Loading...
HomeMy WebLinkAbout2006-1924 Civil LOUIS A. SANTO, JR. and : IN THE COURT OF COMMON PLEAS OF JOY M. SANTO, husband and : CUMBERLAND COUNTY, PENNSYLVANIA wife, : Plaintiffs : CIVIL ACTION – LAW : vs. : NO. 06-1924 CIVIL : QUALCRAFT CONSTRUCTION, : LLC; STEPHEN L. BEERS; : SCOTT A. PLOWMAN; : VANDENBURGH : CONSTRUCTION, INC.; and THE : WASHINGTON SAVINGS BANK, : Defendants : JURY TRIAL DEMANDED IN RE: PRELIMINARY OBJECTIONS OF DEFENDANT, WASHINGTON SAVINGS BANK BEFORE HESS, OLER AND EBERT, J.J. OPINION AND ORDER As this matter is before the court on preliminary objections, we derive the facts from the face of the complaint. On July 12, 2004, plaintiffs entered into an agreement with Qualcraft Construction, Inc. (Qualcraft) for the construction of a new home. In order to finance the purchase, plaintiffs entered into a loan agreement with Washington Savings Bank (defendant). The loan proceeds borrowed by plaintiffs were to be disbursed to plaintiffs in accordance with a draw schedule. The loan agreement further provided for certain conditions precedent to advances of loan proceeds, including defendant’s inspection of the home. In order to effect these inspections, defendant employed an independent inspector to complete site inspections. On November 8, 2005, over a year after the beginning of construction, plaintiffs terminated Qualcraft as general contractor to the construction of their home. At that time, defendant had disbursed payments totaling $428,392.50, leaving only $80,931.50 left unpaid. NO. 06-1924 CIVIL Plaintiffs hired additional contractors to complete construction of their home and to correct the improperly completed work performed by Qualcraft. On January 25, 2007, plaintiffs had their home inspected by an expert whose report revealed construction defects and incomplete work that would costs upwards of $200,000 to correct. Plaintiff subsequently filed this complaint against defendant. “Preliminary objections in the nature of a demurrer test the legal sufficiency of the complaint.” Hospodar v. Schick, 885 A.2d 986, 988 (Pa. Super. 2005). A demurrer presents the question of whether, based on the facts pleaded, there is any recovery allowed by the law. Mistick, Inc. v. Northwestern National Casualty Co., 806 A.2d 39, 42 (Pa. Super. 2002). Accepting those facts as true, it is the court’s task to determine whether any theory of law supports plaintiff’s claim for relief. Id. “Ordinarily, there is no duty on the part of the lender to inspect the mortgaged property to determine that the borrower is obtaining that which he may have been promised by the vendor or that which he believes he is obtaining.” Henry v. First Federal Savings & Loan Association of Greene County, 459 A.2d 772, 774, 313 Pa. Super. 128, 133 (1983); see also Goodman v. Pate Construction, Inc., 451 A.2d 464, 469, 305 Pa. Super. 147, 154-55 (1982); Federal Land Bank of Baltimore v. Fetner, 410 A.2d 344, 348, 269 Pa. Super. 455, 462 (1979). Unless the lender assumes some further obligation to inspect on behalf of the borrower, any inspection by the lender of the property is made only to determine whether the property has sufficient value to secure the loan and such inspection is made for the sole benefit of the lender. See Henry, 459 A.2d at 774. In Henry, plaintiffs entered into a construction loan agreement with defendant to finance the building of their home. See id. at 773. Their agreement provided for five payment draws to 2 NO. 06-1924 CIVIL be made upon completion of specified areas of construction. See id. As construction progressed, roughly six inspections were conducted by defendant to determine whether construction had progressed appropriately. See id. None of the inspections were undertaken in order to ascertain the quality of the workmanship. See id. Plaintiffs did not inspect the house for workmanship until after the house was completed. See id. After noting several deficiencies in the quality of the construction, plaintiffs sued, alleging defendant’s negligent inspections. See id. In granting summary judgment for defendant, the court held that, generally, the law does not impose any duty upon a lender to inspect the mortgaged property for the benefit of the borrower, unless such a duty has previously been assumed by the lender. See Henry, 459 A.2d at 774. In order to determine