646 F.2d 1178 (6th Cir. 1981), 80-1278, Neal v. Bergland

Docket Nº:80-1278.
Citation:646 F.2d 1178
Party Name:Onilea NEAL, Plaintiff-Appellant, v. Robert BERGLAND et al., Defendants-Appellees.
Case Date:May 01, 1981
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

Page 1178

646 F.2d 1178 (6th Cir. 1981)

Onilea NEAL, Plaintiff-Appellant,


Robert BERGLAND et al., Defendants-Appellees.

No. 80-1278.

United States Court of Appeals, Sixth Circuit

May 1, 1981

Argued Dec. 2, 1980.

Lenny L. Croce, Rural Legal Services, Oak Ridge, Tenn., for plaintiff-appellant.

John H. Cary, U. S. Atty., Richard K. Harris and J. Michael Haynes, Jr., Asst. U. S. Attys., Knoxville, for defendants-appellees.

Before MERRITT and MARTIN, Circuit Judges, and COHN, District Judge. [*]


COHN, District Judge.

Plaintiff appeals from a dismissal of her action against Robert Bergland, Secretary

Page 1179

of Agriculture, and others, 1 for failure to state a claim upon which relief can be granted and for lack of subject matter jurisdiction. The District Court, in a decision reported at 489 F.Supp. 512 (E.D.Tenn.1980), held that neither Title V of the Housing Act of 1949 (the Act), 42 U.S.C. § 1471 et seq., nor regulations issued thereunder, 7 C.F.R. § 1802.71 et seq., create an obligation on the part of the Farmers Home Administration (FmHA) 2 to supervise, inspect or warrant the construction of the prefabricated house built for plaintiff by defendant Home Marketing Associates (Home Marketing) and financed by FmHA.

For the reasons that follow we reverse and remand for further proceedings.


Plaintiff is an unmarried woman in her mid-fifties with less than a high school education. She has never before owned a home. After an unsuccessful attempt to find housing to rent or purchase within her financial means, plaintiff applied for and received a direct rural housing loan from FmHA in 1976.

Plaintiff then consulted with defendant Parkison and entered into a construction contract with defendant Home Marketing for the construction of a prefabricated house. The contract provided that construction conform to FmHA approved plans; that changes in the plans be made only with the written approval of FmHA; and that FmHA have the right to inspect or test all materials and workmanship and reject any that were defective.

During the course of construction, defendant Wells conducted inspections of the house when it was 2% complete, 99% complete and 100% complete. There were no notes or comments in any of her inspection reports indicating any condition at variance with the approved plans and specifications.

Upon completion of construction, defendant Home Marketing issued plaintiff a one year builder's warranty as required by FmHA, which represented construction was in conformance with the drawings and specifications approved by FmHA and the minimum property standards published by the Department of Housing and Urban Development. The warranty covered workmanship, materials and equipment including the heating system.

In December 1977 plaintiff notified FmHA and defendant Home Marketing that the heat pump in her house was not working properly. Defendant Avery and other FmHA officials inspected the house and notified defendant Home Marketing of thirteen defects, including the heat pump, which needed correction. Defendant Home Marketing failed to cure the defects.

In November 1978 plaintiff asked FmHA to pay for correcting the heating system and other construction defects. It declined. After exhausting her administrative remedies, 28 U.S.C. § 2675, plaintiff brought this suit.


The case was started in the Circuit Court of Roane County, Tennessee and thereafter removed to the United States District Court for the Eastern District of Tennessee by defendant Bergland. 28 U.S.C. § 1441.

In her amended complaint plaintiff alleged a breach of contract by FmHA for failure to provide technical assistance including inspection and supervision of construction of the house; negligence for failure to properly execute its obligation to

Page 1180

inspect and supervise construction of the house; and detrimental reliance for failure to perform its regulatory obligations as promised. Plaintiff also sought mandamus to compel defendant Bergland to compensate her for the construction defects in the house under Section 509 of the Act, 42 U.S.C. § 1479(c). 3

In essence, plaintiff alleged the Act and the regulations under it created an obligation on the part of FmHA to supervise construction of the house to ensure compliance with the purpose of the FmHA loan program which the Act recites is for rural residents to obtain "decent, safe, and sanitary living conditions " 42 U.S.C. § 1471(a).

The District Court rejected plaintiff's claims and remanded the case to the state court holding there is no duty owed plaintiff by FmHA under the Act since the purpose of the rural housing loan program is limited to providing participants with an opportunity to obtain decent housing and not to make the government "an insurer of the quality of the workmanship or structures funded with the loan proceeds." 489 F.Supp. at 514. The District Court equated FmHA's position with that of a mortgagee and looked at supervision of construction authorized by the regulations as a means of protecting FmHA's security interest in the mortgaged property.

