Gill v. Mission Sav. & Loan Ass'n

• Decision Date: 23 August 1965
• Court: California Court of Appeals Court of Appeals
• Parties: Glen J. GILL et al., Plaintiffs and Appellants, v. MISSION SAVINGS & LOAN ASSOCIATION, a California corporation, Defendant and Respondent. Civ. 7536.

Page 456

46 Cal.Rptr. 456

236 Cal.App.2d 753

Glen J. GILL et al., Plaintiffs and Appellants, v. MISSION SAVINGS & LOAN ASSOCIATION, a California corporation, Defendant and Respondent.

Civ. 7536.

District Court of Appeal, Fourth District, California.

Aug. 23, 1965.

Hearing Denied Oct. 20, 1965.

Mize, Larsh, Mize & Hubbard and Royal E. Hubbard, Santa Ana, for plaintiffs and appellants.

Arthur M. Bradley, Santa Ana, for defendant and respondent.

COUGHLIN, Justice.

This is an appeal from a judgment of dismissal upon an order sustaining a general demurrer to a first amended complaint. Leave to amend was granted, but no amendment was filed.

As appears from the first amended complaint, plaintiffs were the owners of four promissory notes executed by Darnell Development Company, a limited partnership; and secured by deeds of trust upon real property each of which contained the following provision:

'This deed of trust, shall, * * * be subject to a deed of trust to be hereafter executed by the trustors or their successors in interest covering said land and securing a loan, not exceeding $28,000.00';

in consideration of the foregoing subordination provision the loan referred to therein was 'to be used solely for the construction of improvements upon' the realty described in the deed of trust; the defendant, a savings and loan association, made a 'construction' loan of $20,000.00 'upon' the real property described in each deed of trust evidenced by a promissory note secured by a 'separate' deed of trust upon that property; the defendant, at all times, 'had full and complete knowledge and well knew and * * * acted upon the premises, that the loans referred to in the subordination' provision, 'were to be loans solely for the construction of improvements upon' the real property respectively described in the deeds of trust; the defendant, 'so carelessly and negligently managed and supervised the distribution of said funds, (i. e. those obtained from the 'construction' loans made by defendant) that when the same were completely expended the construction had not been completed in accordance with the plans and specifications therefor'; that 'as a direct and proximate result of the carelessness and negligence of said defendant, as aforesaid, said properties were not in a condition to be sold and the payments on said notes evidencing said construction loans became delinquent and notice of default fault was declared'; and 'as a direct and proximate result of defendant's carelessness and negligence, as aforesaid, plaintiffs were damaged' in designated amounts on account of specifically described expenditures they were required to make.

Inferentially, it also appears from the first amended complaint that the borrowers from the defendant were the trustors in the original deeds of trust, or their successors in interest.

The issue for determination is whether defendant owed plaintiffs a duty to exercise ordinary care in managing and supervising the distribution of the funds defendant had loaned, to the end that these funds would be used only for construction purposes.

'It is an elementary principle that an indispensable factor to liability founded upon negligence is the existence of a duty of care owed by the alleged wrongdoer to the person injured, or to a class of which he is a member.' (Routh v. Quinn, 20 Cal.2d 488, 491, 127 P.2d 1, 3, 149 A.L.R. 215.)

In their opening brief, plaintiffs assert that the subordination provision in the original deeds of trust 'was made upon an understanding between plaintiffs and defendant herein that said loans were to be used solely for the construction of improvements upon the designated lots.' The allegations of the first amended complaint do not support the conclusion that defendant expressly or impliedly agreed with plaintiffs that the loaned funds should be used solely for construction purposes. At most, the amended complaint supports an inference that plaintiffs and the trustors under plaintiffs' deeds of trust agreed that the loaned funds would be used only for such purposes, and that defendant had knowledge of this agreement. Based on this interpretation of their first amended complaint, the plaintiffs contend that defendant made the construction loans with knowledge that unless the proceeds therefrom were used for the purposes intended the security of plaintiffs' subordinated deeds of trust would be impaired, and in doing so assumed and was charged with the duty to see that the proceeds from the loans were devoted to the intended purposes. In...