Construction Claims--construction loan--residential dwelling house--no duty of lender to
inspect--parol evidence rule
The trial court did not err in an action arising out of a contract for a construction loan for
a residential dwelling house by granting summary judgment in favor of defendant bank even
though plaintiffs contend the purpose statement contained in the loan agreement gives rise to an
affirmative duty on behalf of defendant to make property inspections before paying plaintiffs'
contractor, because: (1) purpose statements in loan agreements are permissive and do not create
an affirmative duty on behalf of the lender; (2) even when a loan agreement indicates the lender
will only disburse loan proceeds in proportion to the amount of construction completed, it does
not require the lender to inspect the construction progress for the borrowers' benefit; (3) the
purpose statement in this loan agreement was permissively inserted to clarify that defendant may
make property inspections of the loan collateral for its own benefit; and (4) alleged statements by
defendant's agent that he would personally look after plaintiffs, that he knew about building, and
that he would make sure their contractor had done it right are effectively barred from evidence by
the parol evidence rule or are not sufficiently definite and certain so as to give rise to an
enforceable contract.
Smith, James, Rowlett & Cohen, by Norman B. Smith for
plaintiff-appellants.
Brooks, Pierce, McLendon, Humphrey & Leonard, by Reid L.
Phillips and Jennifer T. Harrod for defendant-appellee.
THOMAS, Judge.
Plaintiffs, J. Cliff Lassiter and wife, Eva C. Lassiter,
appeal from a grant of summary judgment in favor of defendant, Bank
of North Carolina. They complain that defendant violated an
agreement to make construction inspections prior to any
disbursement of funds.
For the reasons discussed herein, we affirm the trial court. The facts are as follows: Plai
ntiffs entered into discussions
with defendant concerning a construction loan for a residential
dwelling house. Plaintiffs allege defendant's agent, Rick
Callicutt (Callicutt), assured them he would “personally look
after” them, that he “knew about building,” and that he would make
sure their contractor “has done it right.”
The parties entered into a contract, with defendant to provide
$150,000.00 financing. Under the terms of the contract, plaintiffs
were to initially pay defendant $26,000.00, which would be
disbursed to plaintiffs' contractor. Defendant was to then begin
drawing down payments from the $150,000.00 loan proceeds as the
work progressed. These payments were to be made only upon express
draw requests by plaintiffs. The loan agreement also contained a
purpose clause which stated defendant was to make no more than one
draw per month from the loan proceeds, and such draws were to be
made only on the basis of plaintiffs' draw requests and property
inspections by defendant's inspector, “to insure that the loan is
not drawn down below the point of construction completion.”
Defendant eventually disbursed plaintiffs' initial deposit of
$26,000.00, plus $105,524.34 of the $150,000.00 loan proceeds in a
total of eight payments. Plaintiffs contend defendant disbursed
these funds directly to the contractor, while defendant contends it
made the loan disbursements to plaintiffs, who controlled the money
and directed it to their contractor. Defendant presented an
affidavit to the trial court at the summary judgment hearing, which
stated plaintiffs ordinarily deposited their construction loan
advances into their interest-bearing savings account. They wouldthen purchase cashier's checks and draw from the savings account to
pay the contractor.
Throughout the period the payments were made, defendant never
inspected the construction project. Some time after the eighth
draw, plaintiffs became aware that the loan proceeds had been drawn
down below the point of construction completion. They contend this
was a direct result of defendant's failure to make property
inspections.
Plaintiffs also claim defendant altered the construction
inspection and disbursement schedules to show the construction 61%
completed, when the form in its unaltered state showed construction
only 36% completed. At no point, plaintiffs argue, was the
construction on their dwelling house more than one-third completed,
with the construction itself containing numerous defects which
would have been noticed upon reasonable inspection.
On 2 June 1999, plaintiffs filed a complaint against defendant
alleging breach of contract, negligence, and unfair and deceptive
trade practices. They claim they were injured by the amounts
defendant disbursed to their contractor, the amounts necessary to
remedy the construction defects, and the amount now required to
complete the project.