whether defendants had assumed such a duty, the court looked to the construction loan agreement. See id. at 775. The construction loan agreement explicitly stated that any inspections made on the premises by the defendants were made “ ‘for [their] own protection’ and not as agent for the appellants.” Id. Therefore, as the loan agreement unambiguously negated any existence of a duty to inspect on behalf of the plaintiffs, the court granted summary judgment for the defendants. The reasoning utilized in Henry is equally applicable to the instant case. As there is no general duty on the part of the lender to inspect on plaintiffs’ behalf, we determine whether the lender had, notwithstanding, assumed such a duty. Plaintiffs executed a mortgage with defendant in order to secure a loan for the purchase of plaintiffs’ new home. Upon borrowing the money, plaintiffs entered into a loan agreement with defendant. Throughout the contract, defendant explicitly disclaims liability for any acts or omissions made pursuant to the loan 1 agreement (absent fraud or gross negligence). The loan agreement goes on to say that all 1 The Loan Agreement reads as follows: 3 NO. 06-1924 CIVIL obligations of the defendant with regard to the advances exist for defendant’s sole benefit, and 2 defendant has absolute discretion to waive the conditions precedent to the advances. Finally, and perhaps most convincingly, the loan agreement explicitly states that all physical inspections made by the defendant are performed for the sole benefit of the defendant in order to ensure loan repayment, and are not made for the benefit of the plaintiffs or any other party. The loan agreement goes on to say that acceptance of the agreement signifies the borrower’s intention to 3 indemnify the lender and waive liability for all claims regarding the construction. Even a cursory examination of the loan agreement makes it clear that no additional duty to inspect the property on behalf of the plaintiffs has been undertaken by the defendant. The plaintiffs also claim punitive damages on a count of the “willful, outrageous” breach by Washington Savings Bank of its fiduciary duty. Since it had no duty to the plaintiffs with respect to the matter sub judice, any claim for punitive damages must necessarily fail. LIABILITY OF LENDER. (a) The Lender shall not be liable for any act or omission by it pursuant to the provisions of the Loan Agreement in the absence of fraud or gross negligence. The Lender shall incur no liability to the Borrower or any other party in connection with the acts or omissions of the Lender in reliance upon any certificate or other paper believed by the Lender to be genuine or with respect to any other thing which the Lender may do or refrain from doing, unless such act or omission amounts to fraud or gross negligence. 2 The Loan Agreement reads as follows: THIRD PARTIES – BENEFIT. All conditions of the obligations of the Lender to make advances hereunder are imposed solely and exclusively for the benefit of the Lender and its assigns and no other persons shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that the Lender will refuse to make advances in the absence of strict compliance with any or all there of and no other person shall, under any circumstances, be deemed to be beneficiary of such conditions, any or all of which may be freely waived in whole or in part by the Lender at any time in the sole and absolute exercise of its discretion. 3 The Commitment Letter reads as follows: APPROVAL OF PLANS, SPECIFICATIONS, DOCUMENTS & INSPECTIONS: The approval of the Plans, Specifications and all other documents in connection with this loan, including physical inspections made by us [Defendant], our agents or representatives, are performed for our benefit to assure repayment of the loan and not for your benefit or the benefit of any other person including, without limitation, purchasers, tenants or other occupants. Acceptance by Borrower Of this Commitment shall evidence your agreement to indemnify Lender and to hold it harmless against any loss or expense (including reasonable attorneys’ fees) resulting from any and all claims, actions or liability for acts or failure to act in connection with the Improvements. 