Construction Lender, Inc. v. Sutter

• Decision Date: 08 September 1997
• Docket Number: No. A97A1611,A97A1611
• Citation: 491 S.E.2d 853,228 Ga. App. 405
• Parties: , 97 FCDR 3327 CONSTRUCTION LENDER, INC. et al. v. SUTTER et al.
• Court: Georgia Court of Appeals

Page 853

491 S.E.2d 853

228 Ga.App. 405, 97 FCDR 3327

CONSTRUCTION LENDER, INC. et al. v.SUTTER et al.

No. A97A1611.

Court of Appeals of Georgia.

Sept. 8, 1997.

Stewart, Melvin & Frost, Frank Armstrong III, Gainesville, for appellants.

Carey, Jarrad & Walker, Mary R. Carden, Gainesville, for appellees.

RUFFIN, Judge.

The Construction Lender, Inc.("TCL") and its president, Joe Ray, appeal from a $111,727.21 jury verdict and judgment in favor of Robert and Sandra Sutter, who borrowed money from TCL to finance the construction of their Hall County home.The jury's verdict was based on the Sutters' negligence claims, in which they alleged TCL and Ray had improperly disbursed $47,500 to the builder, Joe Mustin, who then abandoned the job and left the house uncompleted.We find the evidence supports the jury's finding on one theory of negligence, but we reverse the judgment and remand for a new trial because the Sutters cannot sustain a second negligence theory and failed to prove that certain damages were proximately caused by any action of TCL or Ray.

We review the evidence, as we must, construing it strongly in favor of the jury's verdict.SeeSoutheastern Security Ins. Co. v. Hotle, 222 Ga.App. 161, 162(1), 473 S.E.2d 256(1996).In April 1994, the Sutters and builder Joe Mustin agreed in writing that Mustin would construct the Sutters' home for a total contract price of $235,000.That contract specified the Sutters would give Mustin a ten percent advance, and Mustin would receive additional payments based on the "Lender's Draw schedule."

The Sutters then entered a loan agreement with TCL to finance the construction and to pay off the purchase price for the underlying land.That agreement specified TCL would make "advances" up to the "total principal amount" of the note, provided that, among other things, "[a]t the time of each advance, [TCL] is fully satisfied with the timeliness, progress, and quality of development and/or construction and, in the sole opinion of [TCL], the estimated cost of development and/or construction in accordance with the plans and specifications does not exceed the balance of the loan to be advanced."The contract further specified, however, that "[TCL] has had no control over, will have no control over, has not supervised, and will not supervise the construction of improvements on the property.[TCL] has not, does not, and will not make any representations, warranties, guarantees or promises concerning the construction, workmanship, materials, or design employed in, to be used in, or constituting the improvements on the property.[TCL's] relationship to the construction ... is solely that of a mortgage lender, and all periodic inspections and any appraisals made by [TCL] are for the sole purpose of protecting [TCL's] security interest in the real estate and determining that progress has been made for the disbursement of construction loan funds as work has been completed."At the bottom of the loan agreement, the Sutters signed a clause directing TCL to "make all advances under the foregoing agreement directly to the contractor" and authorizing Mustin "to apply for and receive all advances under the foregoing agreement for the purpose of paying all bills for labor and material employed in the construction...."

At the closing, the Sutters learned that the ten percent advance to Mustin ($23,500) could not come from loan funds.A TCL employee told the Sutters that if they paid that advance, the $23,500 would be reimbursed to them from loan funds once the house was complete.Therefore, so long as no "change orders" were made, the Sutters alleged, TCL should have disbursed to Mustin a total of $211,500 in exchange for Mustin's completion of the house.Mr. Sutter testified no such change orders were made.

After construction began, the Sutters had problems with Mustin's work, including his incorrect placement of a driveway.In September, the Sutters asked Ray that he and TCL not make any further disbursements to Mustin without first obtaining their approval.Ray complied, and before allowing Mustin the next three draws, he called one of the Sutters and obtained authorization to make these advances.In December, however, Mustin requested an additional draw in excess of $60,000.Ray inspected the construction, decided the work completed warranted an advance of $47,500, and on December 15, 1994, disbursed those funds to Mustin without first contacting the Sutters.This unauthorized advance brought the total amount paid by TCL to Mustin to $211,564, or $64 in excess of what TCL should have paid the builder assuming no increases were made in the $235,000 fixed contract price.On December 19, 1994, Mustin abandoned the job and soon thereafter declared bankruptcy.

