Larsen v. United Federal Sav. and Loan Ass'n of Des Moines

• Decision Date: 14 January 1981
• Docket Number: No. 64765,64765
• Citation: 21 A.L.R. 4th 855,300 N.W.2d 281
• Parties: Wayne LARSEN and Sharon Larsen, Appellees, v. UNITED FEDERAL SAVINGS AND LOAN ASSOCIATION OF DES MOINES, Appellant.
• Court: Iowa Supreme Court

Page 281

300 N.W.2d 281

21 A.L.R.4th 855

Wayne LARSEN and Sharon Larsen, Appellees, v. UNITED FEDERAL SAVINGS AND LOAN ASSOCIATION OF DES MOINES, Appellant.

No. 64765.

Supreme Court of Iowa.

Jan. 14, 1981.

James V. Sarcone, Jr. of Grant, Lozier & Sarcone, Des Moines and Richard G. Santi of Ahlers, Cooney, Dorweiler, Haynie & Smith, Des Moines, for appellant.

Roy M. Irish of Patterson, Lorentzen, Duffield, Timmons, Irish & Becker, Des Moines, for appellees.

Considered by REYNOLDSON, C. J., and UHLENHOPP, HARRIS, McCORMICK and LARSON, JJ.

REYNOLDSON, Chief Justice.

The principal issue in this case is whether United Federal Savings and Loan Association of Des Moines (UFS) may be held liable in damages to plaintiffs Wayne and Sharon Larsen, who assert they paid an excessive price for their home in reliance upon a negligent appraisal made by a UFS employee. The jury returned a $28,000 verdict for Larsens. Trial court granted UFS a new trial unless Larsens remitted all of the verdict in excess of $20,000. Larsens filed a consent to this remittitur, and judgment was entered accordingly. Defendant appeals. We modify and affirm on condition, and remand.

In this appeal UFS contends trial court should have sustained its motions for directed verdict on the following grounds: (1) There was no substantial, competent or preponderant evidence to support the existence of a duty from UFS to Larsens with respect to the appraisal; (2) there was no substantial, competent or preponderant evidence upon which the jury could find the appraisal was performed negligently; and (3) there was no competent, preponderant or substantial evidence as to the cost of repairs at the time the defects in the home were discovered that would permit any damages to be awarded.

In considering these motions, trial court was obligated to view the evidence in the light most favorable to the Larsens regardless of whether the evidence was contradicted, and to draw every legitimate inference that might be reasonably deduced therefrom in aid of the evidence, and if reasonable minds could differ on the issue it was properly submitted to the jury. Becker v. D & E Distributing Co., 247 N.W.2d 727, 729-30 (Iowa 1976). We follow this principle in the following recital of the evidence in the record before us.

In 1977 the Larsens were looking for a larger Des Moines house to accommodate their growing family. One night a realtor took them to look at the home in controversy. They were only in the house about twenty to thirty minutes because the residents resented the intrusion. There was furniture in the house and boxes on the floor. They did not notice anything wrong with the home. The same night, October 27, 1977, they signed an offer to buy for $45,000, subject to the sale of the residence they then owned and contingent upon Larsens securing a new mortgage for $29,000 "subject to conventional financing." The Larsens had purchased homes before, were familiar with the appraisal requirement, and both testified they assumed any problems with the residence "would come out in the appraisal."

October 31, 1977, the realtor took Mrs. Larsen to a UFS office. They delivered the offer, then executed by the sellers, to a loan officer. Mrs. Larsen signed the application for the $29,000 loan. It is undisputed UFS knew the price was $45,000 and subject to Larsens obtaining a $29,000 loan. Mrs. Larsen received from UFS a "Deposit Receipt and Agreement" acknowledging receipt of $100 "to apply on loan expenses at time of closing." But this instrument also provided that if the application was canceled, the deposit would be retained by UFS to apply on expenses, including an appraisal, with any surplus over actual expenses to be refunded. Another document itemized the "appraisal fee" at $75. The loan officer told Mrs. Larsen UFS would make the appraisal but if they were "jammed up" someone else would do it.

