SCAN SHORT FORM ORDER SUPREME COURT STATE OF NEW YORK COUNTY OF NASSAU PRESENT: HON. IRA B. W ARSHA WSKY Justice. TRIAL/IAS PART 16 ABRAHAM a/a A VI ULMAN HANNA ULMAN, AMIHAI ULMAN and KARIN ULMAN - against - Plaintiffs, INDEX NO. : 013061/2002 MOTION DATE: 09/20/2004 MOTION SEQUENCE: 02 & 04 SCOTI A. JOHNSON, CHARLES Z. FERTIG, PETER DIMARZIO, SALLAH ALLAN a/a SAL ALLAN, VIRGINIA ALLAN, RICHMOND DESIGN & CONSTRUCTION, WELLS FARGO HOME MORTGAGE, INC. and JOHN DOE NOS. " 1" THROUGH " 10" Defendants. The following papers read on this motion: Notice of Motion, Affirmation & Exhibits Annexed... Affidavit of James Sullvan & Exhibits Annexed... 2 Notice of Cross Motion, Affidavit, Affirmation & Exhibits Annexed... 3 Supplemental Affirmation in Support of Cross Motion & Exhibit Annexed... Affidavits in Opposition..... Plaintiff's Memorandum of Law in Opposition... 6 Plaintiff' s Exhibits... 7 Affirmation in Opposition & Exhibits Annexed... 8 Attorney Affirmation in Response to Cross Motion for Summary Judgment... Attorney Affirmation in Response to Opposition... 10
Affirmation in Response to Wells Fargo s Motion for Summary Judgment... Affirmation in Reply to Plaintiffs' Opposition & Exhibit Annexed... 12 Reply Affirmation...... 13 This motion brought pursuant to CPLR 3212 by defendant, Wells Fargo Home Mortgage, Inc. (Wells Fargo), for summar judgment dismissing the amended complaint against said defendant is granted. The cross motion by defendant, Scott A. Johnson, for summary judgment dismissing plaintiff's amended complaint and the cross claims asserted against him is denied. In this action plaintiffs seek inter alia to recover damages against defendants Wells Fargo and Scott A. Johnson arsing from their purchase of a thee story wood frame residence located at 304 12th Street, Brooklyn, New York, on or about November 27 2000 for the purchase price of $315,000.00. Plaintiffs' intention was to renovate the premises creating four separate apartments. Pursuant to the Wells Fargo loan documents executed at closing, a portion of the loan proceeds in the amount of $183 240., consisting of $165 900.00 and a contingency reserve of $17 340.00 were placed in an interest bearing escrow account which was to be used for the purchase of labor and materials for constrction. Plaintiffs allege that Wells Fargo failed to perform its duties in accordance with 203(k) requirements (National Housing Act 12 U. c. 1709(k)). Plaintiffs allege that defendant, Scott A. Johnson negligence in approving loan payments to the contractor is attributable to Wells Fargo on an agency theory, and that Wells Fargo failed to pay escrow money and contingency reserves to plaintiff. In regard to defendant Scott A. Johnson, who is a licensed architect and HUD approved consultant, plaintiff alleges that he failed to comply with the paries' agreement (July 8, 2000) and the obligations imposed upon him pursuant to HUD regulations by, inter alia, approving requests for payment by renovation contractors for incomplete and defective work neither in compliance with plans, HUD regulations nor the applicable
building code. A ~203k rehabiltation loan refers to HUD administered loans made pursuant to ~203k of the National Housing Act, (12 U. c. ~1709(k)) and the regulations promulgated thereunder (24 c.f.r. 203.40, et seq. Wells Fargo Home Mortg. Inc. v Hiddekel Church of God. Inc., 1 Misc3d 913(A) (Sup.Ct. Kings County 2004), WL 258144. Under this program, a borrower is able to obtain one mortgage loan, at a longterm fixed, or adjustable, rate to finance both the acquisition and rehabiltation of the property. To minimize the risk to the mortgage lender, the mortgage loan is eligible for endorsement by HUD as soon as the mortgage proceeds are disbursed and a rehabiltation escrow account is established at which point the loan is fully insured. Banks v Consumer Home Mortgage. Inc.. 2003 WL 21251584, NYLJ, April 11, 2003 at p. 29, co!. 6. While plaintiffs contend that the financing they received from Wells Fargo was a 203k loan, the assertion fles in the face of the documentar evidence before the court including the uniform residential loan application, uniform settlement statement important summary notice, contractor selection, borrower s acknowledgment, draw requests and mortgagor s letter of completion. All of those documents indicate that plaintiffs requested a conventional loan, selected the contractor to perform the renovation work and released Wells Fargo from liabilty for contractor negligence. Plaintiffs alleged theories under 203(k) rules are, therefore, inapplicable. In this regard, it is noteworthy that, pursuant to paragraph 8 of the residential contract of sale, plaintiffs were required to obtain a first mortgage loan "other than a V A, FHA or other governmentally insured loan." The fact that plaintiffs may have received some information regarding 203(k) loans and papers bearng 203(k) language from defendant Wells Fargo does not alter or amend the contractual agreement between plaintiffs and defendant lender. Plaintiffs obtained a conventional mortgage. The contractor selection form, signed by plaintiffs, specifically provides that the responsibilty for choosing the contractor for the renovation project lies solely with them. Pursuant to