"To hold the FmHA liable for the shoddy work of the contractor would be tantamount to making a mortgagee the warrantor of the quality of its security."

489 F.Supp. at 515.



The Secretary of Agriculture is authorized by § 502 of the Act, 42 U.S.C. § 1472, to extend financial and technical assistance, through FmHA, to eligible rural residents to enable them to obtain "decent, safe, and sanitary" housing. 42 U.S.C. § 1471(a). The regulations state,

"The basic objective of the Farmers Home Administration (FmHA) in making section 502 loans is to assist farm owners and other persons who will live in rural areas to obtain decent, safe, and sanitary dwellings and related facilities. The purpose of these loans is to give families, who do not have sufficient resources to provide such dwellings and related facilities on their own account and cannot obtain the necessary credit from other sources on terms and conditions they reasonably can be expected to meet, an opportunity to have adequate homes."

7 C.F.R. § 1822.2.

FmHA is authorized to provide financial assistance either by direct loans through the Secretary of Agriculture pursuant to section 502 of the Act, 42 U.S.C. § 1472, or by insured or guaranteed loans pursuant to section 517 of the Act, 42 U.S.C. § 1487, and the regulations, 7 C.F.R. § 1841.46 et seq.

Although Title V focuses on financial assistance, S. Rep. No. 84, 81st Cong., 1st Sess. 2, reprinted in (1949) U.S.Code Cong.Serv. 1550, 1576, Congress has also provided for research and technical services "pointed toward more efficient and more economical construction" of houses and related structures. Id. Section 506 of the Act provides,

"Buildings and repairs constructed with funds advanced pursuant to this subchapter shall be supervised and inspected as required by the Secretary. In addition to the financial assistance authorized the Secretary is authorized to furnish technical services such as building plans, specifications, construction supervision and inspection "

42 U.S.C. § 1476(a) (emphasis added).

The regulations provide:

"Supervision will be provided borrowers to the extent necessary to achieve the objectives of the loan and to protect the interests of the Government "

7 C.F.R. § 1822.7(a).

Thus while it may be said that the overall objective of the loan program is to provide

Page 1181

rural residents an opportunity for decent, safe, and sanitary housing, it is to be noted that Congress has specifically authorized FmHA to provide technical assistance and supervision of construction.


Plaintiff's contract claim turns on the nature and extent of FmHA's obligation, if any, to provide technical assistance and to inspect and supervise construction. To find FmHA had a contractual obligation it must be expressly provided for either in the Act, the regulations, or the loan papers, or it must be implied in fact from the circumstances surrounding plaintiff's dealings with FmHA, since there can be no right of action against the United States for a contract implied in law. 28 U.S.C. § 1346; 4 Goodyear Tire & Rubber Co. v. United States, 276 U.S. 287, 293, 48 S.Ct. 306, 307, 72 L.Ed. 575 (1928).

There is no allegation that FmHA expressly promised to provide assistance and neither in the Act nor the regulations is there an explicit obligation on the part of FmHA to inspect or supervise construction for plaintiff's benefit. The right to inspect, without more does not imply an obligation to inspect. Kaminer Construction Corp. v. United States, 488 F.2d 980 (Ct.Cl.1973).

Section 506 of the Act, 42 U.S.C. § 1476(a), authorizes the Secretary of Agriculture to furnish a borrower technical services; the regulations governing rural housing loans, 7 C.F.R. § 1822.7, provide that such assistance will be rendered "to the extent necessary" to achieve the loan objectives; 7 C.F.R. § 1804.4(g)(3), governing planning and performing development work, provides that inspections will be made "as frequently as necessary to assure that construction and land development conforms with the plans and specification"; and 7 C.F.R. § 1802.73 and § 1802.74, governing supervision of borrowers, provide for "supervision necessary to accomplish the objectives of the loan," with emphasis given to, inter alia, maintaining the security and protecting the interest of FmHA. Borrowers are to be supervised "to the extent necessary to assure protection of the FmHA's financial interest." 7 C.F.R. § 1802.74. None of these provisions include a clearly defined obligation on the part of FmHA running to plaintiff to perform any supervisory function, but instead speak in terms of discretion on the part of FmHA to render such assistance as it deems necessary to achieve the objectives of the loan program and for the protection of its security interest.

We find that no contractual obligation...

To continue reading