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JOHN T. GARBISH AND DIANE GARBISH v. MALVERN FEDERAL SAVINGS AND LOAN ASSOCIATION (09/29/86)

filed: September 29, 1986.

JOHN T. GARBISH AND DIANE GARBISH
v.
MALVERN FEDERAL SAVINGS AND LOAN ASSOCIATION, APPELLANT



Appeal from the Judgment of Court of Common Pleas, Civil Division, of Chester County, 56 December Term 1979.

COUNSEL

Robert J. Shenkin, West Chester, for appellant.

Jerome R. Balka, Philadelphia, for appellees.

Rowley, Montemuro and Kelly, JJ. Kelly, J., concurs in the result.

Author: Rowley

[ 358 Pa. Super. Page 286]

OPINION OF THE COURT

This is an appeal from a judgment entered in appellees' favor following denial of appellant's post-trial motions for a new trial or judgment n.o.v. Appellant argues that it is entitled to a judgment n.o.v. because it owed no duty to appellees. Appellant also argues that it is entitled to a new trial because of a plethora of erroneous evidentiary rulings and the conduct of counsel. Appellant's final argument is that the judgment should be stricken because it does not conform to the order of court authorizing the entry of judgment. We affirm the judgment.

On review of a decision denying a motion for judgment n.o.v., an appellate court must consider the evidence in the light most favorable to the verdict winner. Elder v. Orluck, 334 Pa. Super. 329, 483 A.2d 474 (1984); Hargrove v. Frommeyer, 229 Pa. Super. 298, 323 A.2d 300 (1974). Considering the evidence by this standard, the facts are as follows.

[ 358 Pa. Super. Page 287]

In early 1977, Appellee, John Garbish, was transferred by his employer to work in or near Chester County, Pennsylvania. Thereafter in April, 1977, he and his wife sought to purchase a piece of real estate near his new place of employment and to build a home on it. They entered into an agreement of sale for several acres of land and they contacted Eastern Regional Builders which provided them with preliminary plans for a house and with which they contracted for construction of the house. To finance the construction, which was to cost $55,000, appellees needed to borrow $39,000. Appellant agreed to provide appellees with a mortgage for this amount.

At the settlement held on May 24, 1977, appellees and Edward Donovan, one of the principals of Eastern Regional Builders,*fn1 were required by appellant to execute a building agreement on a form apparently supplied by appellant. Schedule "B" of the building agreement recited that the consideration for the labor and materials itemized in Schedule "A" was to be $55,000 to be paid "by voucher to materialmen, contractor and subcontractor as work progressed." Schedule "A" of the building agreement was blank. However, at the same time that the building agreement was executed, appellant presented to appellees for the first time a "schedule of operations" which it had required the builder to execute and appellees to initial and date. This schedule was a detailed and itemized breakdown of materials and labor costs used to arrive at the contract price of $55,000, e.g., lumber was to cost $7,000, excavation was to cost $180, and footings and foundation were to cost $350. The total on the schedule of operations equaled the contract price of $55,000. Also at the settlement, appellees

[ 358 Pa. Super. Page 288]

    were required to initial a detailed Description of Materials executed by Donovan and to provide appellant with a check for $16,000, the difference between the total contract price for the house and the $39,000 which appellant was loaning appellees, so that appellant would have a building fund equal to the total contract price which it could administer.

In negotiating the mortgage, appellees were informed that for construction contracts appellant utilized a voucher system to administer the building fund. Appellees requested that they be permitted to participate in the payment system and be required to co-sign the vouchers with appellant to ensure their authorization for payment and to ensure notice of when payments were being made and for how much. Appellant, however, told appellees that such a procedure was contrary to the appellant's policy and that appellant was expert in the disbursement of construction fund money.

