Davis v. Nevada Nat. Bank, 16611
| Decision Date | 27 May 1987 |
| Docket Number | No. 16611,16611 |
| Citation | 103 Nev. 220,737 P.2d 503 |
| Parties | Claude and Ruby DAVIS, Appellants, v. NEVADA NATIONAL BANK, Respondent. |
| Court | Nevada Supreme Court |
Frank Cremen, Las Vegas, for appellants.
Lovell, Bilbray & Potter, Las Vegas, for respondent.
In April, 1970, appellants and one Paul Bennett (the "Contractor") entered into an agreement with respondent (the "Bank") whereby the Bank agreed to loan appellants funds for the construction of a home in Las Vegas.
During the course of construction, appellants noted serious defects in the foundation of the home. Appellants asked the Bank's loan officer to withhold payments until the problems were corrected; the Bank refused, apparently without any investigation of the truth of appellants' assertions.
Although appellants eventually obtained a judgment against the Contractor for his deficient construction, the Contractor's bankruptcy prevented collection of damages. Appellants then sued the Bank, which contended that it simply could not be held liable for construction deficiencies. The district court agreed and granted summary judgment in favor of the Bank. For reasons stated herein, we reverse and remand for further proceedings.
When a construction lender grants a loan to a borrower but retains the funds pending distribution, and in fact distributes the loan proceeds itself, that lender is not totally free to disregard the interests of its borrower. We agree that such a lender normally has no duty to exercise care to identify unworkmanlike or deficient construction, or to accede to requests to withhold payment from contractors. And it would be legally sound and commercially appropriate to uphold a lender's decision to continue paying a contractor if, after reasonable investigation, the lender concluded in good faith, albeit erroneously, that its borrower's request to withhold payment was unwarranted. However, it would be unjust to permit a lender, with impunity, to simply disregard a borrower's complaint of substantial construction deficiencies affecting the structural integrity of a project, thereby placing a borrower in the potentially untenable position of having to fully repay the lender for loan funds expended, contrary to a borrower's particularized entreaties, for a substantially defective residence or structure. A lender must pursue such a course at its own risk. Nevada's immunity statute, NRS 41.590, 1 does not dictate a contrary holding. Its protection does not extend to liabilities incurred as a result of a lender's activities other than "the loan transaction." In the instant case, the Bank's liability would arise not from the loan transaction, but from the Bank's later breach of a nonconsensual duty of care in the disbursement of construction loan proceeds.
In rendering summary judgment, the trial court noted that appellants' action was solely for breach of contract. However, the contract between the parties does not conflict with or otherwise preclude the application of the principles set forth above. The loan agreement provided, in relevant part, that the Bank had no obligation to inspect the home under construction and was not responsible for proper disbursement of the loan, and that no terms other than those in the writing had been "agreed to." Each of these provisions, however, is subject to established doctrines of contractual interpretation, including: (1) the court shall effectuate the intent of the parties, which may be determined in light of the surrounding circumstances if not clear from the contract itself, Barringer v. Gunderson, 81 Nev. 288, 302-03, 402 P.2d 470, 477-78 (1965); and (2) ambiguities are to be construed against the party (in this case,...
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