Gardner Plumbing, Inc. v. Cottrill , 44 Ohio St. 2d 111 ( 1975 )

Per Curiam.

Appellant initially contends that R. C. 1311.04 does not impose a duty upon a mortgagee, prior to disbursing funds of a construction loan to the mortgagor, to require affidavits of subcontractors and materialmen indicating the amount of unpaid claims owing to them.

R. C. 1311.04, in pertinent part, provides:'

“Whenever any payment of money becomes due from the owner, part owner, or lessee, or whenever the original contractor desires to draw any money from the owner, part owner, or lessee, under their contract, or whenever any mortgagee makes a written demand, such contractor shall make out and give to the owner, part owner, lessee, or mortgagee, or his agent, a statement under oath, showing the name and address of every laborer in his employ who has not been paid in full and also showing the name and address of every subcontractor in his employ, and of every person furnishing machinery, material, or fuel, and giving the amount which is due or to become due to them, or any of them, for work done, or machinery, material, or fuel furnished to him, which statement shall be accompanied by a certificate signed by every person furnishing machinery, material, or fuel to him.”

In construing the applicable provisions of the statute, the Court of Appeals stated:

“Dollar Federal’s failure to require such affidavits from Taylor and Associates amounts to negligence and left the Cottrills exposed to the danger of having liens attached to their real estate. Dollar Federal may not now, in claiming to be a mere mortgagee, abrogate that statutory duty and impose it upon the Cottrills.”

An examination of the above statutory language reveals that no mandatory duty is imposed upon the mortgagee to make a written demand upon the contractor. By making the relevant parts of R. C. 1311.04 applicable to a mortgagee “whenever any mortgagee makes a written demand,” the General Assembly gave the mortgagee discretionary power to demand affidavits from subcontractors. It follows however, that it is not imperative that the mortgagee exercise this discretion.

Additional support for appellant’s position is found in R. C. 1311.14, which states, in part:

“* * * Sections 1311.01 to 1311.68, inclusive, of the Revised' Code do not require the mortgagee to ascertain by affidavit or otherwise the respective claims of contractors, subcontractors, laborers, or materialmen, or to determine priorities among lien claimants.

“The mortgagee is not responsible for a mistake of the owner in determining priorities, or for any failure of the payee properly to distribute funds paid on the written order of the owner.

(i * * #

“This section shall, as to mortgages contemplated by this section, control over all other sections of the Revised Code relating to said mechanic’s, materialmen’s, contractor’s, subcontractor’s, laborer’s, and all liens that can be had under Sections 1311.01 to 1311.68, inclusive, of the Revised Code, and shall he liberally construed in favor of such mortgagees, a substantial compliance by such mortgagees being sufficient.”

As they relate to R. C. 1311.04, these provisions of R. C. 1311.14 were intended to relieve a mortgagee from any statutory duty to make a written demand for affidavits in order to ascertain claims of subcontractors.

Contrary to the finding of the trial court, the Court of Appeals further determined that an agency relationship was established between appellees and appellant upon the execution of the mortgage and' note, and that such relationship was reinforced by the oral assurances given by the lender at that time. Hence, appellees submit that appellant was negligent in disbursing the mortgage funds without exercising proper care to see that claims of subcontractors were satisfied.

To hold appellant liable on an agency theory for negligently disbursing the funds of the mortgage, appellees must establish by competent evidence that such a relationship existed, the burden of proving the agency being upon the party who asserts it. See Union Mutual Life Ins. Co. v. McMillen (1873), 24 Ohio St. 67; Troietto v. G. H. Hammond Co. (C. A. 6, 1940), 110 F. 2d 135; Greep v. Bruns (1945), 160 Kan. 48, 159 P. 2d 803; Judson v. Bee Hive Auto Service Co. (1931), 136 Ore. 1, 297 P. 1050. In the case at bar, the testimony before the trial court on this question was not only conflicting,¹ but at times was unfavorable to appellees ’ position.² Furthermore, appellant did not make direct payments to the contractor, but drafted each check “to the order of Charles F. Cottrill and Norma Jean Cottrill,” thereby giving appellees the option of refusing to endorse the checks over to the contractor. Upon a review of the record in the instant case, it is onr conclusion that no agency relationship was established from which appellant could be held liable for the damages sustained by appellees.

For the foregoing reasons, the judgment of the Court of Appeals is reversed.

Judgment reversed.

O’Neill, C. J., Herbert, Stern, W. Brown and P. Brown, JJ., concur. Corrigan and Celebrezze, JJ., dissent.

1 Mr. Cottrill testified that prior to the execution of the mortgage, he was assured by Mr. Langdon (the manager of the Fairfield branch office of appellant) that before any disbursements were made, the house would be inspected and everything would be “right” and “correct,” and “in order.”

However, Langdon’s testimony was to the effect that the assurances he made to the Cottrills were related solely to the bank’s policy of inspecting the house to see if work had progressed far enough to warrant a disbursement. He denied telling the Cottrills that things would be “right” or “correct” before disbursements.

2 During the cross-examination of Mr. Cottrill, the following exchange occurred:

“By the Court: What led you to believe that they were going to check into whether or not payments were made?

“A. Nothing ever led me to believe they were because it was never discussed by them, they never discussed it. . . .”