ÿWPC¡1 <# XUNc %± 0(·w@ß43B 0 lJ 0D¶ 0Jú 0TD 0^˜ 0hö 0r^ 0|Ð 0†L 0@Ò 0 1u¢ 0d B{ D3˜ U >Ë B) DC2 AMu U* ì AQî Æ? 0D 0DI D/ B¼kÙ6D~zøL•+áß ‹ë® v`$%Ì„&v~P*vÓÎ+˜HP LaserJet 4SiHPPCL5MS,ü,,,,,ü0nLHÎ(ÖÃ9 Z ‹6Times New Roman RegularX($¡¡ ~U €  ‚ ƒ£„…†Ó€’äzz!3|x’((3üÝ$¤¤Ý ƒ!ÝÝ  Ýà  àòòÚ  Ú0Ú  Úóó(#Ã$òòÚ  Ú0Ú  Úóó2 ÿÿ0Indent1Ô2ÔÔ3  Ô2" ÿÿ0Indent2à0 àÔ2ÔÔ3  Ô2, ÿÿ0Indent3à0 àà0 àÔ2ÔÔ3  Ô26 ÿÿ0Indent4à0 àà0 àà0 àÔ2ÔÔ3  Ô2@ ÿÿ0Indent5à0 àà0 àà0 àà0 àÔ2ÔÔ3  Ô2J ÿÿ0Indent6à0 àà0 àà0 àà0 àà0 àÔ2ÔÔ3  Ô2T ÿÿ0Indent7à0 àà0 àà0 àà0 àà0 àà0 àÔ2ÔÔ3  Ô("ÿÿ$££Ò  ÒÒ  Ò2^ ÿÿ0Indent8à0 àà0 àà0 àà0 àà0 àà0 àà0 àÔ2ÔÔ3  Ô  ÿÿ?AGMSYaioIndent0I.A.1.a.(1)(a)i)a)P ÿÿ8Mac DefaultMac DefaultÓ ` °šXÓ d 'ÿÿdxd< Œ 9p`(&Times New Roman% Line 7 d$$$$7Border 1dd*%Cþÿ << Gÿÿ< Œ 9p`(Arial øÝ ƒ!ÝÔ€#ÔÝ  ÝÝ ƒ+"ÝÝ  ÝÔ€'ÔÔ€'ÔÓ  ÓÔ YYY ÔFILEDÔ€'XÔÌÌò òMay€22,€1997ÌÌCecil€Crowson,€Jr.ÌÔ€'ôÔAppellate€Court€Clerkó ó*+,-Cþÿ<< CÿÿƒLevel 1Level 2Level 3Level 4Level 5(3¯$¢¢Ý ƒ!ÝÝ  Ý($$””ò òÚ  Ú1Ú  Úó ó..'÷ÿ dxdüÿP Pd aÝ ƒ!ÝÔ€#ÔÝ  ÝÝ ƒ $Ýà àòòÚ  ÚÚ  ÚóóÝ  ÝAfter€this€litigation€began,€Leader€Federal€was€acquired€by€Union€Planters€National€Bank.€ÏAccordingly,€this€Court€recently€entered€an€order€granting€Leader€Federalððs€motion€to€substituteÏUnion€Planters€National€Bank€as€Defendant/Appellee.Ì ,Ý ƒ!ÝÔ€#ÔÝ  ÝÝ ƒ $Ýà àòòÚ  ÚÚ  ÚóóÝ  ÝIn€deciding€this€appeal,€we€express€no€opinion€on€the€admissibility€of€the€statementsÏallegedly€made€by€Ms.€Hayes€to€the€Lomaxes€prior€to€their€execution€of€the€Construction€LoanÏAgreement.Ì tÝ ƒ!ÝÔ€#ÔÝ  ÝÝ ƒ $Ýà àòòÚ  ÚÚ  ÚóóÝ  ÝAlthough€this€provision€authorized€Leader€Federal€to€disburse€funds€directly€to€theÏBorrower,€the€language€of€this€and€other€provisions€of€the€Agreement€suggested€that€this€optionÏapplied€to€situations€where€the€Borrower€and€the€Contractor€were€the€same€entity.Ì “Ý ƒ!ÝÔ€#ÔÝ  ÝÝ ƒ $Ýà àòòÚ  ÚÚ  ÚóóÝ  ÝIn€their€complaint,€the€Lomaxes€also€asserted€a€claim€for€violation€of€the€TennesseeÏConsumer€Protection€Act€of€1977.€€ò òòòSeeó óóó€T.C.A.€ðððð€47„18„101€to€„5002€(1995€&€Supp.€1996).€€OnÏappeal,€however,€no€issue€has€been€raised€regarding€the€trial€courtððs€dismissal€of€this€claim.Ì BÝ ƒ!ÝÔ€#ÔÝ  ÝÝ ƒ $Ýà àòòÚ  ÚÚ  ÚóóÝ  Ýò òòòCf.ó óóó€ò òòòForest€Inc.v.€Guaranty€Mortgage€Co.ó óóó,€534€S.W.2d€853,€856„59€(Tenn.ÏApp.€1975)€(addressing€lenderððs€duty€to€subordinate€creditors€when€lender€disburses€constructionÏloan€proceeds).Ì !Ý ƒ!ÝÔ€#ÔÝ  ÝÝ ƒ $Ýà àòòÚ  ÚÚ  ÚóóÝ  ÝAs€previously€indicated,€the€Construction€Loan€Agreement€also€gave€Leader€Federal€theÏoption,€in€disbursing€the€loan€proceeds,€of€relying€on€an€architectððs€certificate,€accompanied€by€theÏcontractorððs€affidavit.