By their only assignment of error, plaintiffs argue the trial
court committed reversible error by granting defendant's motion for
summary judgment. We disagree.
Summary judgment is appropriate when “the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuineissue as to any material fact and that any party is entitled to a
judgment as a matter of law.” N.C. Gen. Stat. § 1A-1, Rule 56(c)
(2000).
We first note defendant filed a Rule 12(b)(6) motion to
dismiss, but because the court considered the affidavit, which was
outside of the pleadings, the motion was converted to a summary
judgment motion. In considering a summary judgment motion, the
trial court must view all evidence in the light most favorable to
the non-movant, accepting its alleged facts as true. Anderson v.
Demolition Dynamics, Inc., 136 N.C. App. 603, 525 S.E.2d 471, disc.
rev. denied, 352 N.C. 356, 544 S.E.2d 546 (2000). However, Rule
56(e) provides
When a motion for summary judgment is made and
supported [by an affidavit], an adverse party
may not rest upon the mere allegations or
denials of his pleading, but his response, by
affidavits or as otherwise provided in this
rule, must set forth specific facts showing
that there is a genuine issue for trial. If
he does not so respond, summary judgment, if
appropriate, shall be entered against him.
N.C. Gen. Stat. § 1A-1, Rule 56(e) (2000). Thus, once the moving
party demonstrates the claimant cannot show essential evidence to
support an element of his claim, the burden shifts to the non-
movant to establish a genuine issue of material fact. Fisher v.
Carolina Southern Railroad, 141 N.C. App. 73, 539 S.E.2d 337
(2000). In the instant case, plaintiffs filed no response to
defendant's affidavit. Because plaintiffs cannot merely rely upon
what was stated in their initial pleadings, we accept defendant's
description of the disbursements.
Proceeding with our review accordingly, we affirm on the basesof the terms of the contract, the parol evidence rule
and the
vagueness of the conversations giving rise to the alleged duty.
Plaintiffs contend that the purpose statement contained in the
loan agreement, which said in part that property inspections were
to be made “to insure that the loan is not drawn down below the
point of construction completion,” gives rise to an affirmative
duty on behalf of defendant to make property inspections before
paying plaintiffs' contractor.
“A lender is only obligated to perform those duties expressly
provided for in the loan agreement to which it is a party.” Camp
v. Leonard, 133 N.C. App. 554, 560, 515 S.E.2d 909, 913 (1999).
The loan agreement between plaintiffs and defendant contained no
language obligating defendant to make property inspections before
making or allowing a draw. Defendant was to make disbursements
based on plaintiffs' requests, but these payments were not
contingent upon a property inspection. Purpose statements in loan
agreements are permissive and do not create an affirmative duty on
behalf of the lender. Cartwood Const. Co. v. Wachovia Bank & Trust
Co., 84 N.C. App. 245, 352 S.E.2d 241, aff'd, 320 N.C. 164, 357
S.E.2d 373 (1987). Even when a loan agreement indicates the lender
will only disburse loan proceeds in proportion to the amount of
construction completed, it does not require the lender to inspect
the construction progress for the borrowers' benefit. Camp, 133
N.C. App. at 561, 515 S.E.2d at 914.
Here, the purpose statement was permissively inserted into the
loan agreement to clarify that defendant may make property
inspections of the loan collateral, for its own benefit. UnderCartwood and Camp, defendant incurred no duty to inspect the
construction progress by agreeing to the terms of the contract.
This Court stated in Camp that liability “'will be imposed on
construction lenders only where contractual provisions or lender
assurances justify purchaser reliance on inspections for
purchaser's benefit.'” Camp, 133 N.C. App. at 559, 515 S.E.2d at
913 (quoting Jeffrey T. Walter, Financing Agency's Liability to
Purchaser of New Home or Structure for Consequences of Construction
Defects, 20 A.L.R. 5th 499, 508 (1994)) (emphasis added). In the
instant case, the plain language of the purpose clause demonstrates
the inspections were to be made, if at all, for the benefit of the
lender. Under Camp, plaintiffs cannot justifiably rely on the
purpose clause to argue that defendant should make property
inspections for their benefit.
