Summary
In Clark v. Grover, 347 N.W.2d 748 (Mich.App. 1984), the plaintiffs sought to recover damages against a HUD-approved lender for death and personal injuries caused by carbon monoxide poisoning in a home purchased through an FHA-insured loan. The lender in that case employed a contractor to inspect property to be purchased by the plaintiffs to ensure that the property qualified for an FHA-insured mortgage.
Summary of this case from In re BrownOpinion
Docket Nos. 66844, 67107.
Decided March 5, 1984.
Keusch Flintoft (by Peter C. Flintoft), for plaintiff in Case No. 66844.
Hess Associates, P.C. (by John H. Hess), for plaintiffs in Case No. 67107.
Miller, Canfield, Paddock Stone (by Carl H. von Ende and J. Scott Timmer), for Manufacturers Hanover Mortgage Corporation.
In these consolidated cases, plaintiffs seek to recover damages for the death of Alexander Mshar and personal injuries suffered by the other plaintiffs. Plaintiffs' complaints alleged that the death and injuries were caused by carbon monoxide poisoning from a defective furnace in a home belonging to plaintiffs James and Geraldine Mshar. According to the complaints, the home was purchased on land contract and thereafter James and Geraldine Mshar sought an FHA-insured loan from defendant Manufacturers Hanover Mortgage Corporation. The complaints allege that a prerequisite for such a loan is an inspection of the heating system, that Manufacturers Hanover employed or recommended a contractor to make the inspection, that the contractor was unlicensed and performed the inspection negligently, and that the negligent performance of the inspection was a proximate cause of the subsequent death and injuries. Manufacturers Hanover moved for summary judgment pursuant to GCR 1963, 117.2(1), and the circuit court granted the motion, holding that Manufacturers Hanover owed no duty to the plaintiffs. Plaintiffs' motion for leave to amend their complaints was denied, and plaintiffs appeal as of right.
A motion for summary judgment pursuant to GCR 1963, 117.2(1) tests the legal sufficiency of plaintiffs' pleadings; it should be granted only if, accepting as true all well-pled facts in the complaint, plaintiffs' claims are so clearly unenforceable as a matter of law that no factual development could possibly justify a right to recovery. See, for example, Schwartz v Michigan Sugar Co, 106 Mich. App. 471, 476; 308 N.W.2d 459 (1981). Where there is no legal duty, there can be no actionable negligence. Butrick v Snyder, 236 Mich. 300, 306; 210 N.W. 311 (1926). Here, James and Geraldine Mshar claimed that a duty on the part of Manufacturers Hanover arose from the employment or recommendation of the contractor who made the inspection. The remaining plaintiffs rely on a theory explained in 2 Restatement Torts, 2d, § 324A, p 142:
"One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of a third person or his things, is subject to liability to the third person for physical harm resulting from his failure to exercise reasonable care to protect his undertaking, if
"(a) his failure to exercise reasonable care increases the risk of such harm, or
"(b) he has undertaken to perform a duty owed by the other to the third person, or
"(c) the harm is suffered because of reliance of the other or the third person upon the undertaking."
The existence of a duty on the part of Manufacturers Hanover to the other plaintiffs therefore depends on the existence of a duty to James and Geraldine Mshar.
The Secretary of Housing and Urban Development is authorized by 12 U.S.C. § 1709 to insure mortgages on the terms specified in that section upon application of the mortgagee. The secretary has promulgated rules governing applications for such insurance, see 24 C.F.R. 203.1 et seq., and among those rules is one requiring that buildings on the property conform to the minimum standards adopted by the department. See 24 C.F.R. 203.39 and 200.929. Plaintiffs point out that some of the standards involve safety conditions, and plaintiffs would therefore infer that a mortgagee who has a required inspection of the building performed in the course of an application for insurance owes a legal duty of care to the mortgagor. However, an examination of the terms specified for insurance in 12 U.S.C. § 1709 and the rules governing applications show that the concerns to which the statute and the rules are addressed are (1) the availability of mortgages on terms more favorable to the mortgagor than the market would otherwise provide, and (2) the security of the government's insurance funds. Safety conditions in buildings on the mortgaged property are relevant only because they affect the value and marketability of the property and thus affect the risk assumed by the government as insurer of the mortgage. We therefore conclude that the federal statute and rules, including the inspection requirements, were not intended to impose upon the mortgagee any duty of care concerning safety.