November 14, 1977, the house was appraised by Allen Hutchison, a salaried UFS employee with about two years of appraising experience. UFS retained the $75 appraisal fee paid by Larsens. The first line of the printed appraisal report used by Hutchison designated Wayne Larsen as the "Borrower/Client." It disclosed the $45,000 sale price and the loan amount of $29,000. Nothing was written in the space provided for "COMMENTS (including functional or physical inadequacies, repairs needed, modernization, etc.)." Various features of the house were noted, together with a description of three "comparable sales." Hutchison placed $45,000 on the "indicated value by market data approach" line, a "dash" on the "indicated value by income approach" line, and added the comment, "Both approaches indicate a reasonable sale." The "Certification and Statement of Limiting Conditions" attached to the appraisal included the following provision:

8. Neither all, nor any part of the content of the report, or copy thereof (including conclusions as to the property value ...) shall be used for any purposes by anyone but the client specified in the report, the mortgagee or its successors and assigns ... without the written consent and approval of the Appraiser.

(Emphasis supplied.)

Hutchison testified it was the custom in the community for the borrower or his sales representative to be advised of the fact the appraisal was made, and of the results. He admitted that on deposition he had identified Wayne Larsen as the borrower and client, and had then stated he had done the appraisal for them. He also admitted UFS was in a "peak demand" period in November 1977 and that in those circumstances he would sometimes "hurry through an appraisal." He was told by his supervisors to be "more careful."

Ben Sapp, UFS vice-president, and senior appraiser and supervisor of residential appraisers, admitted that when deposed he identified Wayne Larsen as "the borrower and the client." He acknowledged the certification form presently used by UFS specifically listed as one who could utilize the report "the borrower if he pays the appraisal fee," and that there had been no change in that policy since October of 1977.

Larsens awaited the appraisal "to find out whether the house was worth the money." UFS notified Larsens through their realtor that the appraisal "was okay and there was nothing wrong." They did not receive the written appraisal until they called for it several days after the loan was obtained and the sale consummated on December 29, 1977. Nonetheless, there was substantial evidence that they knew the significance of the appraisal, and that their purchase of the home depended on the $29,000 loan which in turn depended on the appraisal. They relied on the results of the appraisal in purchasing the property.

When Larsens moved into the house they began to notice major structural defects for the first time. These defects were initially observed because the furniture would not set straight and the pictures hung crooked. The floors were very uneven and there was a six-inch drop in the floor from the back to the front of the house. The doors would fall shut or open, depending on location, and had been sawed off as much as two inches to clear the floor when they were opened. Liquids spilled on the table would roll right off. The beds had to be shimmed up at one end. The children called the house "The Wonder Spot," after a "tipsy house" in a Wisconsin amusement park. A structural engineer UFS later sent out testified there was a "differential settlement within the foundation," and as a result,

(t)he floors were uneven, the walls were out of plumb, the basement wall in the garage area was failing, this sort of thing. It was also obvious to me that most of the house with the exception of the kitchen had a very uneven floor.

After three persons in the construction business examined the house, Wayne Larsen called UFS about March 1, 1978. This resulted in a meeting at the association's office between the Larsens, Ben Sapp (UFS vice-president) and senior vice-president Donald Payne. Wayne Larsen detailed the problems with the house and related estimates of repair costs from the persons who had inspected it. Sapp agreed to inspect the house, and he arrived the next day. Mrs. Larsen testified Sapp remarked about the uneven floors, and pointed out the bulging wall in the basement garage stating, "he couldn't understand why the appraiser didn't see that." Sapp looked at the doors that had been sawed off. He said "it shouldn't have been appraised at what it was appraised at. It shouldn't have been appraised at $45,000." Mrs. Larsen further testified Sapp said he knew United Federal was an understanding bank and that they "would take care of it." He stated, "Don't worry about it, they will help you out and it (will) be to your satisfaction."

When Wayne Larsen telephoned Sapp later, he told Larsen he was going to come back out but not to worry about it, stating, "we'll do something, we'll take care of it or something." Sapp returned again with Hutchison and an unidentified woman. UFS then sent the structural engineer, Gordon Burns, whose trial testimony has been partially set out above, to inspect the home. It was his opinion "a normal person walking through the house (would) notice these problems." He estimated the necessary repair costs to correct the structural defects could run as high as.$19,000.

After the engineer's inspection Larsens were called back to UFS. They were told by Payne that "they (UFS) didn't feel any responsibility toward the problem to the house." Payne admitted that in this exchange Mrs. Larsen charged that Sapp had indicated the property "was not near worth $45,000," and that neither he nor Sapp denied the statement had been made. Payne said UFS would not have made the loan if the problems with the house had been known.

Other evidence will be referred to in discussing the issues addressed in the following divisions.

I. Did UFS owe a duty to Larsens that could give rise to damages for...