Court Opinion

ID: 9637519
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:08:45.099478+00
Date Added: 2024-06-11T18:09:57.007799
License: Public Domain

ROBERT M. BELL, Judge,
dissenting.
The Jacques applied for a loan of $112,000 with First National and paid the processing fee of $144. Shortly thereafter, they submitted a copy of the contract of sale for the home for which they sought the mortgage loan. Information required by the bank concerning their income, credit history, and financial status, was then supplied. They were first told that the maximum loan for which they qualified *68was $74,000, an amount Mr. Jacques indicated he would accept1 and subsequently, that the amount was $41,400.
The Jacques sought alternative financing. They obtained a commitment from another bank for a loan of $100,000, but at an interest rate two percent higher than that quoted by First National.2 That loan was not accepted because of the economics of the situation;3 it would have cost over the life of the loan, over $50,000. Despite the Jacques’ request that it refuse the loan, First National issued its loan commitment for $41,400.
Being concerned about the forfeiture of their deposit of $10,000, the Jacques accepted First National’s loan and went to settlement. Part of the more than $100,000 due at settlement was provided by a personal loan, made by First National, in the amount of $50,000 at 15 percent interest.
At trial, evidence, including expert testimony, was produced tending to show that the bank departed from the Federal Home Loan Mortgage Corporation guidelines, the industry standard for determining qualification for home mortgage loans, in that First National incorrectly calculated the Jacques’ income to debt ratio. The evidence also tended to show that the house purchased by the Jacques was appraised for $142,000; that First National calculated the Jacques’ net worth at $350,000; and that the Jacques had maintained a debt-free credit history for over twenty years. In addition, the evidence showed that the Jacques had dividend income of approximately $7500 per year which *69First National did not use in its evaluation of the strength of their “income stream”. Finally, there was evidence that it was normal banking procedure to inquire of a loan applicant his or her wishes when a loan could not be made in the amount requested. First National made no such inquiries and did not investigate the effect that refusing the loan application would have on the Jacques’ contract.
Today, we hold that a bank is under no obligation to conform its business judgment to any standard of care in the processing of a loan application prior to the establishment of a contractual relationship with the applicant. Relying on the principle that “it is a part of every man’s legal rights, that he be left at liberty to refuse business relations with any person whomsoever, whether the refusal rests upon reason, or is the result of whim, caprice, prejudice or malice”, McCarter v. Chamber of Commerce, 126 Md. 131, 136, 94 A. 541 (1915) and in finding that a bank is to be treated the same as any other business, the majority holds that a bank has the right to act, with impunity, in a completely arbitrary manner with respect to a loan application.
I dissent. I would affirm the judgment below. First, accepting the majority’s premise, I have concluded that First National gratuitously undertook to render a service and, thereby, was obligated to proceed with due care. Additionally, I would hold that, under the facts of this case, First National had a duty to act with due care, both in the processing of the loan application and in the communication of its decision and that there was sufficient evidence from which the jury could find, as it did, negligence on the part of the bank on either, or both, of these grounds.
Maryland has recognized that: “... one who assumes to act, even though gratuitously, may thereby become subject to the duty of acting carefully, if he acts at all”. Kemp v. Armstrong, 40 Md.App. 542, 546, 392 A.2d 1161 (1978), quoting Glanzer v. Shepard, 233 N.Y. 236, 135 N.E. 275, *70276, 23 A.L.R. 1425 (1922). See Pennsylvania R. Co. v. Yingling, 148 Md. 169, 129 A. 36 (1925). This principle has been held to impose upon an employer the responsibility of acting carefully when it undertakes to compile and maintain personnel records, Quinones v. U.S., 492 F.2d 1269 (3rd Cir., 1974), to require insurance companies to exercise due care in processing insurance applications, United States Fire Insurance Company v. Cannon, 349 F.2d 941 (8th Cir.1965), Travelers Insurance Company v. Anderson, 210 F.Supp. 735 (W.D., S.C.1962)4 and to require a bank to act reasonably when assisting an applicant for a loan. The First Federal Savings and Loan Association of Hamilton v. Caudle, 425 So.2d 1050 (S.Ct., Ala.1982). The principle has also been recognized and codified in the Restatement, Torts 2d, § 323.5
In Caudle, a bank, although it had no obligation to do so, undertook to assist applicants for an FHA loan in its processing. It erroneously informed the applicants that the loan had been approved and the applicants, relying upon that information, caused their home to be built. It was later determined that the FHA loan had never been approved and the applicants sued the bank. In upholding the *71jury verdict in favor of the applicants, the Supreme Court of Alabama said:
Although First Federal was under no duty to procure a federal subsidized loan for the Caudles, once it voluntarily agreed to assist the Caudles, it was required to act with due care. (Citations omitted)
id. at 1052.
In the instant case, First National undertook to process the Jacques’ application for a mortgage loan of the type it usually and customarily made. It obtained, through frequent communications with the Jacques, the information necessary to process the application. Having assumed to process the application, First National was required to proceed with due care. This it did not do.
The majority suggests that the decision in Brasher v. First Alabama Real Estate Fin., 447 So.2d 682 (S.Ct.Ala. 1984) narrowed the scope of Caudle. I disagree. Addressing the allegations based upon Caudle, the Court stated:
In the instant case, the Brashers admitted, while being deposed, that there was never any oral or written guarantee by Flowers on behalf of Charter to obtain long-term mortgage financing for their house. Despite the lack of a written or verbal guarantee, Charter or its agents, attempted, in good faith, to obtain financing for the Brashers’ house from several sources, but were unsuccessful. There is no evidence in the record to suggest that Charter or its agents did not put forth their best efforts to obtain the financing that the appellants desired. Indeed, the facts indicate that because of the existing economic conditions, funds for long-term mortgages were scarce.
id. at 685.
Thus the decision in Brasher turned on two points: first, the bank did not undertake to guarantee financing, and, secondly, there was no showing that the bank negligently performed the acts it voluntarily undertook. This is entirely consistent with Caudle.
*72Applying the rationale of Caudle to the case sub judice, I would affirm.
When the Jacques tendered, and the bank accepted, the mortgage loan application, a business relationship was established.6 Acceptance of the application for processing clearly indicated the bank’s willingness to “deal” with the Jacques and gave rise to mutual expectations. First National expected the Jacques to supply accurate information in a timely fashion. The Jacques expected that the information supplied would be fairly, accurately, and objectively evaluated. Both had ultimate expectations as well: First National to realize the profits normally associáted with loans of this kind and the Jacques, to obtain a loan at the interest rate committed. These expectations, in turn, gave rise to mutual duties — to act reasonably in their dealings with each other.7 The jury apparently found that the Jacques complied and that First National did not. I would not disturb that finding.
First National was fully aware of the nature of the Jacques’ contractual undertaking and the consequences, to the Jacques, if it committed to a loan of insignificant amount in comparison to the loan sought. It likewise is charged with knowledge of normal banking procedures with respect to mortgage loans. Thus, it was aware that when a *73bank is unable to make a loan for the amount requested, it should inquire of the applicant, his or her wishes. Its failure to do so, under the circumstances of this case, was negligence.

