Jacques v. First Nat. Bank of Maryland

Citation515 A.2d 756,307 Md. 527
PartiesRobert Anthony JACQUES et ux. v. The FIRST NATIONAL BANK OF MARYLAND. 66 Sept. Term 1985.
Decision Date08 October 1986
CourtCourt of Appeals of Maryland

Albert D. Brault (Janet S. Zigler and Brault, Graham, Scott & Brault, on the brief), Rockville, for appellant.

John E. Griffith, Jr. (Piper & Marbury, on the brief), Baltimore, for appellee.

Argued before MURPHY, C.J., ELDRIDGE, COLE, RODOWSKY, COUCH and McAULIFFE, JJ., and CHARLES E. ORTH, Jr., Associate Judge of the Court of Appeals (retired), Specially Assigned.

McAULIFFE, Judge.

This appeal presents the issue of whether a bank that has agreed to process an application for a loan owes to its customer a duty of reasonable care in the processing and determination of that application. We hold that under the particular facts of this case the bank is properly charged with that duty.

The bank customers, Robert and Margaret Jacques ("the Jacques"), sued The First National Bank of Maryland ("the Bank") alleging that the Bank failed to properly evaluate their qualifications for a home mortgage loan. The Jacques' complaint was in five counts, claiming malicious interference with the right of contract, breach of fidelity, negligence, gross negligence, and "prima facie" tort.

I

This dispute began with a residential sales contract executed on July 30, 1980 between Michael and Kathleen Clarke as sellers and the Jacques as purchasers. The purchase price fixed by the contract was $142,000.00. The Jacques were to pay $30,000.00 cash, referred to by the parties as a down payment, and obtain the balance of the purchase price through outside financing. The printed form of the contract required that the Jacques secure the balance of $112,000.00 through a conventional deed of trust, due in thirty years and bearing interest at the rate of 12- 1/4% per annum. The contract was expressly contingent upon the Jacques ability to obtain this financing. By a handwritten addendum, however, the parties agreed to the following significant modification of the financing and contingency provisions:

Purchaser agrees to increase the down payment to whatever amount is necessary to qualify for a mortgage loan.

The addendum also provided for an acceptable alternative financing rate of 11- 7/8% with payment of two points 1 by the purchasers.

Shortly after the execution of the contract, the Jacques submitted their application to the Bank seeking a loan in accordance with the terms of the contract. A copy of the contract, including the addendum, was submitted with the application. On August 11, the Bank sent a letter to the Jacques stating:

The First National Bank of Maryland is pleased to have received your application for processing a Mortgage Loan. The required $144.00 fee for the appraisal and credit report to initiate processing does not constitute approval of your loan.

The current rate for a loan of this type is 11- 7/8%. This rate will hold for settlement for ninety (90) days from date the application is received in this office. At time of approval, the Bank will issue a commitment with a fixed interest rate, which will be binding upon written acknowledgement and acceptance. At the present time, the processing and approval for this loan is approximately four weeks.

On September 1, a bank officer contacted the Jacques and informed them they qualified only for a loan of $74,000.00. Subsequently, the Bank informed the Jacques that it had erred in its original determination of eligibility, and that in fact, under the Bank's guidelines, the Jacques qualified for a loan of no more than $41,400.00. The Jacques vigorously protested this determination, but to no avail. They then requested that the Bank issue an outright refusal of their loan application. The Bank declined this request, explaining that the application, read in light of the contract, was for the maximum loan for which the applicants would qualify, and the Bank had determined that the Jacques qualified for a loan of $41,400.00.

The Jacques promptly attempted to obtain financing from another lending institution, Metropolitan Federal Savings and Loan Association. On the strength of the same information that had been provided the Bank, Metropolitan issued its commitment for a thirty-year loan in the amount of $100,000.00. However, because interest rates had dramatically escalated shortly after the Jacques had submitted their original application to the Bank, the proposed rate of interest on the Metropolitan loan was 13- 7/8%. Concluding that the additional two percent interest would cost them more than $50,000.00 over the life of the loan, and because their contract did not require them to accept financing that exceeded 12- 1/4% interest, the Jacques did not accept the Metropolitan loan. Instead, they proceeded to settlement with the Bank's $41,400.00 loan, securing personal loans from relatives and a short term personal loan of $50,000.00 from the Bank. In order to obtain the personal loan from the Bank, the Jacques were required to pledge their personal stock portfolio as security and to pay 15% interest on that loan.

