McGee v. Vermont Federal Bank, FSB

McGee v. Vermont Federal Bank, FSB  (97-409); 169 Vt. 529; 726 A.2d 42

[Filed 4-Jan-1999]


                                 ENTRY ORDER

                       SUPREME COURT DOCKET NO. 97-409

                            SEPTEMBER TERM, 1998


Hugh McGee and Morgan McGee	}	APPEALED FROM:
                                }
                                }
     v.	                        }	Addison Superior Court
                                }	
Vermont Federal Bank, FSB	}
                                }	DOCKET NO. 311-12-96 AnCv


       In the above-entitled cause, the Clerk will enter:

       Plaintiffs Hugh and Morgan McGee appeal from the superior court's
  decision granting  defendant Vermont Federal Bank's motion for judgment on
  the pleadings pursuant to V.R.C.P.  12(b)(6).  On appeal, the McGees claim
  that Vermont Federal Bank (Bank) breached a common  law and fiduciary duty
  owed to them when it negligently misrepresented that the real property on 
  which they had made multiple mortgage payments to the bank was covered by
  insurance.  We  affirm. 

       The McGees' filed a complaint in the superior court alleging that from
  December 1994  through April 1996, a relationship developed between
  themselves and the bank which created a  duty on the part of the bank to
  act with care and prudence towards them with respect to a  mortgage on
  which they had made multiple payments.  They alleged that the bank breached
  a  common law duty when it failed to notify them that insurance on the
  property was canceled.  In  addition, the McGees alleged that the bank
  breached a fiduciary duty to them by failing to advise  them of the status
  of the insurance coverage.  

       The bank filed a motion for judgment on the pleadings which the court
  granted, holding  that, as a matter of law, the bank's conduct did not
  constitute negligence because the bank owed  no duty to the McGees.  The
  court denied the McGees' request for reconsideration, and the  McGees
  appealed.  On appeal, the McGees contend that the court's decision to
  dismiss their  complaint constitutes an abuse of discretion.   

       We review a judgment on the pleadings by considering all the factual
  allegations in the  pleadings of the nonmoving party and all reasonable
  inferences that can be drawn from them as  true and allegations to the
  contrary by the moving party as false.  See In re Estate of Gorton,  __ 
  Vt. __, 706 A.2d 947, 949 (1997).  According to the complaint and the
  exhibits attached and  incorporated therein, in November of 1987, Douglas
  and Marie Benoit executed and delivered to  the bank a promissory note in
  the amount of $50,000, and a mortgage deed for real property  located in
  Vergennes as security for the note.  The mortgage required, among other
  things, that  the Benoits insure the mortgaged property.  On September 12,
  1994, the Granite Insurance  Company mailed to the Benoits and the bank a
  notice of cancellation of insurance for failure to  pay the premiums.  On
  October 3, 1994, the insurance company canceled the policy and notified 
  the bank in writing of the cancellation.           

       On December 1, 1994, the McGees entered into a purchase and sale
  agreement with the  Benoits pertaining to the mortgaged property.  Pursuant
  to this agreement, the McGees agreed to  assume and pay the remaining
  balance on the note and mortgage held by the bank.  The 

 

  mortgage, incorporated by reference in the complaint, prohibited the
  Benoits from selling or  transferring the property without the prior
  written consent of the bank.

       The McGees further alleged that from December 1994 through April 1996,
  they made  payments to the bank on the Benoits' mortgage and the bank
  accepted payments from the  McGees and credited the payments to the Benoit
  account.  They alleged that on at least two  occasions prior to April of
  1996 the bank failed to truthfully and accurately inform Hugh McGee  as to
  the status of insurance coverage on the subject property.  On April 27,
  1996, after the  McGees had made fourteen consecutive monthly payments on
  the Benoits' mortgage, the  uninsured property was destroyed by fire.

       The McGees claim that their relationship with the bank created a
  fiduciary duty to respond  accurately and truthfully to inquiries from Hugh
  McGee as to the status of the insurance  coverage. The existence or
  nonexistence of a duty is a question of law to be decided by the  court. 
  See Denis Bail Bonds, Inc. v. State, 159 Vt. 481, 487, 622 A.2d 495, 499
  (1993).  In  order for the bank to have become a fiduciary, the
  relationship had to ripen into one in which the  McGees were dependent on,
  and reposed trust and confidence in, the bank in the conduct of its 
  affairs.  See Capital Impact Corp. v. Munro, 162 Vt. 6, 10, 642 A.2d 1175,
  1177 (1994).  