the borrower s acknowledgment, by signing individual draw requests, plaintiffs accepted responsibilty that the completed work, for which payment was sought, was acceptable and payment was justified. Notwithstanding the fact that each draw request, as well as the mortgagor s letter of completion which states, in pertinent part, that "(t)he rehabiltation construction and/or improvements * * * have been completed in a workmanlike manner to my/our satisfaction, was signed by one of the plaintiffs, they now claim that the renovation was "nothing short of a disaster" (affidavit of plaintiff Abraham Ulman 13) and seek to impose liabilty on defendants Scott A. Johnson and Wells Fargo for construction defects caused by the builder. There is no basis to impose liabilty on defendant Wells Fargo for its payment of money attendant to an ordinar construction loan. Plaintiffs offer no authority to support the claim that defendant Wells Fargo owed them an independent duty, either in tort or contract, to protect them from problems arising from the contractor s work, construction defects or shoddy workmanship. Plaintiffs can point to no language, contained in any of the relevant documents, indicating that defendant Wells Fargo itself assumed a duty to inspect the progress of the construction and to disperse funds only in proportion to the progress achieved. Moreover, there is nothing in the record to indicate that defendant Wells Fargo s had any duty other than to pay the contractor after receiving a signed draw request containing the homeowner assurance that the work performed was satisfactory. While plaintiffs allege that there were numerous discrepancies between the draw requests prepared by defend&nt Scott A. Johnson, and the actual construction performed by the contractor, all of the draw requests were signed by one of the plaintiffs indicating that all completed work was done in a workmanlike manner. It is well settled that a party who signs a document without any valid excuse for having failed to read it is conclusively bound by its terms. Shklovskiy v Khan, 273 AD2d 371 372 (2d Dept. 2000). Under these facts, defendant Wells Fargo cannot be held liable, as plaintiffs
contend, based on an agency relationship between defendant lender and the architectural consultant, defendant Scott A. Johnson, who was hired by plaintiffs. An essential characteristic of an agency relationship is that the agent acts subject to the direction and control of the principal. Agency is a fiduciar relationship which results from the manifestation of consent of one pary to allow another to act on its behalf, subject to its control and consent by the other to so act. Wiliam Stevens. Ltd. v Kings Vilage Cor;. 234 AD2d 287 288 (2d Dept. 1996); Maurilo v Park Slope U-Haul, 194 AD2d 142, 146 (2d Dept. 1993). The facts as alleged are insufficient to sustain a cause of action predicated on an agency relationship between co-defendants Wells Fargo and Scott A. Johnson. Mr. Johnson was not hired, paid or directed by defendant Wells Fargo nor did the lender receive any direct financial benefit from him. Mr. Johnson was hired and paid by plaintiffs and was a distinct - but separate - part of the draw request process. The client consultant agreement did not create an agency and there was no action by defendant Wells Fargo sufficient to establish an agency relationship between it and defendant Scott A. Johnson by any words or conduct on its part which was communicated to plaintiffs. The consultant agreement between plaintiffs and defendant Scott A. Johnson (Johnson) contains a limitation of liabilty clause whereby the clients (plaintiffs) released and exempted said defendant "of all liabilty and responsibilty for the repairing or replacement of any unreported defect or deficiency and for any subsequent damage, property damage or personal injury of any nature." The clause further provides that Johnson s liabilty "shall be limited to a sum equal to the amount of the fee paid * * * for the services performed." Inasmuch as the clause at issue refers specifically to the Report " (Walk Through and Work Write Up), the limitation of liabilty, on which defendant relies for summary judgment, does not clearly and unequivocally express the intention of the parties' on the extent of Johnson s liabilty concerning his duty, post closing, to inspect the progress of construction and authorize the release of funds to the contractor.
It is well settled that the law frowns on contracts intended to exculpate a party from the consequences of his own negligence and though, with certain exceptions, they are enforceable, such agreements are subject to close judicial scrutiny. Gross v Sweet, 49 NY2d 102, 106 (1979). Unless the intention of the parties is expressed in unmistakable language, an exculpatory clause wil not be deemed to insulate a pary from liabilty for his own negligent acts. It must appear plainly and precisely that the limitation of liabilty extends to negligence or other fault, in the circumstances alleged, of the pary attempting to shield his ordinary responsibilty. Johnson s reliance on Obi ora v Federated Consultant Services. Inc., NYLJ, September 9, 2004 at p. 19 COL 1 is not persuasive. That case involved the application of a limited liabilty clause to a home inspection and the Building Analysis Report, issued in connection therewith, which indicated that the subject property was in a satisfactory condition with no major strctural defects. In the case at bar, as stated expressly in the Consultant Agreement, defendant Scott A. Johnson was hired to "assist the Client with the preparation of the Work Write-Up and Cost Estimate, (describing) the proposed renovation and its associated costs, to "assure that the Work Write-Up, Cost Estimates and Draw Request (the Report) (were) properly prepared in accordance with HUD requirements" and to "prepare and deliver the Report to the Client for review and acceptance. " To the view of the court, the limitation of liabilty clause in the Consultant Agreement is enforceable to the extent that the allegations of the amended complaint concern duties encompassed within the Agreement but does not extend to Mr. Johnson s alleged negligence in approving progress payments to the contractor at various stages of the renovation process. Whether defendant Scott A. Johnson was negligent in the performance of his duties with respect to the property post closing is a factual issue requiring resolution at trial. Counsel for the parties shall appear before the undersigned for a pre-tral conference on February 28, 2005, at 9:30 A.M. This matter is scheduled for trial on
March 7, 2005, at 9:30 A. Dated: October 13, 2004. J. ENTERED OCT 1 5 2004 NASSAU C()UNfY COUNTY CLeRK OFFICE