Court Opinion

ID: 9725353
Source: CourtListenerOpinion
Date Created: 2023-08-26 11:42:46.1546+00
Date Added: 2024-06-11T18:25:13.498561
License: Public Domain

BUCHANAN, Judge,
dissenting and concurring.
I concur as to Issues I and III, but must respectfully dissent as to Issue IL.
Prudential Insurance Co. v. Executive States, Inc. (1977), 174 Ind.App. 674, 369 N.E.2d 1117, trans. denied, should control this case. AVCO as mortgagee breached a duty it owed to the Crums, thereby rendering AVCO liable to them for its negligent disbursement of the loan proceeds. In Prudential, this court recognized that the mortgagor- mortgagee relationship requires the mortgagee to protect the mortgagor's interest when the mortgagee controls disposition of the loan proceeds:
"A mortgagee-lender who insists on controlling disbursement of the loan proceeds in order to protect its own interests (mortgage lien), deprives the mortgagor of possession of the loan proceeds for which he has bargained, and in doing so must equitably be considered as the mortgagor's agent saddled with a duty to use reasonable care to protect the principal's interest."
Id. at 692-98, 369 N.E.2d at 1128.
Reviewing this appeal in a light most favorable to AVCO, the record reflects that the Crums were entitled to judgment as a matter of law. At trial, AVCO admitted that it knew of the property's faulty legal description prior to its disbursement of the loan proceeds. Record at 384. The writ ten contract specifically provided that prior to disbursement, AVCO would receive a *833policy of insurance on the real estate or that the property would otherwise be acceptable. Record at 278. AVCO never recorded a deed transferring title to the Crums, so AVCO did not qualify for the insurance referred to in the contract. Record at 396. The title company required AVCO to record the deed and AVCO admitted that their attorney had a duty to do so, but he failed to record the deed. Record at 396.
It is true the federal disclosure statement drafted by AVCO did contain a seetion entitled "amounts paid to others on your behalf" and shows a charge to Joe Beardsley (AVCO's attorney), $150; Public Officials, $21; and "record data" "For Title Insurance," $408, record at 280, making the Crums aware of what the disbursem-etns would be. This fact, stressed by the majority, is irrelevant.
The relevant fact is that it is undisputed that AVCO exercised absolute control over the disbursement of the loan proceeds. The Crums were not even present at the closing. The Crums had neither possession nor control of the proceeds. AVCO proceeded to act on behalf of the Crums as their agent, thereby imposing a duty upon AVCO to perform reasonably, which it did not do. See Prudential, supra. The contract language quoted above implies that AVCO had the duty to insure that the property would be free and clear of encumbrances and that the title would be marketable. See Prudential, supra. As was true in Prudential, AVCO was intimately involved in every aspect of the lending process, and the relationship between AVCO and the Crums was clearly that of agent and principal. See id.
Although a mortgagee is not always liable for failing to protect a mortgagor's interest, the cireumstances surrounding the transactions between AVCO and the Crums are clearly distinguishable from those cases which have reached the opposite result. In Woodall v. Citizens Bank Co. (1987), Ind.App., 503 N.E.2d 427, trams. denied, the mortgagor-borrower expressly agreed to warrant and defend title to the property against all claims, and to discharge liens on the property. Moreover, the mortgagee did not control disburse ment of the proceeds to the extent that it was exercised by the bank in Prudential. In Woodall, some of the proceeds were made payable to the mortgagor who finally disbursed the funds to third parties. In affirming the trial court's grant of summary judgment in favor of the mortgagee upon the allegation that the bank had breached a duty to protect the mortgagors from mechanic's liens, this court distinguished Prudential and determined
"Citizens did not control disbursement of the loan proceeds to the extent control was exercised by the mortgagee in Prudential. In Prudential, the mortgagee made direct disbursements of loan proceeds to third parties. See Spurlock v. Fayette Federal Sav. & Loan Ass'n (1982), Ind.App., 436 N.E.2d 811 (distinguishing Prudentiol on this ground). In the present case, the Woodalls' [sic] approved the initial disbursement to Ren in the Loan Settlement Statement. The next eight disbursements to Ren required the Woodalls' endorsements before the checks could be cashed. The checks for the last two disbursements intended for Ren were made payable to the Woodalls. Hence, the Woodalls' approval of all disbursements was required either through the Loan Settlement Statement or their endorsements. The Woodalis could have, and in fact did on two occasions, refuse to approve the disbursements. This option was not available to the mortgagor in Prudential. Citizens did not totally control the disbursement of the loan proceeds as did the mortgagee in Prudential. The Woodalls had, and exercised, final control. Therefore, an agency relationship was not created."
Woodall, supra at 480 (emphasis supplied).
Similarly, in Spurlock v. Fayette Federal Sav. & Loan Ass'n (1982), Ind.App., 436 N.E.2d 811, the lendermortgagee disbursed the loan proceeds only at the request of the borrower-mortgagor. The mortgagor then paid the amounts directly to third party contractors. The mortgagors had contracted with a developer for *834construction of a home after obtaining financing from Fayette Federal. The Spur-locks were then informed of a lien held by one of the contractors. They did not inform Fayette Federal of the lien and the Spurlocks executed an affidavit falsely stating that the property was not encumbered prior to the mortgage. When the contractor sought to foreclose its mechanic's lien, the Spurlocks cross-claimed against Fayette Federal alleging that it was liable for payment of the lien. Rejecting this argument, the trial court entered judgment for Fayette Federal. On appeal, this court affirmed and determined that:
"Unlike Prudential, ... Fayette Federal never promised the Spurlocks it would act as their agent to obtain lien right waivers from materialmen....
And perhaps most importantly, unlike in Prudential where the lender not only controlled the funds but also made direct disbursements of loan proceeds to third parties, Fayette Federal never disbursed loan proceeds to anyone other than the Spurlocks, and only upon their express request. Furthermore, Fayette Federal and the Spurlocks agreed to having the loan funds disbursed in three or four draws in accordance with the borrowers' needs. Fayette Federal disbursed funds only as directed by the Spurlocks."
Spurlock, supra at 816 (emphasis supplied).
Unlike Woodall and Spurlock, mortgagee-AVCO maintained complete control of the funds disbursed to creditors. Its agreement with the Crums expressly provided that title insurance would be obtained, that the deed would be recorded, that legal services would be supplied and that the property would be titled in the Crums' names. The uncontroverted evidence at trial demonstrated that AVCO knew of the title and abstract problems before disbursement, record at 384, 4883-84, even though, as AVCO conceded, clear and marketable title could not be conveyed to the Crums at closing. Catastrophe for the Crums.
Viewing the evidence in a light most favorable to AVCO, the Crums carried their burden of proof in demonstrating that the relationship between the parties was that of agent and principal, and that AVCO failed to exercise reasonable care in the performance of its duties, thereby proximately causing the damages sustained by the Crums. See Prudential, supra.
I would therefore reverse the trial court and order it to enter judgment in favor of the Crums.