The Sutters presented evidence of their damages, including the amounts disbursed without authority and in excess of the contract price.They also sought the $50,000 cost of completing the house and other damages that resulted from the delays in completion caused when Mustin abandoned the job.Because the house was not complete, the Sutters were required to pay continuing interest on the construction loan and had to refinance the loan to pay the additional completion costs.They introduced evidence showing approximately $42,000 in additional unpaid materialmen's liens that Mustin's subcontractors had placed on the property.In addition to those amounts, the Sutters sought recovery for rent they paid from December 1994 through July 1995, moving expenses, damages resulting from deterioration to the house as it sat vacant and uncompleted for many months, and the cost of an insurance policy they maintained on the house from December 1994 until its completion.

At the close of evidence, but before the case was submitted to the jury, the Sutters dropped all their contract-based claims and proceeded only on two tort theories.First, they asserted that TCL and Ray had a tort duty to ensure that payments made on the loan were timely and for work actually done.Second, they argued that Ray and TCL negligently failed to discharge the duty they voluntarily undertook to obtain the Sutters' approval before disbursing the final $47,500 to Mustin.

On appeal, Ray and TCL claim the trial court erred by denying their motions for directed verdict and judgment notwithstanding the verdict("j.n.o.v.").They claim neither defendant had any tort-based duty to the Sutters and, if they did, no proximate causal connection exists between the violation of any duty and the damages the Sutters sought.Having construed the evidence strongly in favor of the jury's verdict, we must determine whether the Sutters produced any evidence to support their claims.Southeastern Security, supra.

1.(a) Voluntary Undertaking.We find the court properly allowed the jury to determine whether TCL and Ray negligently breached their duty to obtain authorization before disbursing funds.The Sutters correctly state the principle that "[w]here one undertakes an act which he has no duty to perform and another reasonably relies upon that undertaking, the act must generally be performed with ordinary or reasonable care.[Cit.]"Stelts v. Epperson, 201 Ga.App. 405, 407, 411 S.E.2d 281(1991).The evidence supports a finding that Ray, on behalf of TCL, voluntarily undertook the duty to obtain approval from the Sutters before disbursing the $47,500 and breached that duty.An officer of a corporation who personally takes part in a tort committed by the corporation may be held personally liable.SeeCherry v. Ward, 204 Ga.App. 833, 834(1)(a), 420 S.E.2d 763(1992).

However, we find no evidence supporting any claim that the voluntary undertaking encompassed more than simply obtaining approval prior to disbursing the funds.The contract between TCL and the Sutters clearly states that TCL took no responsibility for the quality of the work, and that all inspections and appraisals were done solely for TCL's benefit.Nothing in the testimony or correspondence indicates the Sutters made any request of Ray and TCL other than to obtain the Sutters' authorization before disbursing funds.Therefore, we find neither Ray nor TCL voluntarily assumed any duty to ensure that materialmen's liens were paid or that the work was properly completed.

(b) Damages Resulting from Voluntary Undertaking.The Sutters were entitled to recover from Ray and TCL the amounts disbursed without authority, so long as they proved these amounts would not otherwise have been paid to Mustin.SeeStelts, supra.The evidence before us supports such a finding.But the Sutters also sought damages resulting from Mustin's failure to complete the house.Ray and TCL, the Sutters argue, could reasonably foresee that this unauthorized payment would cause Mustin to abandon the job and would result in delays, additional expenses to pay off materialmen's liens and to complete the house, and additional personal expense for the Sutters.We disagree.

We reject the Sutters' argument that Ray's and TCL's alleged negligent disbursement caused Mustin to abandon the job.Such an argument amounts to pure speculation, especially when considering that Mustin never testified at trial and no evidence showed why he failed to fulfill his contractual obligations.Even though testimony showed lenders often withhold final payment to ensure that builders finish the project, nothing in the record shows the failure to withhold that payment caused Mustin...