Takach v. Williams Homes, Inc.

Reilly, J. Appellant presents this court with the following proposition of law. “Revised Code § 1311.011 does not require a construction lender to protect the interests of a non-borrower while disbursing a borrower’s loan funds.” Two loan contracts were made in this case. Appellant made a commitment to appellees for a purchase money mortgage plan and also a construction loan to Williams Homes. There is no dispute that appellant properly disbursed the mortgage loan funds. Similarly, there is no question that appellant improperly disbursed the construction loan funds, since it did not comply with the mandatory statutory duty under R.C. 1311.011 (B)(4) to obtain affidavits from Williams Homes for protection against mechanics’ liens prior to the disbursement of funds to the contractor. Appellant’s duties in relation to the contractor’s loan are at issue. The question presented is whether pursuant to R.C. 1311.011 a lender, when disbursing the contractor-borrower’s funds, has a duty to protect the interests of appellees, based upon the lender’s commitment of a mortgage for the subject home. R.C. 1311.011 (B)(4) specifies the duty of lending institutions concerning such affidavits as follows: “No lending institution shall make any payment to any original contractor until the original contractor has given the lending institution his affidavit stating: “(a) That the original contractor has paid in full for all work performed and for all labor, materials, machinery, or fuel furnished by the original contractor and all subcontractors, materialmen, and laborers prior to the date of the closing of the purchase or during and prior to the payment period, except [360] such unpaid claims as the original contractor shall specifically set forth and identify both by claimant and by amount claimed; “(b) That no claims exist other than those claims so set forth and identified in the affidavit required by division (B)(4) of this section.” Therefore, considering the foregoing statute, appellant has a duty to appellees, pursuant to the construction loan agreement with Williams Homes, because R.C. 1311.011 (B)(4) requires a lending institution not to make “any” payments to the contractor until the contractor has given the lending institution the required affidavits. The General Assembly, by the use of the word “any” in the statute, does not distinguish between payments on the purchase and mortgage loans. Thus, pursuant to the statute, the lending institution has a duty to appellees regardless of whether the funds are disbursed to the contractor under either the mortgage or construction loan agreement. This duty is statutory and under the provisions of the statute is not owed solely to the contracting parties. The duty is owed to one, having a loan commitment from the same lending institution for the subject home, who may be damaged by a wrongful disbursement. The determination of this case rests upon a consideration of R.C. 1311.011 (B)(4) in conjunction with R.C. 1311.011 (A)(3), the latter of which reads as follows: “ ‘Lending institution’ means any person that enters into a contract with the owner, part owner, purchaser, or lessee to provide financing for a home construction contract or a home purchase contract, which financing is secured, in whole or in part, by a mortgage on the real estate upon which the improvements contemplated by the home construction contract are to be made or upon the property that is the subject of the home purchase contract, and that makes direct disbursements under the contract to any original contractor or the owner, part owner, purchaser, or lessee.” There are two contracts involved, a purchase loan and a construction contract. R.C. 1311.011 (B)(4) refers to any disbursements to any original contractor and does not distinguish between contracts. Consequently, the statutory duty not to make disbursements without obtaining affidavits is to anyone who could be injured by a failure to comply with the statute. The disbursements in this case were made pursuant to the construction loan agreement to which appellees were not a party. It is reasonable to assume that lending institutions do not function in a vacuum. It is apparent that the lending institution had at least constructive knowledge of appellees’ purchase loan. For the foregoing reasons, the judgment of the court of appeals is affirmed. Judgment affirmed. Celebrezze, C.J., Sweeney, Holmes, C. Brown and Hoffman, JJ., concur. [361] W. Brown, J., dissents. Reilly, J., of the Tenth Appellate District, sitting for Locher, J. Hoffman, J., of the Fifth Appellate District, sitting for J. P. Celebrezze, J.