Our conclusion is supported by cases dealing with analogous problems under predecessor statutes. See, for example, United States v Neustadt, 366 U.S. 696, 709; 81 S Ct 1294; 6 L Ed 2d 614 (1961), in which the Court discussed the legislative history of the predecessor statute as follows:
"[I]t was repeatedly emphasized that the primary and predominant objective of the appraisal system was the `protection of the Government and its insurance funds'; that the mortgage insurance program was not designed to insure anything other than the repayment of loans made by lender-mortgagees, and that `there is no legal relationship between the FHA and the individual mortgagor.' Never once was it even intimated that, by an FHA appraisal, the Government would, in any sense, represent or guarantee to the purchaser that he was receiving a certain value for his money." (Footnotes omitted.)
See also Cason v United States, 381 F. Supp. 1362, 1367 (WD Mo, 1974), in which the court discussed Neustadt as follows:
"It is now settled, however, that the primary and predominant objective of the FHA appraisal system is the protection of the Government and its insurance funds; that the mortgage insurance programs do not insure anything other than the repayment of loans made by lender-mortgagees; `and that "there is no legal relationship between the FHA and the individual mortgagor."' * * * Although Neustadt was based on a different theory of liability, the Court believes that the Supreme Court completely rejected the notion that Congress intended to establish a duty of due care for the benefit of mortgagors such as plaintiffs."
Plaintiffs' reliance on Block v Neal, ___ US ___; 103 S Ct 1089; 75 L Ed 2d 67 (1983), is misplaced. In that case, the plaintiff was a recipient of a rural housing loan obtained from the Farmers Home Administration pursuant to 42 U.S.C. § 1471 et seq. The Court held that the plaintiff's action against the government for negligent performance of a voluntary undertaking to supervise construction of the house was not barred by the "misrepresentation" exception to the Tort Claims Act, 24 U.S.C. § 2680(h). Because the Court expressly declined to decide whether plaintiff had stated a cause of action, see ___ US ___, Block has no relevance to the issues presented here.
Also misplaced is plaintiffs' reliance on Connor v Great Western Savings Loan Ass'n, 69 Cal.2d 850; 73 Cal.Rptr. 369; 447 P.2d 609 (1968). We need not decide whether Connor would be followed under Michigan law, because Connor is distinguishable on the facts. In Connor, defendant was not only the mortgagee, but also an active participant in the construction of the mortgaged homes, with the right to exercise extensive control of the project. Defendant's involvement in the project placed it in a position different from that of the usual money lender. Here, in contrast, no well-pled facts in plaintiffs' complaints suggest that defendant's involvement was greater than that of an ordinary mortgagee.
In Smith v Allendale Mutual Ins Co, 410 Mich. 685, 705-706; 303 N.W.2d 702 (1981), the Court considered the liability of a fire insurer for injuries sustained as a result of fire hazards not detected and brought to the insured's attention as a result of the insurer's inspection of the insured's premises. The Court held:
"[T]he threshold requirement of an undertaking to render services to another is lacking in these cases. An insurer's inspection of an insured's premises for fire hazards does not in itself demonstrate an undertaking to render fire inspection and prevention services to the insured. Absent evidence that the insurer agreed or intended to provide services for the benefit of the insured, there is no basis for a conclusion that such inspections are conducted other than to serve the insurer's interests in underwriting, rating and loss prevention and hence there is no undertaking. An insurer who does not undertake to inspect for the insured's benefit owes no duty to the insured or the insured's employees to inspect with reasonable care; such an insurer is, however, subject to liability if it engages in affirmative conduct creating or enlarging a fire hazard." (Emphasis in original.)
Similarly, there is no basis here for a conclusion that the inspection was conducted for any reason other than to serve the mortgagee's interest in obtaining insurance pursuant to 12 U.S.C. § 1709. No well-pled facts in plaintiffs' complaints suggest that defendant agreed or intended to have the inspection performed for plaintiffs' benefit or that defendant engaged in affirmative conduct creating or enlarging a safety hazard. We therefore conclude that Manufacturers Hanover owed no duty to the plaintiffs.
Plaintiffs also argue that they have stated a cause of action for negligent misrepresentation. See, for example, Williams v Polgar, 391 Mich. 6; 215 N.W.2d 149 (1974). However, this theory has no independent significance here. The Court in Williams expressly recognized that the existence of a duty of care was a prerequisite for such an action. 391 Mich. 18-19. For the reasons previously stated, no duty was presented here.
Because, as plaintiffs concede, their proposed amended complaints proffered no legal theories different from those pled in their previous complaints, the circuit court did not err by denying their motion for leave to amend the complaints. Such a motion is properly denied where an amendment would be futile; see Ben P Fyke Sons v Gunter Co, 390 Mich. 649, 656; 213 N.W.2d 134 (1973).
Affirmed.