Bank, supra, at p. 284, 48 Cal.Rptr.2d 489, quoting Alliance, supra, 10 Cal.4th at p. 1246, 44 Cal.Rptr.2d 352, 900 P.2d 601.)   This observation did not, however, deter the Supreme Court from ruling for the lender.   As the court explained in the next sentence (not quoted in Pacific Inland Bank ):  “It does not follow, however, that being intentionally and materially misled by its own fiduciaries or agents as to the value of the property prior to even making the loan is within the realm of that risk.”  (Alliance, supra, at p. 1246, 44 Cal.Rptr.2d 352, 900 P.2d 601, fn. omitted, italics added.)

 Nor does it follow, in our view, that the lender should necessarily bear the risk of being materially misled as to the value of the property by the negligent misrepresentation of a third party.   As we have explained, Alliance rests not so much on the egregiousness of the defendants' conduct as the fact that non-borrowers are outside the ambit of the debtor protection policies that inform application of the full credit bid rule to the acquisition of security property.   Moreover, the assumption, which was adopted in Pacific Inland Bank, that the “exception” carved out in Alliance was based on the extreme nature of the tortious conduct involved in that case, fraud, is problematical even apart from the court's misunderstanding of the full credit bid rule, because the term “fraud” may be used in the law to describe not just an intentional misrepresentation but as well certain misrepresentations that are merely negligent.   While our analysis inexorably leads to the conclusion that the full credit bid rule is inapplicable to all tort claims against third parties, even those for simple negligence, the claim of negligent misrepresentation pled in this case is a “fraud claim” within the meaning of Alliance Mortgage.8  Therefore, reversal would be required even under the limited view adopted by the court in Pacific Inland Bank, with which we disagree, that the Supreme Court intended to exempt only fraud claims from the bar of the rule.

The leading California case describing the difference between negligence and negligent misrepresentation is Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 11 Cal.Rptr.2d 51, 834 P.2d 745.   There, investors who lost their investments in a computer company brought suit for fraud, negligent misrepresentation, and professional negligence against an accounting firm that had been hired by the company to perform an audit of the company's financial statements, alleging that they had invested in the company in reliance on the accounting firm's unqualified audit opinion.   The jury returned a verdict in plaintiffs' favor on the professional negligence counts and against the plaintiffs on their other causes of action.   The Supreme Court reversed and remanded with instructions to direct judgment in favor of the defendant with respect to one plaintiff, and to decide a cross-appeal that had been filed by the remaining plaintiffs claiming that the defendant was an aider and abettor of the client's fraud.   The court held that an auditor can be held liable for general negligence in conducting an audit of financial statements only to the person or entity contracting for the auditor's services, and the accounting firm's sole client was the company.   The court also held, however, that an auditor may be held liable for negligent misrepresentation to third parties who are known to the auditor and for whose benefit the auditor has rendered the audit report.   After observing that “neither the courts (ourselves included), the commentators, nor the authors of the Restatement Second of Torts have made clear or careful distinctions between the tort of negligence and the separate tort of negligent misrepresentation” (id., at p. 407, 11 Cal.Rptr.2d 51, 834 P.2d 745), the court endeavored to provide such a differentiation:  “Negligent misrepresentation is a separate and distinct tort, a species of the tort of deceit.  ‘Where the defendant makes false statements, honestly believing that they are true, but without reasonable ground for such belief, he may be liable for negligent misrepresentation, a form of deceit.’  [Citation.]”  (Ibid.) Noting that the elements of misrepresentation torts are prescribed not just by the common law but by statutes defining “actual fraud” and “deceit” (Civ.Code, §§ 1572, 1710),9 the court described negligent misrepresentation as follows:  “Under certain circumstances, expressions of professional opinion are treated as representations of fact.   When a statement, although in the form of an opinion, is ‘not a casual expression of belief’ but ‘a deliberate affirmation of the matters stated,’ it may be regarded as a positive assertion of fact.  [Citation.]   Moreover, when a party possesses or holds itself out as possessing superior knowledge or special information or expertise regarding the subject matter and a plaintiff is so situated that it may reasonably rely on such supposed knowledge, information, or expertise, the defendant's representation may be treated as one of material fact.  [Citations.]  ․ [¶] But the person or ‘class of persons entitled to rely upon the representations is restricted to those to whom or for whom the representations were made.   Even though the defendant should have anticipated that the misinformation might reach others, he is not liable to them.’  [Citations.]”  (Id., at p. 408, 11 Cal.Rptr.2d 51, 834 P.2d 745.) 10