4 NO. 06-1924 CIVIL Plaintiffs assert, as their other claim against Washington Savings Bank, that the defendant violated the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL). The UTPCPL declares unlawful unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce. 73 Pa.C.S. Section 201-3(2006). Under the Act, “trade or commerce” is defined as “the advertising, offering for sale, sale or distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value wherever situate, and includes any trade or commerce directly or indirectly affecting the people of this Commonwealth.” See id. at Section 201-2. Plaintiff contends that the mortgage transaction falls within this definition of “trade or commerce,” therefore bringing the transaction within the parameters of the UTPCPL. There is authority in the Bankruptcy Court to the effect that the “business of mortgage lenders is the sale of a service within the scope of the [UTPCPL].” In re Andrews, 78 B.R. 78, 82 (Bankr. E.D. Pa. 1987); see also In re Jungkurth, 74 B.R. 323, 335 (Bankr. E.D. Pa. 1987); In re Russell, 72 B.R. 855, 872 (Bankr. E.D. Pa. 1987). On the other hand, at least one Common Pleas Court of this Commonwealth has found to the contrary. In Epstein v. Goldome FSB, 49 Pa. D & C 3d 551, 557 (1987), the court held that “a loan is not the purchase or lease of goods or services but is the gaining of currency of exchange that enables the holder to acquire goods.” Therefore, the court opined that the UTPCPL did not apply to mortgages. Id. It based this holding upon courts of other jurisdictions’ construction of several similar statutes. The court found that because a loan is not the purchase or lease of goods or services, it cannot fall under “trade or commerce” as defined in the UTPCPL. Id. 5 NO. 06-1924 CIVIL Even assuming that the UTPCPL applies to mortgage transactions, we are satisfied that the plaintiffs have failed to state a valid private cause of action for violation of the statute. The underlying purpose of the UTPCPL is the prevention of fraud. Weinberg v. Sun Company, Inc., 777 A.2d 442, 446 (Pa. 2001). Plaintiffs assert that defendant represented to them that funds would be disbursed “in accordance with the loan documents and the parties’ agreement.” (Pl. Amend. Compl. 178) The loan agreement, however, states with the utmost clarity that all inspections performed by the defendant were undertaken solely for the benefit of the defendant. There is, otherwise, no statement of material facts that defendant made any misrepresentations concerning the purpose of the inspections. Moreover, plaintiffs wholly fail to allege any facts indicating that any representation were made with a knowing intent to deceive. Accordingly, the plaintiffs’ UTPCPL claim must also fail. ORDER AND NOW, this day of September, 2007, following argument thereon, the preliminary objections of the defendant, Washington Savings Bank, are SUSTAINED and Counts II and VII of the plaintiffs’ amended complaint are DISMISSED. BY THE COURT, _________________________ Kevin A. Hess, J. Jarad W. Handelman, Esquire For the Plaintiffs Neil A. Slenker, Esquire For Defendant Washington Savings Bank Qualcraft Construction Defendant 6 NO. 06-1924 CIVIL Stephen L. Beers 110 Community Street Wellsville, PA 17365 Scott A. Plowman 73 Walmar Manor Dillsburg, PA 17019 David R. Getz, Esquire Jeffrey C. Clark, Esquire :rlm 7 LOUIS A. SANTO, JR. and : IN THE COURT OF COMMON PLEAS OF JOY M. SANTO, husband and : CUMBERLAND COUNTY, PENNSYLVANIA wife, : Plaintiffs : CIVIL ACTION – LAW : vs. : NO. 06-1924 CIVIL : QUALCRAFT CONSTRUCTION, : LLC; STEPHEN L. BEERS; : SCOTT A. PLOWMAN; : VANDENBURGH : CONSTRUCTION, INC.; and THE : WASHINGTON SAVINGS BANK, : Defendants : JURY TRIAL DEMANDED IN RE: PRELIMINARY OBJECTIONS OF DEFENDANT, WASHINGTON SAVINGS BANK BEFORE HESS, OLER AND EBERT, J.J. ORDER AND NOW, this day of September, 2007, following argument thereon, the preliminary objections of the defendant, Washington Savings Bank, are SUSTAINED and Counts II and VII of the plaintiffs’ amended complaint are DISMISSED. BY THE COURT, _________________________ Kevin A. Hess, J. Jarad W. Handelman, Esquire For the Plaintiffs Neil A. Slenker, Esquire For Defendant Washington Savings Bank Qualcraft Construction Defendant Stephen L. Beers 110 Community Street Wellsville, PA 17365 Scott A. Plowman 73 Walmar Manor Dillsburg, PA 17019 David R. Getz, Esquire Jeffrey C. Clark, Esquire :rlm