260 N.C. App. 26
N.C. Ct. App.2018Background
- Cordaro bought a lot (2011), contracted to build a ~3,000 sq ft house with expected construction cost ≈ $800k–$835k, and sought a construction-to-permanent loan from Harrington Bank.
- Harrington ordered a construction appraisal (Goodwin) valuing the finished home at $1,150,000; Cordaro received that appraisal and proceeded with construction and the construction-loan agreement.
- Harrington later sought a mortgage appraisal; after internal and automated reviews flagged problems, a collateral desktop analysis (for a prospective buyer of the loan) valued the property at $625,000. A later independent appraisal commissioned by Cordaro valued it at $765,000.
- Cordaro alleged he relied on Harrington’s appraisals and internal approval in deciding to build and borrow, and sued Harrington for negligence, negligent misrepresentation, breach of contract, breach of the implied covenant, and unfair & deceptive trade practices (N.C. Gen. Stat. § 75-1.1).
- The trial court granted Harrington’s Rule 12(b)(6) motion to dismiss; the Court of Appeals affirmed, principally finding Cordaro failed to plead justifiable (reasonable) reliance and that the loan contract did not impose a duty to protect Cordaro as to the appraisal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Harrington owed a legal duty under SAFE Act or common law negligence to inspect/disclose inflated appraisal | SAFE Act and common law create duties; Cordaro relied on Harrington’s appraisal review when agreeing to build and borrow | No fiduciary duty; any SAFE Act duty not established on these facts; even if duty existed, Cordaro failed to plead justifiable reliance | Affirmed dismissal: Court assumed (without deciding) SAFE Act could create duty but ruled Cordaro failed to plead justifiable reliance |
| Whether Cordaro sufficiently alleged justifiable reliance for negligence/negligent misrepresentation | Cordaro relied on the Construction Appraisal and Harrington’s review/approval in entering the loan and building | Cordaro had opportunity to investigate and made no independent inquiry; precedents require allegations of independent inquiry or inability to investigate | Dismissed: allegations do not show reasonable reliance (citing Arnesen, Fazarri) |
| Whether the Construction Loan Agreement imposed contractual duty to ensure appraisal accuracy | Contract language (appraisal satisfactory to lender) and regulatory phrase created enforceable obligations to borrower | Appraisal clause expressly benefits Lender alone; appraisal “satisfactory to Lender, in Lender’s sole discretion” — no contractual duty to borrower | Dismissed: breach of contract and implied covenant claims fail because contract imposes no such duty to Cordaro |
| Whether N.C. Gen. Stat. § 75-1.1 claim actionable without pleaded reasonable reliance | Misrepresentation-based UDTP claim requires detrimental (actual + reasonable) reliance | Cordaro cannot show reasonable reliance for proximate causation | Dismissed: § 75-1.1 claim fails for lack of pleaded reasonable reliance |
Key Cases Cited
- Stein v. Asheville City Bd. of Educ., 360 N.C. 321 (treat complaint allegations as true on Rule 12(b)(6) review)
- Arnesen v. Rivers Edge Golf Club & Plantation, Inc., 368 N.C. 440 (reasonable/justifiable reliance requires independent inquiry or inability to investigate)
- Fazarri v. Infinity Partners, LLC, 235 N.C. App. 233 (no justifiable reliance where plaintiffs made no independent valuation inquiries)
- Guyton v. FM Lending Servs., Inc., 199 N.C. App. 30 (statutory mortgage-lending duties may create legal duty to borrowers)
- Bumpers v. Cmty. Bank of N. Va., 367 N.C. 81 (UDTP/§75-1.1 misrepresentation claims require proof of actual and reasonable reliance)
- Harris v. Daimler Chrysler Corp., 180 N.C. App. 551 (elements of negligence: duty, breach, causation, injury)