In order to identify the specific class of persons and a transaction that the supplier of information “intends the information to influence,” the Supreme Court adopted the approach prescribed in section 552 of the Restatement Second of Torts.   Section 552 states “a general principle that one who negligently supplies false information ‘for the guidance of others in their business transactions' is liable for economic loss suffered by the recipients in justifiable reliance on the information․   But the liability created by the general principle is expressly limited to loss suffered:  ‘(a) [B]y the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it;  and (b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction.’ ”   (Bily v. Arthur Young & Co., supra, 3 Cal.4th at p. 392, 11 Cal.Rptr.2d 51, 834 P.2d 745.)   Determining that intended beneficiaries of an audit report were entitled to recover on a theory of negligent misrepresentation (but not also on a general negligence theory) the court emphasized “the indispensability of justifiable reliance on the statements contained in the report.”  (Id., at p. 413, 11 Cal.Rptr.2d 51, 834 P.2d 745.)

The principles articulated in Bily v. Arthur Young & Co., supra, 3 Cal.4th 370, 11 Cal.Rptr.2d 51, 834 P.2d 745 were in Soderberg v. McKinney (1996) 44 Cal.App.4th 1760, 52 Cal.Rptr.2d 635 held applicable to real estate appraisers.  (Id., at p. 1768, 52 Cal.Rptr.2d 635.)   The court in Soderberg also rejected the claim that a real estate appraiser hired by a mortgage broker must know the potential investors by name or specific identity.  (Id., at pp. 1768-1769, 52 Cal.Rptr.2d 635.)  “Nor does the appraiser have to contemplate the precise details of the transaction in which his report is ultimately used.   Liability may exist if his report is relied upon in the type of transaction he anticipated or in one substantially similar to it.”  (Id., at p. 1769, 52 Cal.Rptr.2d 635, citing Bily, supra, 3 Cal.4th at pp. 392, 410, 11 Cal.Rptr.2d 51, 834 P.2d 745, and Rest.2d Torts, § 552, com. j, p. 137;  italics in original.)

In Alliance, the Supreme Court noted that the fraud claims in that case “include allegations of intentional misrepresentation, negligent misrepresentation, and breach of fiduciary duty.”  (10 Cal.4th at p. 1239, fn. 4, 44 Cal.Rptr.2d 352, 900 P.2d 601.)   While it was unnecessary for the court to discuss the negligent misrepresentation allegations, it did make the following observation:  “While we focus on Alliance's intentional misrepresentation claim, justifiable reliance and actual damages are also essential elements of negligent misrepresentation and constructive fraud.  [Citations.]”  (Ibid.) This statement, which calls attention to similarities between intentional and negligent misrepresentations, strongly suggests that, as the Supreme Court recognized in Bily v. Arthur Young & Co., supra, the latter is a species of fraud, and as such analogous if not identical to the claims at issue in Alliance Mortgage.

III.

As indicated, this appeal is from the grant of summary judgment.   In reviewing such a ruling, the moving party's evidence is strictly construed while that of the opposing party is liberally construed.   (Isaacs v. Huntington Memorial Hospital (1985) 38 Cal.3d 112, 134, 211 Cal.Rptr. 356, 695 P.2d 653;  Hanooka v. Pivko (1994) 22 Cal.App.4th 1553, 1558, 28 Cal.Rptr.2d 70.)   We accept as undisputed facts only those portions of the moving party's evidence that are not contradicted by the opposing party's evidence.  (Kelleher v. Empresa Hondurena de Vapores, S.A. (1976) 57 Cal.App.3d 52, 56, 129 Cal.Rptr. 32.)  “The facts alleged in affidavits by the party against whom summary judgment is based must be accepted as true.”   (Zeilman v. County of Kern (1985) 168 Cal.App.3d 1174, 1179, fn. 3, 214 Cal.Rptr. 746, citing, e.g., Blaustein v. Burton (1970) 9 Cal.App.3d 161, 88 Cal.Rptr. 319.)

