Opinion ID: 171590
Heading Depth: 2
Heading Rank: 1

Heading: The Loan and Construction

Text: We summarize the pertinent evidence presented to the district court with respect to the Bank's summary-judgment motion, viewing it in the light most favorable to the Hubbells. See Pignanelli v. Pueblo Sch. Dist. No. 60, 540 F.3d 1213, 1216 (10th Cir.2008). The Hubbells, who are both airline pilots, purchased property in Colorado to build a custom home. When considering potential lenders, they heard the Bank's advertising slogan: So ... you're about to buy a new home, or build one. You concentrate on your dream. We'll take care of everything else. Aplt.App. at 245. They consulted Elizabeth Cox, an assistant vice-president at the Bank's Carbondale branch, and expressed to her their concerns about not being able to monitor the construction of their new home while living out-of-state. Cox assured the Hubbells that the Bank would monitor the project and conduct frequent inspections to ensure that the advances of funds requested by the contractor matched the percentage of construction completed. On January 22, 2003, the Hubbells executed the Loan Agreement, a Promissory Note, and a Construction Deed of Trust with the Bank to finance the building of their home. Under the Loan Agreement the Bank's obligation to advance funds for construction was subject to the fulfillment to [the Bank's] satisfaction of all of the conditions set forth in this Agreement. Id. at 60. The conditions set forth in the Loan Agreement included the Bank's (1) approval of all contractors, (2) acceptance of construction plans and specifications, (3) receipt of the Architect's Contract, (4) receipt of all permits necessary for construction, and (5) approval of a project budget. The Loan Agreement also required the Hubbells to apply to the Bank for each advance of funds on a standard application form, but the Bank could, [a]t its sole option, disburse funds directly to the contractor. Id. at 61. Of central importance to the dispute before us is the Loan Agreement's Limitation of Responsibility provision, which attempted to eliminate the Bank's liability to anyone for its actions relating to the inspection of construction and the advance of funds. It said: The making of any Advance by [the Bank] shall not constitute or be interpreted as either (A) an approval or acceptance by [the Bank] of the work done through the date of the Advance, or (B) a representation or indemnity by [the Bank] to any party against any deficiency or defect in the work or against any breach of contract. Inspections and approvals of the Plans and Specifications, the Improvements, the workmanship and materials used in the Improvements, and the exercise of any other right of inspection, approval, or inquiry granted to [the Bank] in this Agreement are acknowledged to be solely for the protection of [the Bank's] interests, and under no circumstances shall they be construed to impose any responsibility for liability of any nature whatsoever on [the Bank] to any party. Neither [the Hubbells] nor any contractor, subcontractor, materialman, laborer, or any other person shall rely, or have a right to rely, upon [the Bank's] determination of the appropriateness of any Advance. No disbursement or approval by [the Bank] shall constitute a representation by [the Bank] as to the nature of the Project, its construction, or its intended use for [the Hubbells] or for any other person, nor shall it constitute an Indemnity by [the Bank] to [the Hubbells] or to any other person against any deficiency or defects in the Project or against any breach of contract. Id. Before selecting a contractor, the Hubbells sought advice from the Bank. They asked whether Carney Brothers Construction (CBC) (headed by Richard and Ian Carney) was reputable. Joseph Scofield, a Bank officer, told them that (1) they could not do any better than CBC, (2) he knew co-owner Ian Carney personally, and (3) he would have had CBC build his personal residence if CBC had been available at the time. Scofield did not, however, inform the Hubbells that CBC had a long-standing relationship with the Bank. The Hubbells signed a construction agreement with CBC on January 23, 2003, the day after executing the Loan Agreement. Construction began in May 2003. Between May and December 2003, Bank assistant vice-president Cox made six or seven inspections of the construction site and arranged for a third-party inspector to report on the construction at least once or twice. But the Hubbells contend that the extent of this oversight was inadequate. They complain that the Bank failed [1] to require complete plans and a meaningful budget before closing; [2] to request an improvement survey that would have revealed [a] siting error much earlier in the course of construction; [3] to investigate [CBC's] qualifications as a design-build contractor; [4] to confirm issuance of required building permits; [5] to prevent [CBC] from frontloading excessive profit and overhead into the first draws [on the loan]; [and][6] to confirm that the amounts of draws by [CBC] matched the percentage of work performed. Aplt. Br. at 24. Of particular concern to the Hubbells was item 4, the Bank's failure to disclose that CBC had not obtained the necessary building permits. When CBC told the Hubbells that it had obtained those permits, which it would provide to the Bank, the Hubbells passed this information along to Cox. CBC's statement was false; it never obtained the permits. Yet no one at the Bank notified the Hubbells that CBC had not delivered the permits, and throughout the project the Bank continued to recommend that the Hubbells approve advances to CBC. The Hubbells further complain that the Bank failed to disclose known problems with CBC's operating account at the Bank. The problems led the Bank to terminate its relationship with CBC in June 2003. Thereafter, Cox amended the procedure for advances to CBC from the Hubbells' loan. Instead of CBC's paying the subcontractors directly, it had to write checks to the Bank, which then distributed funds to the subcontractors. The Bank, however, did not inform the Hubbells of these problems with CBC until September 2003, when Cox told them only that CBC had occasionally paid subcontractors out of the construction loan without obtaining lien waivers. Concerned by this disclosure, the Hubbells again sought advice from the Bank, this time regarding whether they should fire their contractor. Scofield advised them to continue with CBC, saying that Ian Carney would `do the right thing' and that the Bank would make [CBC] do it right. Aplt.App. at 248, 256. In the following months the Hubbells had several meetings with CBC and the Bank in an attempt to resolve concerns about the pace of construction and the rising costs. At a meeting on December 11, 2003, the Hubbells rejected a settlement proposal from CBC and instead terminated the contractor. By this time the Hubbells had approved advances of approximately $800,000 out of the total $1,280,000 under the Loan Agreement. The next day they discovered that an inspector had ordered all construction to cease because CBC had never obtained the necessary building permits. Later the Hubbells hired a licensed architect and professional engineer to inspect the work. They were informed that (1) their home was less than one-third complete, (2) much of the work would have to be repaired or replaced because of significant design and construction defects, and (3) it might be cheaper to tear down the whole thing and start over.