Shea v. H.S. Pickrell Co., Inc.

• Decision Date: 15 December 1987
• Docket Number: No. 9386,9386
• Citation: 106 N.M. 683,748 P.2d 980,1987 NMCA 149
• Parties: Gertrude E. SHEA, Plaintiff-Appellant, v. H.S. PICKRELL COMPANY, INC., Defendant-Appellee.
• Court: Court of Appeals of New Mexico

Page 980

748 P.2d 980

106 N.M. 683

Gertrude E. SHEA, Plaintiff-Appellant, v. H.S. PICKRELL COMPANY, INC., Defendant-Appellee.

No. 9386.

Court of Appeals of New Mexico.

Dec. 15, 1987.

[106 NM 684] Paul Livingston, William P. Gordon, Albuquerque, for plaintiff-appellant.

Leonard J. DeLayo, Jr., Leonard J. DeLayo, Jr., P.C., Albuquerque, for defendant-appellee.

OPINION

DONNELLY, Chief Judge.

Plaintiff, Gertrude Shea (Shea), appeals from the trial court's order granting the motion of defendant H.S. Pickrell Company, Inc. (Pickrell), a mortgage lender, dismissing her amended complaint for failure to state a claim upon which relief can be granted. Shea argues that the trial court erred in granting the motion to dismiss because the amended complaint states viable claims against Pickrell for breach of duty by a mortgage lender, negligent entrustment of funds, failure to warn and protect a purchaser, and aiding, assisting and encouraging another to commit tortious acts. Because the issues raised by Shea are interrelated, we discuss them jointly. We affirm.

This action arose out of Shea's efforts to purchase a new townhouse. Shea signed a contract to buy a newly constructed residence from Samuel A. Andrade (Andrade) and Andrade Homes, Inc. (AHI). The total purchase price of the townhouse was $79,900. The purchase agreement required Shea to pay $49,900 in installments and borrow the remaining $30,000. Shea subsequently applied to Pickrell for a mortgage on the property in the amount of $30,000, and provided Pickrell with a copy of the purchase agreement. It is undisputed that Shea qualified for the loan but did not in fact actually borrow any funds from Pickrell.

After paying Andrade and AHI $69,900, Shea discovered that the property was subject to a preexisting construction loan secured by a mortgage held by Pickrell in the amount of $88,000. Pickrell's mortgage had been recorded prior to the execution of Shea's purchase agreement. When Shea was unable to secure clear title to the realty or the return of her payments from Andrade or AHI, she filed suit against Andrade, AHI, the real estate agent, Grace Andrade, the real estate broker, Dennis Fish of RECA Group, Inc., and the mortgage lender, Pickrell.

Following the filing of her initial complaint, Pickrell filed a motion to dismiss Shea's claims. The trial court granted the motion but permitted Shea to file an amended complaint. Thereafter, Pickrell again successfully moved to dismiss those counts contained in the amended complaint directed against Pickrell. Shea's actions against the remaining defendants have been stayed pending the resolution of this appeal.

The gravamen of Shea's allegations against Pickrell is that Shea paid $69,900 to Andrade "presumably with Pickrell's knowledge." Shea alleges in her amended complaint that Pickrell advanced money to Andrade and AHI, knowing that Andrade and AHI, as the builder and seller, were having financial difficulties; that Pickrell knew or should have known that Andrade and AHI were using funds received from Pickrell and Shea in a manner which created a foreseeable risk of harm to Shea; and that Pickrell "aided, assisted and encouraged" Andrade and AHI in order to shift the risk of loss. Shea further alleges that the damages suffered by her were a direct and foreseeable consequence of Pickrell's failure to warn her of the risk of loss she had incurred under the purchase agreement, and of Pickrell's failure to exercise ordinary care to avoid assisting, aiding, and encouraging Andrade and AHI in taking unfair advantage of Shea.

The pivotal question presented on appeal involves the scope of a construction lender's duty to protect a third-party purchaser from the tortious acts of a borrower or seller. This question presents a matter of first impression in this jurisdiction.

A motion to dismiss under SCRA 1986, 1-012(B)(6) is intended to test only the law of the claims contained in the complaint and not the facts which support it. Roney v. Siri Singh Sahib Harbhajan Singh Yogi, 103 N.M. 89, 703 P.2d 186 (Ct.App.1985); Trujillo v. Puro, 101 N.M. 408, 683 P.2d 963 (Ct.App.1984); Gonzales v. United States Fidelity & Guar. Co., 99 N.M. 432, 659 P.2d 318 (Ct.App.1983). A motion to dismiss is properly granted only when it appears that plaintiff cannot recover or be entitled to relief under any state of facts provable under the claim. Johnson v. Francke, 105 N.M. 564, 734 P.2d 804 (Ct.App.1987); Nassar v. Utah Mortgage & Loan Corp., 100 N.M. 419, 671 P.2d 667 (Ct.App.1983). In ruling upon a motion to dismiss for failure to state a claim upon which relief may be granted, we assume as true all facts which are well pled, and the complaint must be construed in a light most favorable to the party opposing the motion and with all doubts resolved in favor of the sufficiency of the complaint. Groendyke Transp., Inc. v. New Mexico State Corp. Comm'n, 85 N.M. 718, 516 P.2d 689 (1973); Pillsbury v. Blumenthal, 58 N.M. 422, 272 P.2d 326 (1954).

In order for a failure to act to be negligent, there must be an omission to do an act which one is under a duty to perform and which a reasonably prudent person in the exercise of ordinary care would do. White v. City of Lovington, 78 N.M. 628, 435 P.2d 1010 (Ct.App.1967). Whether or not negligence has occurred is generally a question of fact; however, a finding of negligence is dependent upon the existence of a duty on the part of defendant. SCRA 1986, 13-1601; Schear v. Board of County Comm'rs, 101 N.M. 671, 687 P.2d 728 (1984). Whether a duty exists is a question of law. Karbel v. Francis, 103 N.M. 468, 709 P.2d 190 (Ct.App.1985); Harmon v. Atlantic Richfield Co., 95 N.M. 501, 623 P.2d 1015 (Ct.App.1981).

Under what circumstances does a construction lender have a duty to disclose the financial condition of one of its customers to another customer? As a general rule, a duty on the part of a lender to disclose facts to a customer-borrower may arise if a fiduciary or confidential relationship exists between the parties and one party to the transaction has superior knowledge not possessed by the other party, possesses information that could not be discovered by the exercise of reasonable diligence, or has knowledge that the other party is acting under a mistaken belief as to a material fact. See Krupiak v. Payton, 90 N.M. 252, 561 P.2d 1345 (1977); see generally Gammill v. United States, 727 F.2d 950 (10th Cir.1984) (in absence of special relationship between the parties, one party generally does not have a legal duty to protect another from harm unless a special relationship exists between the parties or the first party placed the other in a situation of peril); see also Tipton v. Texaco, Inc., 103 N.M. 689, 712 P.2d 1351 (1985) (the extent of a party's duty to another varies with the...