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Higgins v. Arizona Sav. and Loan Ass'n

Supreme Court of Arizona

October 15, 1958

Fred HIGGINS and Helen Higgins, his wife, Appellants,
ARIZONA SAVINGS AND LOAN ASSOCIATION, an Arizona corporation, Appellee.

Rehearing Denied Nov. 12, 1958.

Page 505

[85 Ariz. 7] Kenneth Biaett, Phoenix, for appellants.

Shimmel, Hill, Cavanagh & Kleindienst, and Rouland W. Hill, Phoenix, for appellee.

JOHNSON, Justice.

This is an appeal from a judgment entered in an action filed by appellants, Fred Higgins and wife, against the Arizona Savings and Loan Association, to recover damages for the breach of an alleged contract to lend the appellants money on the security of a mortgage. The ultimate question presented is: did the trial court properly direct a verdict in favor of appellee?

The appellants make a written application to the appellee, Arizona Savings and Loan Association, an Arizona corporation, hereinafter referred to as the Association, for a loan of $100,000 to be secured by a first mortgage on certain real estate owned by appellants, which loan was to refinance two first mortgages, one second mortgage, and pay a tax lien on said real property. The Association's head loan officer, Jerome J. Smrt, arranged for an appraisal to be made of appellants' real property, and later informed appellants that an appraisal had been made by a Mr. Archer, a qualified paid appraiser, and that he had filed a signed report, dated October 21, 1954, finding the reasonable value of the real estate of appellants to be the sum of $158,250, and as the Association under the statute could only loan sixty per cent of the appraised value that the loan application of appellants was changed to the sum of $94,800.

Thereafter, appellants were advised that Mr. Smrt had taken a leave of absence and that Mr. Dick, Vice President from the Tucson office of the Association, would handle the loan application; arrangements were made for him to inspect the real estate and complete the application in the absence of the Association's regular loan officer. Mr. Dick, in the company of appellants, inspected the property and ascertained that the present values were as shown by Mr. Archer's appraisal, and advised appellants that he was approving the loan and that an escrow would be set up at the Phoenix Title and Trust Company. The title report showed certain requirements to be met by the appellants before the escrow could be completed and the money disbursed to him. Through the efforts of appellants all of the requirements of the title report were eventually met although it took some time because the property was subject to a federal tax lien which had to be cleared.

On March 21, 1955, a document of the Association entitled 'Loan Settlement Statement' was signed by an official of the Association notifying the appellants that [85 Ariz. 8] their application for a loan had been granted in the sum of $94,800, and that after deducting the expenses incurred in making the loan the sum of $89,937.85 was available for escrow at the Phoenix Title and Trust Company, and that a check for that amount was deposited with the title company along with escrow instrutions.

The Association on March 30, 1955 sent the appellants a 'Loan Passbook' advising that their first monthly payment on the loan would be due on May 1, 1955, in the amount of $625.93.

Mr. Smrt testified that when appellants made application for a loan and the property was inspected he informed appellants that he would try to make the loan if the property across the street were cleared of trees, old shacks and a junk yard, and that appellants promised to have this done. That upon his return from his vacation he again inspected the property, and when he found that the objectionable debris had not been removed he went to the title company on May 19, 1955, and withdrew from escrow the check for $89,937.85, which had been deposited by the Association during his absence, and cancelled the escrow. The appellants were not formally notified that the escrow had been cancelled until August 25, 1955, when the Association

Page 506

wrote appellants that it was unable to approve and make the loan, stating as a reason the following:

'While the property offered as security is good property, certain surrounding circumstances, location, street conditions, and the ratio of the desired loan to reasonable marketable value, as determined by alternate appraisals make it impossible for our favorable consideration of this loan.'

The appellants proved that as a result of the Association failing to make the loan upon which they had relied they lost their real property by foreclosure of two of the mortgages and sustained damages in an amount equal to their equity in the property.

The Association for the first time on February 25, 1957, one day before trial, interposed the defense that the Association was unable to obtain a report in writing of two appraisers giving the conservative market value of the real property of appellants in an amount sufficient to authorize the loan applied for by appellants.

At the conclusion of appellants' evidence the Association made a motion for a directed verdict, which was granted, upon the ground that the provisions of A.R.S. § 6-410 had not been complied with. That section provides that a building and loan association may make loans:

'1. Upon notes secured by first mortgages on improved real property, or on real property to be improved under contract with the association. Unless the federal housing administrator[85 Ariz. 9] has insured or made a commitment to insure the property, the loan shall not exceed sixty percent of the conservative market value of the improved real property mortgaged, * * *. No loan shall be made except upon the report in writing ...

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