Holloway v. San Diego Federal Savings & Loan Ass'n

MUSSELL, J. Plaintiffs appeal from a judgment in favor of defendant in an action brought to recover damages alleged to have been occasioned by the failure of defendant to properly disburse funds in accordance with a loan agreement between the parties and by the failure of the building contractor employed by plaintiffs to complete his contract for the agreed price.

Plaintiffs secured a loan from defendant in the sum of $10,-500 for use in remodeling their home in San Diego. The loan agreement, executed March 3, 1948, provided in part as follows:

‘ ‘ (4) The Association shall have the right to use any money in its possession payable to the borrower to pay any valid claim or claims for labor performed and/or materials furnished for any improvements upon or to the security hereunder or any part thereof. . . .

“(6) I hereby authorize the Association to make all payments on this loan as the construction work progresses, as [573]follows: 15% when and after the foundation is in and sub-floor is laid; 20% when framework and sides of building are under roof and roughed in; 20% when and after the plastering work is finished; 20% when and after a valid Notice of Completion of the buildings has been recorded in the office of the County Recorder of San Diego County; 21% or, The Balance, less all charges and expenses in connection with the loan; thirty-five (35) days after the date of recording in the Recorder’s office of the valid Notice of Completion, and when release is furnished by General Contractor. It is further understood that said Association will disburse funds under its control only in proportion to its inspector’s report of progress.

“(7) The undersigned has accepted and hereby accepts the sold responsibility for the selection of his own contractor or contractors and the Association assumes no responsibility for the completion of said building or buildings according to the plans and specifications and for the contract price;....”

In April, 1948, plaintiffs entered.into a written contract with one J. 0. Harrell, a building contractor, wherein Harrell agreed to do the remodeling involved for the sum of $11,388 and the work was commenced on or about the 13th of April. In the latter part of that month or the first part of May, Harrell informed a representative of defendant that he was having “a little difficulty in his bills” and was “going to try to work it out.” Harrell was then informed that the association would thenceforth pay the bills “direct” and Harrell would receive no money except to pay for labor bills. All disbursements were then made by defendant from the loan funds in accordance with the quoted section 4 of the loan agreement;