WEST VIRGINIA RECORD

CHARLESTON – Bankers who overpaid a borrower's home builder may have breached a contract but didn't act negligently, the Supreme Court of Appeals ruled.

The Justices on Sept. 16 split a decision of Kanawha Circuit Judge James Stucky, who rejected both contract and tort claims against Fifth Third Bank.

Kanawha County resident Anissa White wanted to revive both halves of her suit, but the Justices wouldn't tolerate any mixture of contract and tort claims.

Their unsigned opinion quoted Stucky, who called it "a classic case of inappropriate tort claims based upon alleged breaches of contractual duty."

The Justices wrote that the negligence claim continually shifted.

They wrote, "In West Virginia, the general rule holds that when a lender breaches its contract with a borrower causing economic loss, but no property damage or personal injuries, the borrower's primary remedy is to pursue a breach of contract action against the lender."

A borrower can recover tort damages from a lender if they have a special relationship, the Justices wrote, but they found no record of a special relationship.

In 2004, White hired White Family Properties to build a home in Lincoln County for a projected cost of $193,500.

White handed a $40,000 check to White Family Properties, apparently no relation.

In 2005, she signed an agreement with four lenders to borrow $150,000.

The agreement provided that the lender would disburse funds to the builder in increments for work that was finished and "in place."

It provided that the bank would inspect the house to gauge progress, and it made clear that the bank would inspect the house for its benefit and not White's.

White signed a draw request for $48,375 that summer and one for $48,395 that fall. The bank paid both and rated the job 55 percent complete.

The third draw requested $34,393, but the tasks added up to $28,268.

The bank sent an inspector, whose report led them to shrink the payment to $5,477.

The builder submitted the request again. The bank refused to pay.

The builder trimmed it to $32,650, submitted it again, and received payment.

Around that time, White paid the builder $42,000 from her own funds.

In January 2006, the builder stopped working.

"As best we can discern from the record, by January 2006 WFP had been paid about $196,000 by the bank and the plaintiff for a house that was expected to cost $193,500," the Justices wrote.

The bank declared default and suspended White's draw privileges.

"The new home has apparently never been completed," the Justices wrote.

White sued the original lenders, Fifth Third Bank, and White Family Properties.

She claimed Fifth Third failed to ensure that the home was at an appropriate stage of completion before disbursing payments.

The bank moved for summary judgment and Stucky granted it.

On the contract claim, he found that because the bank performed inspections for its own benefit, White could not rely on them or base a cause of action on them.

On negligence, he found common law didn't define the rights or duties of the parties.

The Justices didn't disturb his decision on negligence but they found genuine issues of fact about the loan agreement.

It stated four times that the bank wouldn't release money unless an inspector certified that the work was completed and in place, they wrote.

"On January 5, 2006, the bank paid money to WFP for gutters and downspouts, garage doors, and exterior stairs when an inspection the day before showed those tasks were not completed," they wrote.

Paul Stroebel, of Stroebel and Johnson in Charleston, represented White.

Kenneth Tawney, Amber Hoback and Kevin Waldo, all of Jackson Kelly in Charleston, represented Fifth Third Bank.