. There is dispute on this point, First National contending that the $74,000 figure was contingent upon the Jacques selling or renting their present residence and that the figure was revised prior to acceptance by the Jacques.

. During the time that the bank was processing the Jacques’ mortgage loan, the interest rate rose at a rapid rate until it reached a point at which interest rates were a full two percent higher than the rate originally quoted by First National.

. The Jacques were not obligated to accept this loan inasmuch as their contract with the sellers required them to accept a loan only if the interest rate was less than 12.25 percent.

. The court in Travelers Insurance Company v. Anderson, supra, recognized that the insurance business is affected by the public interest. So too are banks; they are highly regulated, both by the state and by the federal government and, when authorized, are bound, like insurance companies, to furnish the services so authorized.

. Section 323 provides:
One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of the other’s person or things, is subject to liability to the other for physical harm resulting from his failure to exercise reasonable care to perform his undertaking, if
(a) his failure to exercise such care increases the risk of such harm, or
(b) the harm is suffered because of the other’s reliance upon the undertaking.
Although the harm referred to is "physical harm”, by analogy, I find this provision persuasive.

. If the bank had refused to accept the application, this case would not be here, or, if it were, the cases cited by the majority would clearly apply. Here, First National, rather than refusing to do business, insisted upon doing business, even to the point of forcing the applicants to do likewise. This situation is not contemplated or dealt with in the cases cited by the majority.

. Contrary to the majority’s implied suggestion, the application process does not benefit only the applicant or only the bank; it involves mutual benefits. The possibility of the realization of a benefit flowing from the process distinguishes the acceptance and processing of an application from a mere refusal to do business. In processing applications, a bank does business; after all, part of the bank’s business is making loans. A loan cannot reasonably be made without willing customers, willing banks, reliable information and a procedure by which a decision can be made.