After construction of the house began, the contractor submitted to the appellant and received payment for approximately fifty vouchers of which appellant allowed appellees to approve only four. Under the voucher system utilized by appellant, the vouchers, submitted by the contractor, indicated what work was performed or materials purchased, where the work was performed and to whom the check was to be made payable. The vouchers also showed the total contract price, the amount paid to date, the amount requested by the vouchers and the balance remaining on the contract price. The invoices of materialmen and subcontractors were attached to only seven of the vouchers. Each of the vouchers indicated that the work had been inspected and approved. But appellant's inspectors, one of whom was on appellant's Board of Directors, at best only inspected the site to see if the work claimed was done. The inspectors never saw the schedule of operations, and were unaware of whether the amount on the voucher was within the amount used to arrive at the total contract price, or whether the labor listed on the voucher was an item even included on the schedule of operations and therefore contemplated by the

[ 358 Pa. Super. Page 289]

    parties in reaching the total contract price. Furthermore, before checks were issued by appellant, no one employed by appellant verified the vouchers with the schedule of operations and no one compared the vouchers to the invoices which were attached to them.

The evidence shows that amounts were disbursed under this voucher system for labor or materials in excess of the amounts listed on the schedule of operations which was used to calculate the total contract price. For example, the appellant paid $11,096.28 for lumber which is listed on the schedule of operations as costing $7,000; appellant paid $1,030 for excavation which is listed on the schedule of operations as costing $180; and appellant paid $790 for concrete footers which are listed on the schedule of operations as costing $350. The record also shows that payments were made for labor and materials which were not included at all on the schedule of operations such as aluminum windows ($1,780) and a fiberglass shower ($150). Finally, the record shows that some of the work for which payment was made was done on another job. Attached to voucher # 13 which authorized payment of $688 for grading and backfill was an invoice from the subcontractor showing that at least $112 of the $688 was for work performed at the contractor's own house which was being constructed nearby; voucher # 8 which requested payment of $4,600 for a sewer system ($1,600 over the cost listed on the schedule of operations) had an invoice from a subcontractor attached to it which indicated that $1,620 of the amount vouchered was for an old bill to the contractor; and voucher # 28 which was paid in full ($1,620) had an invoice attached to it which specifically stated that at least $450 of the total bill was for work done at the contractor's own house.

By the time appellees considered the contractor to be in breach of the contract due to failure to complete the house timely and requested that appellant stop making any payments to the contractor whom appellees were discharging, the house was only 40% completed. Appellees learned, however, that approximately 90% of the funds in appellant's

[ 358 Pa. Super. Page 290]

    possession had been disbursed. ($50,000 of the $55,000.) Therefore, appellees sued appellant, in both assumpsit and trespass, claiming that money had been paid by appellant for work which was never performed at their house, for materials not used at their house, and for work and materials which were not included on the schedule of operations and which were in excess of the amounts listed on the schedule of operations.

The jury returned a verdict for appellees in the amount of $23,283.67, which sum was reduced by the trial court to $20,928.56 (which included interest in the amount of $5,191.56). The trial court computed this figure by remitting the verdict to allow as damages only those sums which appellant had disbursed in excess of the amount provided on the schedule of operations, for items not included on the schedule of operations, or for labor or materials which the evidence showed were not provided for the construction of appellees' house but for some other project. Appellees praeciped for judgment in the amount of $23,916.72 which was entered. Appellant filed a petition to strike the judgment, but before disposition of the petition, it filed the instant appeal.

I.

The primary issue raised in this case is one of first impression in this Commonwealth: what is the duty of the mortgagee to the mortgagor with regard to disbursement of a construction fund comprised of both the proceeds of a mortgage and cash belonging to the mortgagor when the mortgagee exercises exclusive control over the fund. Appellant argues that it owed the mortgagor no duty with regard to the disbursement of the funds, that the agreement among the parties included a clause specifically relieving appellant from all liability to either the mortgagor or the contractor, and that even if it did owe appellees a duty, there was no evidence indicating the standard of care by which it was required to exercise that duty. Appellant also

[ 358 Pa. Super. Page 291]

    disputes that it had exclusive control of the ...


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