applying the Biakanja factors to find that a construction lender owed a duty to third party home buyers to discover and prevent major defects in homes the construction of which it financed because, by virtue of its position, it exercised control over the quality of the construction
How later courts described this case
- applying the Biakanja factors to find that a construction lender owed a duty to third party home buyers to discover and prevent major defects in homes the construction of which it financed because, by virtue of its position, it exercised control over the quality of the construction
- lender was active 19 participant in the home construction enterprise as it had the right to exercise extensive 20 control over the enterprise and in addition to interest on the loan, it received substantial 21 fees for making the loan
- discussing risk of loan notes not being paid
- the buyer and seller of the land and the buyer and seller of homes in a real estate development had distinct interests and were not joint ven-turers
Written by the judges who cited it.
Distinguished
Distinguished by Morrocco v. Felton, 112 N.J. Super. 226 (1970)
This authority appears to negate the holding in Connor, supra, even though the facts in Rice, supra, are distinguishable.
The opinion
BURKE, J.
I dissent. I agree with the Chief Justice that despite the extensive activities of Great Western here the evidence, viewed most favorably to plaintiffs, falls short of establishing the existence of a joint venture between Great Western and Conejo or Goldberg. However, I would hold a joint venture relationship to be the only basis for imposing liability upon Great Western. Its position vis-a-vis plaintiffs differs materially from the relationships between plaintiffs and defendants in the four cases upon which the majority opinion relies. (Merrill v. Buck (1962) 58 Cal.2d 552, 561-562 [ 25 Cal.Rptr. 456 , 375 P.2d 304 ] [defendant real estate agent showed and rented to injured plaintiff lessee a house with latent dangerous defect]; Biakanja v. Irving (1958 ) 49 Cal. 2d 647, 650 [ 320 P.2d 16 , 65 A.L.R.2d 1358 ] [defendant notary public drew invalid will, thereby depriving plaintiffs of intended benefits thereunder]; Lucas v. Hamm (1961) 56 Cal.2d 583, 588 [ 15 Cal.Rptr. 821 , 364 P.2d 685 ] [attorney charged with drafting will with invalid trust provisions, causing loss to intended beneficiaries]; Stewart v. Cox (1961) 55 Cal.2d 857, 863 [ 13 Cal.Rptr. 521 , 362 P.2d 345 ] [defendant subcontractor installed defective and leaking concrete work for swimming pool built for plaintiff].)
In each of the cited cases defendant behaved negligently in carrying out a duty of care undertaken by defendant toward another. But in the present case Great Western undertook no duty toward Conejo, Goldberg, plaintiffs, or any one else, any violation of which resulted in plaintiffs’ losses. The majority opinion speaks of a negligent failure by Great Western of “a duty of care to its shareholders ... to prevent the con *880 struetion of defective homes” ante, pp. 864, 867, 869, and on such asserted failure appears to predicate the pronouncement of an obligation to protect plaintiff home buyers from structural defects, (ante, p. 867.) Even assuming that certain officers or employees of Great Western were derelict in their duties of care toward Great Western and its shareholders, those officers or employees are not the corporation-, more logically, in such a context it is the shareholders themselves who might be said to constitute the corporate entity. In my view negligent performance by corporate officers or employees of their duty of care toward the corporation and its shareholders provides no basis for imposing upon the corporation (and therefore upon its shareholders, who must bear the loss) a duty toward others (here, plaintiffs). The fallacy of such an approach is readily perceived by substituting an individual financier for Great Western. In that situation could it be said that the individual’s failure to exercise prudence and care in protecting himself gives rise to a duty of care to others? I think not. Similarly it would appear as sound to rule that an agent’s violation of his obligations to his principal would in and of itself render the principal liable to others injured in the same transaction, and up to now such has not been the law.
I would affirm the judgment.
McComb, J., concurred.
Respondent’s petition for a rehearing was denied January 8, 1969. McComb, J., Mosk, J., and Burke, J., were of the opinion that the petition should be granted.