On January 28, 1982, the Jacques filed suit against the Bank. Following six days of trial, the case was submitted to the jury on the claims of malicious interference with contract, gross negligence, and negligence. 2 The jury returned a verdict in favor of the Bank on the claims of malicious interference with contract and gross negligence, but found in favor of the Jacques on the negligence count and awarded them $10,000.00 compensatory damages. The Jacques appealed, contending the trial judge had erred in instructing the jury concerning the plaintiffs' duty to minimize their damages. 3 The Bank cross-appealed, arguing that as a matter of law it owed no duty to the Jacques in the processing of the loan application, and therefore its motion for a directed verdict should have been granted. The Court of Special Appeals reversed the trial court, holding that the Bank had no duty to use due care in evaluating the Jacques' application for a loan. Jacques v. First National Bank, 62 Md.App. 54, 488 A.2d 210 (1985). We granted certiorari to determine whether a bank does owe a duty to its customer under the circumstances presented by this case. We reverse.

II

To establish a cause of action in negligence a plaintiff must prove the existence of four elements: a duty owed to him (or to a class of which he is a part), a breach of that duty, a legally cognizable causal relationship between the breach of duty and the harm suffered, and damages. Cramer v. Housing Opportunities Comm'n, 304 Md. 705, 712, 501 A.2d 35 (1985); Scott v. Watson, 278 Md. 160, 165 359 A.2d 548 (1976); Peroti v. Williams, 258 Md. 663, 669, 267 A.2d 114 (1970). Absent a duty of care there can be no liability in negligence. Ashburn v. Anne Arundel County, 306 Md. 617, 627, 510 A.2d 1078 (1986); Read Drug & Chem. Co. of Balto. City v. Colwill Constr. Co., 250 Md. 406, 243 A.2d 548 (1968); Leonard v. Lee, 191 Md. 426, 62 A.2d 259 (1948); Pennsylvania R. Co. v. State, 188 Md. 646, 53 A.2d 562 (1947); W. Va. Central R. Co. v. Fuller, 96 Md. 652, 666, 54 A. 669 (1903). See also Inmi-Etti v. Aluisi, 63 Md.App. 293, 492 A.2d 917 (1985).

The duty element in a negligence action is "an obligation to which the law will give effect and recognition to conform to a particular standard of conduct toward another." J. Dooley, Modern Tort Law, § 3.03, at 18-19 (1982, 1985 Cum.Supp.). The history of the concept of duty is traced in Prosser and Keeton on The Law of Torts, § 53, at 357 (1984):

[W]hen negligence began to take form as a separate basis of tort liability, the courts developed the idea of duty, as a matter of some specific relation between the plaintiff and the defendant, without which there could be no liability. We owe this to three English cases, decided between 1837 and 1842. [Winterbottom v. Wright, 10 M. & W. 109, 152 Eng.Rep. 402 (1842); Langridge v. Levy, 2 M. & W. 519, 150 Eng.Rep. 863 (1836), aff'd, 4 M. & W. 337, 150 Eng.Rep. 1458 (1838); Vaughan v. Menlove, 3 Bing.N.C. 468, 132 Eng.Rep. 490 (1837).] The rule which developed out of them was that no action could be founded upon the breach of a duty owed only to some person other than the plaintiff. He must bring himself within the scope of a definite legal obligation, so that it might be regarded as personal to him. "Negligence in the air, so to speak, will not do."

* * *

* * *

The statement that there is or is not a duty begs the essential question--whether the plaintiff's interests are entitled to legal protection against the defendant's conduct. It is therefore not surprising to find that the problem of duty is as broad as the whole law of negligence, and that no universal test for it ever has been formulated. It is a shorthand statement of a conclusion, rather than an aid to analysis in itself. Yet it is embedded far too firmly in our law to be discarded, and no satisfactory substitute for it, by which the defendant's responsibility may be limited, has been devised. But it should be recognized that "duty" is ... an expression of the sum total of those considerations of policy which lead the law to say that the plaintiff is entitled to protection. (Footnotes omitted.)

Similarly, in 3 F. Harper, F. James, & O. Gray, The Law of Torts, § 18.1, at 652 (2d ed. 1986), the development of the concept of duty in relation to negligence is set forth:

The law of negligence started from the notion that negligence was one way to fail in the performance of a determinable legal duty, so that the courts came quite naturally to look on negligence as the correlative of a duty not to harm plaintiff in the manner of which he was complaining. This duty might arise from the public nature of defendant's calling, from his holding of a public office, from bailment, from prescription or custom, or from his control of a dangerous thing. It might also arise from private contract. It appeared "as...

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