 Having already rejected Graham's contention that Arlington's negligent misrepresentation claim is barred by the full credit bid rule as a matter of law, the only remaining issue for purposes of the motion for summary judgment is whether Arlington sufficiently established the elements of negligent misrepresentation;  specifically, whether Graham intended or anticipated that his appraisals were being made for the benefit of Arlington and whether Arlington reasonably relied on his representations.   Such issues ordinarily present question of fact.  (Alliance Mortgage, supra, 10 Cal.4th at p. 1247, 44 Cal.Rptr.2d 352, 900 P.2d 601 [reasonableness of lender's reliance is generally a “fact-based inquiry”];  Bily v. Arthur Young & Co., supra, 3 Cal.4th 370 at p. 414, 11 Cal.Rptr.2d 51, 834 P.2d 745.)   The test of the reasonableness of the lender's reliance is not objective reasonableness;  instead, “the issue is whether the person who claims reliance was justified in believing the representation in the light of his own knowledge and experience.”  (Alliance Mortgage, supra, at p. 1247, 44 Cal.Rptr.2d 352, 900 P.2d 601, quoting Gray v. Don Miller & Associates, Inc., (1984) 35 Cal.3d 498, 503, 198 Cal.Rptr. 551, 674 P.2d 253.)   Summary judgment in a case such as this is proper only where competent evidence permits no reasonable inference that the defendant supplied information with knowledge of the existence of a specific transaction or a well-defined type of transaction which the information was intended to influence, which places the defendant on notice of the risks.  (Ibid.)  That certainly has not been established in this case.

 The complaint alleges not only that Arlington relied on Graham's two appraisals when making the loans to Tarcher, which allegedly it would not otherwise have made, but as well “that defendant Graham ․ knew that plaintiff would be relying on such appraisal[s] in determining whether or not to make a loan to be secured by the Property.”   The complaint also alleges that at the times he prepared his appraisals, Graham “knew or should have known of the inability to develop the Property and the worthlessness of the property,” and that Graham “made such representations with the knowledge and intent that plaintiff would rely upon such representations in making the ․ loans to be secured by the Property.”   Graham's brief answer, which relied primarily on various affirmative defenses, included a general denial “as to each and every allegation in the complaint.”   His motion for summary judgment, however, was based entirely on the legal argument “that the plaintiff, by virtue of its full credit bid extinguished its claims that there was inadequate security because the full credit bid set the value of the property at an amount sufficient to satisfy the indebtedness.”   For purposes of the motion, Graham accepted the allegations of the complaint, allowing that “the facts are undisputed.”   Nor did Graham dispute anything in the declarations of Alison Teeman, Arlington's expert regarding the appraisal of real estate, and Susan Peick, a general partner in Arlington.   Ms. Teeman stated that Graham could not have had “a reasonable basis on which to make the representations he made,” that “Arlington was so situated that it could reasonably rely [on] Graham's knowledge, information, and expertise and could therefore treat Graham's representations [regarding the value of the property] as material facts,” and that Graham “breached his fiduciary duty to any party which he believed might rely on his appraisals, including most particularly the lender, Arlington.”   Susan Peick stated in her declaration that, acting in behalf of Arlington, she recommended Graham as one of three appraisers referred to Tarcher for this transaction, that she personally discussed with Graham the form and purpose of the appraisals, “including the amount to be loaned, before each appraisal” and that “Graham prepared these appraisals for the express purpose of determining whether or not the Property had sufficient value to serve as security for the [ ] two loans from Arlington to Tarcher.”

Graham has not met his burden of showing that Arlington's cause of action for negligent misrepresentation has no merit, because one or more elements of the cause of action cannot be established, or that there is a complete defense to that cause of action. (§ 437c, subd. (o)(2).)   The motion for summary judgment was therefore erroneously granted.

The judgment is reversed.   Costs are awarded to appellant.

FOOTNOTES

1.   The full credit bid was approximately $8,000 more than the total amount of the loans due to past due interest and costs incurred in the process of foreclosure.

2.   All statutory references are to the Code of Civil Procedure unless otherwise indicated.

3.   The right of a lienholder to share in so-called severance damages awarded as a result of condemnation of a portion of property constituting security for a debt is also limited to the extent the security has been impaired. (§ 1265.225;  Brown v. Critchfield (1980) 100 Cal.App.3d 858, 864-865, 161 Cal.Rptr. 342;  People ex rel. Dept. of Transportation v. Redwood Baseline, Ltd. (1978) 84 Cal.App.3d 662, 670-672, 149 Cal.Rptr. 11.)

