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Vogan v. Hayes Appraisal Associates, Inc.

Iowa Supreme Court
588 N.W.2d 420 (1999)


Facts

The Vogans (plaintiffs) hired a contractor to build a new home, for which they obtained a construction loan from MidAmerica Savings Bank (MidAmerica) for $170,000. MidAmerica entered into a contract with Hayes Appraisal Associates, Inc. (Hayes) (defendant), whereby Hayes agreed to monitor the progress of the construction of the Vogan’s home. MidAmerica would disburse payments to the contractor based upon Hayes’s progress reports. Construction began in November 1989. By December, Hayes reported that only 25 percent of construction was completed. By February 1990, all but $2,000 of the $170,000 loan had been disbursed due to cost overruns. The Vogans took out a second loan for $42,050 and turned over some of their own funds for MidAmerica to disburse to the contractor. By the end of March, Hayes reported that the construction was 90 percent complete. By October, substantial construction was still required. The contractor, having used the entire original loan and much of the additional money, defaulted on the job. A second contractor estimated that it would take an additional $60,000 to complete construction. The Vogans stopped payments to MidAmerica. MidAmerica sought to foreclose on the property. The Vogans counterclaimed, arguing MidAmerica failed to follow its disbursement procedures when it did not retain at least 30 percent of the loan until completion of construction. The Vogans settled with MidAmerica. The Vogans filed suit against Hayes for negligent performance of the contract between Hayes and MidAmerica. Hayes filed a motion for summary judgment. Hayes argued that the Vogans did not suffer damages as a result of their late-March report because MidAmerica had already disbursed all but $2,000 of the original loan. The trial court denied the motion. At trial, Hayes moved for a directed verdict, arguing that the Vogans were not an intended beneficiary of the contract. The trial court entered judgment in favor of the Vogans. Hayes appealed to the court of appeals. The court of appeals reversed, holding that the contract, and therefore the progress reports, governed the disbursement of the original loan only, not the disbursement of any of the additional money. The Vogans appealed to the Iowa Supreme Court.

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