GODWIN v. UNITED SOUTHERN BANK (1997)

Robert and Sharon Godwin entered into a construction loan agreement with United Southern Bank (United).   They were dissatisfied with the construction of their home and brought a multi-count complaint alleging negligence, breach of fiduciary duty, intentional and negligent failure to disclose material facts, and breach of the construction loan agreement.   We agree with the trial court's dismissal of all of the counts of the complaint except for the last count, breach of the construction loan agreement.

The construction loan agreement states that “[C]onstruction shall not be deemed complete for purposes of final disbursement unless and until Lender shall have received all of the following:  ․ Acceptance of the completed improvements by Lender and Borrower.”   The Godwins allege in the last count of their complaint that, contrary to the parties' agreement, the final draw of the construction loan was released to the contractor without their “endorsement,” an allegation that may be fairly interpreted as without their acceptance.   The Godwins further allege that United's construction inspector, also a member of United's board of directors, had informed them that he would not approve the release of the final draw because defects existed in the construction of their home.   We believe that these allegations are sufficient to allege a breach of the construction loan agreement.   We vacate the order of dismissal as to this issue and remand.

ORDER VACATED;  REMANDED.

I respectfully dissent.

The agreement between the parties contains the provision

Payments.   At the sole option of Lender, Advances may be paid in the joint names of Borrower and the general contractor, subcontractor(s), or supplier(s) in payment of sums due under the Construction Contract.   At its sole option, Lender may directly pay the general contractor and any subcontractors or other parties the sums due under the Construction Contract.   Borrower appoints Lender as its attorney-in-fact to make such payments.   This power shall be deemed to be coupled with an interest, shall be irrevocable, and shall survive an Event of Default under this Agreement.

In my opinion, the majority has misinterpreted the right of the lender (to refuse final payment until all conditions are met to its satisfaction) with the duty it has to the borrower.   Under the agreement the lender has the right to make all payments it deems proper.   The bank undertook to protect its interests in making final payment.   If the borrower has a claim for defective construction then their claim is against the builder.   The lender should not have the obligation to protect its mortgage lien rights in a contest between the borrower and their builder.

PETERSON, Chief Judge.

ANTOON, J., concurs. DAUKSCH, J., dissents, with opinion.