First Federal Sav. Bank of Brunswick v. Fretthold

• Decision Date: 01 May 1990
• Docket Number: No. A90A0243,A90A0243
• Citation: 394 S.E.2d 128,195 Ga.App. 482
• Parties: FIRST FEDERAL SAVINGS BANK OF BRUNSWICK v. FRETTHOLD et al.
• Court: Georgia Court of Appeals

Page 128

394 S.E.2d 128

195 Ga.App. 482

FIRST FEDERAL SAVINGS BANK OF BRUNSWICK v. FRETTHOLD et al.

No. A90A0243.

Court of Appeals of Georgia.

May 1, 1990.

Brannen, Searcy & Smith, Leesa A. Bohler, Wayne L. Durden, Savannah, for appellant.

Raymond A. Majors, Jr., Hinesville, Thomas J. Lee, Neil L. Heimanson, Atlanta, for appellees.

Carlton M. Henson, Atlanta, amicus curiae.

SOGNIER, Judge.

After two materials suppliers filed lien foreclosure suits against Norman and Ruth Fretthold to recover sums due for materials supplied for the construction of the Frettholds' residence, the Frettholds brought a third-party complaint against First Federal Savings Bank of Brunswick, their construction lender, alleging negligence in the bank's disbursement of the construction funds without first obtaining affidavits of payment or partial lien waivers from the general contractor. The materials suppliers received summary judgments totalling $30,754.88, and the third-party claim was tried to a jury. The bank appeals from the judgment entered on the jury verdict awarding $16,814.31 to the Frettholds.

In May 1986, appellees entered into a contract with Bobby Crews d/b/a Gull Development for the construction of a house in McIntosh County. Appellees funded $52,000 of the total construction price and financed the balance of $40,000 with a construction loan from appellant secured by a deed to secure debt. The loan agreement, which was executed by appellant, appellees, and Crews, provided, inter alia, that appellees would deposit their portion of the construction funds with appellant and then authorize periodic disbursements by appellant to Crews from the construction account, which included the funds furnished by appellees and the money advanced by appellant pursuant to the loan agreement. The loan agreement authorized appellant to inspect the progress of the work and to obtain paid and receipted labor and materials bills from Crews before making disbursements, and provided that appellees "[a]ccept the sole responsibility for the selection of [the] Contractor ... and for the purchase and payment of materials, supplies and equipment to be used in the construction." The loan agreement further provided that appellees agreed to complete the project free of liens, and that appellant "SHALL NOT BE LIABLE FOR THE PAYMENT OF ANY BILLS INCURRED ON ACCOUNT OF SAID CONSTRUCTION."

After the first payment to Crews, appellees asked appellant to make all further disbursements directly to Crews without first obtaining a signed disbursement order from appellees because they planned to be out of town during much of the construction period and did not want their absences to hold up the project. As a result, a clause was added to the loan agreement providing that appellant was to "[m]ake checks payable to Gull Development," and appellant processed the subsequent pay requests by inspecting the job site to ensure the work for which Crews sought payment had been performed and then disbursing funds from the construction account to Crews. The house was almost complete when appellees learned from a materials supplier that he had not been paid by Crews, who filed a bankruptcy petition a few days later. Upon investigation, appellant discovered the two liens sub judice had just been filed.

At trial, appellee Norman Fretthold, who acknowledged that he had never before had a construction loan and did not read the loan agreement with appellant, testified that he never checked to see whether Crews was paying the subcontractors and suppliers because his "experience with a bank has always been that they would take the proper precautions when they loaned the money out and when they paid it out." Greg Strickland, appellant's assistant vice-president, testified that appellant did not determine whether the subcontractors and suppliers had been paid before disbursing funds to Crews because Crews had a good reputation as a reliable contractor and because appellant's interest in the property was secured by the deed to secure debt. In response to special interrogatories, the jury found that appellant was appellees' agent for disbursement of construction funds and that appellant was negligent in its discharge of that obligation.

Appellant contends the trial court should have granted its motion for directed verdict made on the ground that appellant had no duty to ensure the subcontractors and materials suppliers were paid before disbursing funds to Crews. We agree and reverse. Although the relationship between the parties was created by contract, appellees' claim alleged negligence rather than breach of the loan agreement. A tort is the unlawful violation of a private right other than a breach of contract, OCGA § 51-1-1, but " 'private duties may arise from statute, or flow from relations created by contract, express or implied. The violation of any such specific duty, accompanied with damage, gives a right of action [in tort].' [Cits.] ... In such a case the liability arises out of the breach of duty incident to and created by the contract, but is only dependent upon the contract to the extent necessary to raise the duty. [Cits.] ... [This principle] has been applied to contractual relations between principal and agent.... [Cits.]" Mauldin v. Sheffer, 113...