4.   Specifically, Cornelison referred to waste committed “solely or primarily as a result of the economic pressures of a market depression;” not “bad faith” waste committed by mortgagors who are “reckless, intentional, and at times even malicious despoilers of property.”   (Cornelison, supra, 15 Cal.3d at p. 604, 125 Cal.Rptr. 557, 542 P.2d 981.)

5.   We note, however, that the declaration of Alison Teeman, Arlington's expert, submitted in opposition to the motion for summary judgment, states her “professional opinion” that “Graham breached his fiduciary duty to any party which he believed might rely on his opinion,” which in her view included Arlington.   Graham never questioned this statement of opinion, which was the only direct evidence on the issue provided the trial court.

6.   In support of this view, and citing Reynolds v. London etc. Ins. Co. (1900) 128 Cal. 16, 20-22, 60 P. 467, the Pacific Inland Bank court points out that “[o]ur Supreme Court recognized the full credit bid rule long before antideficiency legislation was enacted or Cornelison was decided.”  (Pacific Inland Bank, supra, 41 Cal.App.4th at p. 283, 48 Cal.Rptr.2d 489.)   The fact that the full credit bid rule antedates the antideficiency statutes is not inconsistent with modern use of that rule to, among other things, implement those statutes.   After Cornelison, Alliance and scores of other opinions rendered since enactment of the antideficiency statutes more than half a century ago, there can be do doubt whatsoever that the rule serves that purpose.

7.   It is hard to explain such unjustified judicial expansion of the rule as in Pacific Inland Bank and the cases disapproved by the Supreme Court in Alliance Mortgage.  (I.e., Western Fed. Savings & Loan Assn. v. Sawyer, supra, 10 Cal.App.4th 1615, 13 Cal.Rptr.2d 639 and GN Mortgage Corp. v. Fidelity Nat. Title Ins. Co., supra, 21 Cal.App.4th 1802, 27 Cal.Rptr.2d 47.)   Perhaps, as Professor Hetland suggests it has to do with “[t]the unsavory visage of the mustachioed mortgagee in top hat, ready to foreclose the family homestead,” which he believes “has brooded over the development of the real property law, resulting in a system that is generously hedged about with debtor protections and potential pitfalls for the unwary secured creditor.”  (Hetland & Hansen, The “Mixed Collateral” Amendments to California's Commercial Code-Covert Repeal of California's Real Property Foreclosure and Antideficiency Provisions or Exercise in Futility?, 75 Cal. L.Rev. 185, 188-189 (1987) fn. omitted.)

8.   Pacific Inland Bank glosses over this issue.   The lender in that case claimed its loan was undersecured as a result of the defendant's “breach of contract and its negligence in preparing the appraisals.”   (Pacific Inland Bank, supra, 41 Cal.App.4th at p. 280, 48 Cal.Rptr.2d 489.)   Negligent misrepresentation was apparently not specifically pled, though it seemingly could have been.

9.   Civil Code section 1572, subdivision 2, defines “actual fraud” as “[t]he positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true.”  Civil Code section 1710, subdivision 2, defines “deceit” as “[t]he assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true.”

10.   The Supreme Court suggested that juries be instructed on the elements of negligent misrepresentation as set forth in BAJI No. 12.45 with the addition of the following instruction in lieu of the version of BAJI No. 12.50 then in use:“ ‘The representation must have been made with the intent to induce plaintiff, or a particular class of persons to which plaintiff belongs, to act in reliance upon the representation in a specific transaction, or a specific type of transaction, that defendant intended to influence.   Defendant is deemed to have intended to influence [its client's] transaction with plaintiff whenever defendant knows with substantial certainty that plaintiff, or the particular class of persons to which plaintiff belongs, will rely on the representation in the course of the transaction.   If others become aware of the representation and act upon it, there is no liability even though defendant should reasonably have foreseen such a possibility.’ ”  (Bily v. Arthur Young & Co., supra, 3 Cal.4th at p. 414, 11 Cal.Rptr.2d 51, 834 P.2d 745.)

KLINE, Presiding Justice.

HAERLE and RUVOLO, JJ., concur.