MacKintosh v. Jack Matthews and Co. ( 1993 )

Springer, J.,

with whom Young, J., agrees,

dissenting:

The majority has announced a novel and understandably unprecedented¹ rule that would expose a “commercial lender” to lawsuits for rescission and damages by buyers who buy repossessed property from the lender on an “as is” basis. Henceforth, when commercial lenders sell and refinance property that they have foreclosed upon, they can no longer safely rely on the customary “as is” disclaimer in their sales contracts. Such lenders must now cope with a convoluted rule of law that subjects them to possible lawsuits whenever they sell property that they have taken back through foreclosure. Now commercial lenders must concern themselves with a new legal doctrine of “special relationship,” said by this court to come into play, sometimes, when commercial lenders sell and refinance property that they own by virtue of a previous foreclosure. When a certain, ill-defined relationship between a commercial lender and a buyer of its foreclosed-upon property is found to exist, the “as is” provision in their sales contract may now be subject to being “nullified,” thus “[gjiving rise to a duty of full disclosure” by the “as is” seller.

Because I do not understand the rule of this case, I suspect that there will be others in the future who have the same difficulty. It seems to me that all commercial lenders who seek to sell property that they have foreclosed upon must be greatly concerned about whether in the process of selling and refinancing foreclosed-upon property they might be creating a “special relationship” with their buyers that will prevent them from entering into the customary “as is” arrangement.

Whether the critical, “as is”-nullifying, special relationship exists between seller and buyer appears to be entirely a matter of the subjective attitude of the buyer. The inquiry appears to be whether the buyer actually places a “reasonable and sufficient” reliance upon the “position” of the lender/seller in deciding to buy the property or in deciding to borrow from the seller. If “as is” can be nullified in this way, it seems to me that this traditional form of legal disclaimer has lost all of its meaning insofar as commercial lenders who wish to finance the sale of their foreclosed-upon property are concerned.

With respect to this newly-created problem of trying to distinguish a special-relationship lender from a non special-relationship lender, the Majority tells us that the “jury must ascertain whether the [buyer] could reasonably expect . . . [the] lender and seller[] to pay greater attention to its interests than would an ordinary seller securing financing elsewhere.” (“Ladies and Gentlemen of the Jury: You must ascertain whether the Mackintoshes could reasonably expect California Federal to pay greater attention to their interests than would an ordinary seller securing financing elsewhere.”) After the jury gives an affirmative answer to this question, apparently it then must “also consider whether this greater reliance was known or foreseeable” to California Federal. (“Ladies and Gentlemen of the Jury: If you find that the Mackintoshes could reasonably expect California Federal to pay greater attention to their interests than would an ordinary seller securing financing elsewhere, then you must also consider whether this greater reliance was known or foreseeable.”) In sum, then, I guess that the Majority ruling is thus: If a commercial lender is selling its own, foreclosed-upon property, (1) it must not pay greater attention to its own interests than would an “ordinary seller”; (2) it must foresee whether the purchaser-borrower will give a “greater reliance” on the lender’s “position” than it would give to an “ordinary seller”; and (3) if, the “greater reliance” is “reasonable and sufficient,” a jury might then vote to “nullify the effect of and ‘as is’ clause.” This seems a bit ponderous to me.

This case just might cause some confusion in the financial world. I dissent because I believe that we should continue to allow commercial lenders to refinance foreclosed-upon property that they have sold under an “as is,” sales contract and that such contracts should be enforced by the courts without the lenders’ having to worry about being sued by a buyer who claims that the lender had paid “greater attention to [its] own interests than would an ordinary seller securing financing elsewhere.” I would affirm the summary judgment.

1 The Mancini case is not analogous. California Federal, the “commercial lender” now before us, is certainly not in the same position as the architect/ general contractor in Mancini. The Mancini case is a bit unfocused, relying first on a “duty to speak” and then on “confidence in the [seller] because of that person’s position.” Whereas an architect who built and lived in a house may have a “duty to speak” and to reveal defects, certainly a lender selling its foreclosed-upon property has no such duty. Insofar as the “confidence factor” is concerned, the court in the Mancini case held that if the buyers had a “reasonable and sufficient” confidence in the architect’s “position,” that degree of confidence could be relied on to “nullify the effect of the ‘as is’ clause.” I do not quite understand just what level of confidence it is that might become so “reasonable and sufficient [as to] nullify” an “as is” provision, and I would not follow such precedent; nevertheless, if “reasonable and sufficient” confidence may nullify an “as is” provision in a sales contract by an architect/builder, I fail to see how such a rule can be applied to a commercial lender. A seller who designs, builds and lives in a house might possibly be said to give rise to a level of “confidence” in a buyer that would prevent such a seller from taking advantage of an “as is” provision, but a commercial lender selling its foreclosed-upon property does not create the same kind of confidence. The lender, as a rule and as in this case, had no more knowledge of the problem than did the buyer; this is probably the reason why these lenders make these sales “as is.”