Murry v. Western American Mortg. Co.
| Decision Date | 22 October 1979 |
| Docket Number | CA-CIV,No. 2,2 |
| Citation | 604 P.2d 651,124 Ariz. 387 |
| Parties | John A. MURRY and Janet H. Murry, husband and wife, Plaintiffs/Appellants, v. WESTERN AMERICAN MORTGAGE COMPANY, an Arizona corporation; Western American Realty and Investment Company, an Arizona corporation, Defendants/Appellees. 3188. |
| Court | Arizona Court of Appeals |
This is an appeal from judgments dismissing appellants' complaint against Western American Mortgage Company (WAMCO) and amended complaint against Western American Realty & Investment Company (WARCO) in an action for damages as a result of purchasing a defectively constructed house. The court dismissed the complaint against WAMCO for failure to state a claim and denied appellants' oral motion to amend. The court allowed appellants to amend their complaint against WARCO to allege a violation of the Consumer Fraud Act but dismissed the amended complaint because the statute of limitations had run. We affirm both judgments.
Appellants alleged in Count One of their complaint that WAMCO's financial participation in the construction of Green Acres Estates subdivision, making construction loans to Huachuca Investment Company, Inc., and obtaining the right of first refusal to make long term loans to home buyers, gave rise to a duty to protect the buyers from defects in construction of the homes. The trial court concluded that the complaint merely alleged that WAMCO was a lender, and ruled that it failed to state a claim because a construction lender has no independent duty to the purchaser of a home absent a joint venture or contractual relationship.
After the court announced its intention to dismiss, appellants asked to amend Count One to allege that:
1) WAMCO and Huachuca Investment entered into a contract in which WAMCO agreed to finance construction based on a lot release schedule for periodic payments for each lot;
2) WAMCO executed a guarantee so that a bank would loan money to Huachuca Investment;
3) WAMCO knew that Huachuca Investment began construction when it had a capital deficit in excess of $140,000;
4) WAMCO entered into the agreement for the sole purpose of profiting off the mortgages generated by Green Acres Estates;
5) Payments were set up so Huachuca Investment would not draw sufficient profit to complete the subdivision, but would put up bare houses, sell them, and get mortgages for WAMCO;
6) Huachuca Investment ceased to do business after appellants purchased their house, and the assets were transferred to Busby Building and Development 7) WAMCO knew of the fraudulent transfers, and assisted by executing a guarantee which enabled Busby to purchase the remaining land in the subdivision;
8) WAMCO vouched for Busby to appellants after they signed the agreement to purchase.
The court denied the motion on the ground that the complaint as amended would still not state a claim.
The trial court specifically rejected the holding of Connor v. Great Western Savings & Loan Assoc., 69 Cal.2d 850, 73 Cal.Rptr. 369, 447 P.2d 609 (1968), that a lender can be liable to home buyers for damages caused by defective construction. However, neither the complaint nor proposed amendments allege the degree of active participation necessary to impose liability under Connor And its progeny. We need not decide, therefore, whether Connor should be the law in Arizona.
Connor involved a lender which was "more than a lender content to lend money at interest on the security of real property" but was "an active participant in a home construction enterprise." 73 Cal.Rptr. at 376, 447 P.2d at 616. The lending company had the right to exercise substantial control over the development, and received interest and fees for making construction loans, a 20 per cent capital gain for "warehousing" the land, and protection from loss of profits if individual home buyers sought mortgages elsewhere.
Subsequent cases have rejected a broad reading of Connor and indicated that liability will be imposed on construction lenders only in unusual circumstances, where the lender's activities clearly exceed those of a normal money lender. 1 See Armetta v. Clevetrust Realty Investors, 359 So.2d 540 (Fla.App.1978), Cert. den. 366 So.2d 879 (1978); Kinner v. World Savings and Loan Assoc., 57 Cal.App.3d 724, 129 Cal.Rptr. 400 (1976); Callaizakis v. Astor Development Co., 4 Ill.App.3d 163, 280 N.E.2d 512 (1972). Absent facts identical to those in Connor, courts have been unwilling to find liability. See, e. g., Armetta, supra; Snyder v. First Federal Savings & Loan Assoc. of Rapid City, 241 N.W.2d 725 (S.D.1976); Christiansen v. Philcent Corporation, 226 Pa.Super. 157, 313 A.2d 249 (1973). No duty has been imposed where a lending company reserved the right to approve plans and specifications, and made periodic inspections of construction. Bradler v. Craig, 274 Cal.App.2d 466, 79 Cal.Rptr. 401 (1969). Thus, although Connor has never been overruled, its holding in essence has been limited to its facts.
Assuming that the facts alleged are true, Long v. Arizona Portland Cement Co., 89 Ariz. 366, 362 P.2d 741 (1961), they do not give rise to a reasonable inference that WAMCO had been involved in activities beyond the realm of the average construction lender. The complaint merely alleges that WAMCO loaned money to Huachuca Investment and had a right of first refusal on...
To continue reading
Request your trial
-
Alaface v. National Inv. Co.
...fraud action must be initiated within one year after the cause of action accrues. A.R.S. § 12-541(3); Murry v. Western Am. Mortgage Co., 124 Ariz. 387, 390, 604 P.2d 651, 654 (App.1979). Pursuant to the discovery rule, as adopted in Arizona, the statute of limitations for common law fraud b......
-
Sparks v. Republic Nat. Life Ins. Co., 15488
...by statute, would be barred by the one-year statute of limitations contained in A.R.S. § 12-541(3). See Murry v. Western American Mortgage Co., 124 Ariz. 387, 604 P.2d 651 (App.1979). Although we agree with this argument, defendants failed to raise this defense prior to judgment and it is t......
-
Steinberger v. McVey
...(“[A] consumer fraud action must be initiated within one year after the cause of action accrues.”); Murry v. Western Amer. Mortg. Co., 124 Ariz. 387, 390, 604 P.2d 651, 654 (App.1979) (“Since the Consumer Fraud Act creates a cause of action separate from common law fraud, an action commence......
-
Cheatham v. ADT Corp.
...under the ACFA are subject to a one-year statute of limitations. Ariz. Rev. Stat. § 12-541(5) ; see Murry v. W. Am. Mortgage Co. , 124 Ariz. 387, 604 P.2d 651, 654 (Ariz.Ct.App.1979). The limitations period begins to run when the consumer discovers or with reasonable diligence should have d......