       In Capital Impact, because the record revealed nothing but a
  debtor-creditor relationship  between the parties, we held that the trial
  court did not err in declining to find a fiduciary  relationship.  We have
  also held that a mortgagee/bank to whom notice is sent of the cancellation 
  of an insurance policy taken out by the mortgagor, with loss payable to the
  mortgagee, is under  no obligation to give notice to the mortgagor of such
  cancellation.  See Rocque v. Co-operative  Fire Ins. Ass'n., 140 Vt. 321,
  327, 438 A.2d 383,386-87 (1981).  Similarly, in the instant case,  the
  relationship between the McGees and the bank consisted of nothing more than
  the McGees'  monthly payment, and the bank's receipt, of mortgage payments
  on behalf of the Benoits' loan.   A fiduciary relationship of dependence
  and trust was not born of these transactions.  C.f. Griffin  v. Griffin,
  125 Vt. 425, 438, 217 A.2d 400, 410 (1965) (fiduciary relationship arose
  where  lender's president gained confidence of signer of promissory note as
  her attorney in other  matters).  Indeed, during oral argument, the McGees
  conceded that even the Benoits, as  mortgagors, would not have had a cause
  of action against the bank.  It is untenable that the  McGees, who are
  something less than assignees of the Benoits' mortgage, should be in a
  better  position to bring this claim than an actual mortgagor.

       Nor have the McGees alleged a legally cognizable duty which gives rise
  to a common law  duty of care.  See Smith v. Day, 148 Vt. 595, 597, 538 A.2d 157, 158 (1987) (legally  cognizable duty is the first prerequisite in
  any negligence proceeding).  The monthly transactions  between the McGees
  and the bank were not sufficient to create a duty of care on the part of
  the  bank to inform the McGees of the insurance cancellation. No
  contractual relationship or any  other legally cognizable relationship,
  special or otherwise, existed between the McGees and the  bank.

       The McGees also argue, however, that the Restatement (Second) of Torts
  § 552(1)  establishes liability where there has been negligent
  misrepresentation.  They argue that the  superior court's reliance on
  Rocque was misplaced because Rocque stands merely for the  proposition that
  a mortgagee/bank has no contractual duty to disclose the cancellation of 
  insurance to the mortgagor/borrower.  The McGees contend that the instant
  case is  distinguishable from Rocque because they have not simply alleged
  that the bank failed to disclose  the status of insurance on the property,
  but rather, upon inquiry, failed to accurately inform them  of the status
  of insurance.  We have adopted the Restatement (Second) of Torts'
  definition of  negligent misrepresentation.  See Limoge v. People's Trust
  Co., __ Vt. __, 719 A.2d 888, 890  (1998).  We recognize the cause of
  action against one who, in the course of his business,  profession or
  employment supplies false information for the guidance of others in their
  business 

 

  transactions.  Liability arises where there is justifiable reliance on the
  information provided by  the alleged tortfeasor, and where that reliance
  results in pecuniary loss.  See id; Restatement  (Second) of Torts §
  552(1). 

       The McGees' attempt on appeal to characterize their complaint as a
  negligent  misrepresentation claim must fail.  In  Silva v. Stevens, 156
  Vt. 94, 109, 589 A.2d 852, 860  (1991), we held that the "justifiable
  reliance" element of the claim of negligent misrepresentation  connotes an
  objective standard, and we upheld the adequacy of the court's instruction
  to the jury  that "plaintiffs may justifiably rely upon a representation
  when the representation is not  obviously false and the truth of the
  representation is not within the knowledge of, or known by  the
  plaintiffs." Id. at 108, 589 A.2d  at 860.  (emphasis added and internal
  citation omitted).   Nowhere in the McGees' pleadings do they indicate that
  they could not verify the information the  bank provided them, or that they
  could not have inquired directly of the Benoits or the insurance  company
  on the status of insurance on the property.  Indeed, the complaint alleges
  that the  insurance company notified the Benoits of the insurance
  cancellation in September of 1994, three  months before the McGees and the
  Benoits entered into the purchase and sale agreement.  In  light of the
  date of cancellation and the ease with which they could have determined the
  status of  insurance coverage, in addition to the McGees' failure to allege
  that their reliance on the bank's  representation was justified, the
  McGees' complaint fails to state a cause of action for negligent 
  misrepresentation.  	

       Finally, the McGees argue that the trial court erred in dismissing
  Count II of their  complaint which, under the same theories of liability
  alleged in Count I, alleged that the bank  was liable for clean-up costs
  incurred by the City of Vergennes in abating the hazard resulting  from the
  fire loss.  Count II does not assert any separate legal cause of action
  against the bank.   Rather, it merely seeks additional damages, under the
  same theory of liability, to those sought in  Count I.  Moreover, the
  McGees fail to allege in Count II that they suffered any damages.  They  do
  not allege that they have paid the clean-up costs or have been found liable
  for the costs.  Nor  do they allege that the City of Vergennes is seeking
  to recover the costs from the McGees.   Count II fails to state a claim
  upon which relief can be granted and was properly dismissed.

       Affirmed.


	BY THE COURT:


	_______________________________________
	Jeffrey L. Amestoy, Chief Justice

	_______________________________________
	John A. Dooley, Associate Justice

	_______________________________________
	James L. Morse, Associate Justice

	_______________________________________
	Denise R. Johnson, Associate Justice

	_______________________________________
	Marilyn S. Skoglund, Associate Justice