Plaintiffs instead rely on Rudolph v. First Southern Federal
Sav. & Loan Ass'n., 414 So.2d 64 (Ala. 1982), an Alabama case which
held that even though a lender's inspection ordinarily is for the
lender's benefit, additional assurances made by the lender gives
rise to an enforceable duty on the borrower's part with respect to
inspections. Plaintiffs, however, cite no comparable North
Carolina authority and we decline to vary from the holding of Camp.
We next address plaintiffs' contention that the statements
made by Callicutt give rise to an affirmative duty. The alleged
statements that he would personally look after plaintiffs, that he
“knew about building,” and that he would make sure their contractor
“has done it right” are effectively barred from evidence by the
parol evidence rule:The parol evidence rule prohibits the
admission of parol evidence to vary, add to,
or contradict a written instrument intended to
be the final integration of the transaction.
In the event that a particular writing is only
a partial integration of the agreement, “it is
presumed the writing was intended by the
parties to represent all their engagements as
to the elements dealt with in the writing.
Hall v. Hotel L'Europe, Inc., 69 N.C. App. 664, 666, 318 S.E.2d 99,
101 (1984) (citations omitted) (quoting Neal v. Marrone, 239 N.C.
73, 77, 79 S.E.2d 239, 242 (1953)). Plaintiffs do not contend the
loan agreement was not meant to be the final integration of the
transaction between defendant and themselves. Therefore, parol
evidence may not be considered.
Even if Callicutt's statements were not effectively barred by
the parol evidence rule, however, they are too vague to give rise
to an affirmative duty on behalf of defendant.
“As a general matter, a contract must be sufficiently definite
in order that a court may enforce it.” Brooks v. Hackney, 329 N.C.
166, 170, 404 S.E.2d 854, 857 (1991). “Furthermore, to be binding,
the terms of a contract must be definite and certain or capable of
being made so; the minds of the parties must meet upon a definite
proposition.” Elliott v. Duke University, Inc., 66 N.C. App. 590,
596, 311 S.E.2d 632, 636, disc. rev. denied, 311 N.C. 754, 321
S.E.2d 132 (1984).
First, when Callicutt stated he would personally look after
plaintiffs he did not say that he would take any specific action in
doing so. His promise to “look after” plaintiffs is too vague to
be enforceable as a matter of law. Second, Callicutt's statement
that he “knew about building” is not a promise to do anything andtherefore can not give rise to a duty on his behalf. Third, when
Callicutt said he would make sure the contractor “has done it
right,” he did not explain that he would take any specific action.
Therefore, taken both individually and as a whole, the statements
are not sufficiently definite and certain so as to give rise to an
enforceable contract. See also Marvel Lamp Co. v. Capel, 45 N.C.
App. 105, 262 S.E.2d 368, disc. review denied, 300 N.C. 197, 269
S.E.2d 617 (1980) (affirming summary judgment where language of
defendant's letter was too vague to be enforced as a promise);
Miller v. Rose, 138 N.C. App. 582, 532 S.E.2d 228 (2000) (affirming
summary judgment for defendant where parties never had a concrete
understanding concerning the financing of a partnership agreement).
Plaintiffs also made claims of negligence and unfair and
deceptive trade practices. However, arguments and assignments of
error are deemed abandoned unless legal authority is cited in the
text. N.C.R. App. P. 28(b)(5); Joyner v. Adams, 97 N.C. App. 65,
387 S.E.2d 235 (1990). In the instant case, plaintiffs failed to
cite any authority in their brief concerning that part of the
assignment of error related to their claims based on negligence and
unfair and deceptive trade practices. Therefore, those issues are
not considered by this Court.
Defendant, meanwhile, included as an affirmative defense and
argued in its brief that plaintiffs had agreed to release all
claims against defendant. Because we otherwise hold in defendant's
favor, we do not reach that argument.
For the reasons discussed herein, we affirm the trial court's
order granting summary judgment in favor of defendant. AFFIRMED.
Judges WALKER and MCCULLOUGH concur.
*** Converted from WordPerfect ***