€€Inasmuch€as€Leader€Federal€chose€to€rely€on€its€own€inspectorððs€report€ofÏprogress,€we€need€not€address€the€question€of€Leader€Federalððs€liability€had€it€instead€chosen€toÏrely€on€the€architect€and€contractor.Ì ÕÝ ƒ!ÝÔ€#ÔÝ  ÝÝ ƒ $Ýà àòòÚ  ÚÚ  ÚóóÝ  ÝMoreover,€in€Tennessee€the€common€law€imposes€upon€Leader€Federal€a€duty€of€goodÏfaith€in€performing€this€contractual€obligation.€€ò òòòWallacev.€National€Bank€of€Commerceó óóó,Ï938€S.W.2d€684,€686€(Tenn.€1996);€ò òòòaccordó óóó€ò òòòCrumv.€AVCO€Fin.€Servs.óóó ó,€552€N.E.2d€823,Ï827€(Ind.€Ct.€App.€1990)€(reaching€same€conclusion€under€Indiana€law).Ì Ý ƒ!ÝÔ€#ÔÝ  ÝÝ ƒ $Ýà àòòÚ  ÚÚ  ÚóóÝ  ÝWe€recognize€that,€under€some€circumstances,€a€finder€of€fact€might€have€difficultyÏascertaining€what€constitutes€defective€construction,€as€opposed€to€merely€incomplete€construction.€ÏAt€this€point€in€the€proceedings,€however,€we€need€not€address€such€a€hypothetical€issue.Ì ¤ Ý ƒ!ÝÔ€#ÔÝ  ÝÝ ƒ $Ýà àòòÚ  ÚÚ  ÚóóÝ  ÝIn€ò òòòDavis€v.€Nevada€National€Bankó óóó,€the€Nevada€court€limited€the€circumstancesÏunder€which€a€borrower€could€sue€for€defective€construction€to€cases€where:ÌÌà8 àà8 à(1)à àthe€lender€assumes€the€responsibility€or€the€right€to€distributeÏloan€proceeds€to€parties€other€than€its€borrower€during€the€course€ofÏconstruction;ÌÌà8 àà8 à(2)à àthe€lender€is€apprised€by€its€borrower€of€substantialÏdeficiencies€in€construction€that€affect€the€structural€integrity€of€theÏbuilding;ÌÌà8 àà8 à(3)€à àthe€borrower€requests€that€the€lender€withhold€furtherÏdistributions€of€loan€proceeds€pending€the€satisfactory€resolution€ofÏthe€construction€deficiency;ÌÌà8 àà8 à(4)à àthe€lender€continues€to€distribute€loan€proceeds€in€completeÏdisregard€of€its€borrowerððs€complaints€and€without€any€bona€fideÏattempt€to€ascertain€the€truth€of€said€complaints;€andÌÌà8 àà8 à(5)à àthe€borrower€ultimately€is€damaged€because€the€substance€ofÏthe€borrowerððs€complaints€was€accurate€and€the€borrower€is€unableÏto€recover€damages€against€the€contractor€or€other€party€directlyÏresponsible€for€the€construction€deficiencies.ÌÌò òòòDavis€v.€Nevada€Natððl€Bankó óóó,€737€P.2d€at€506.€€On€appeal,€the€Lomaxes€suggest€that€theirÏaction€against€Leader€Federal€falls€within€this€exception€because,€during€construction€of€theirÏhome,€Mrs.€Lomax€complained€about€Headley€Homesðð€work€to€Leader€Federal€employees.€€EvenÏif€this€Court€were€to€adopt€the€exception€set€forth€in€ò òòòDavis€v.€Nevada€National€Bankó óóó,€weÏconclude€that€the€facts€of€this€case€do€not€fall€within€such€exception.€€Here,€Leader€Federal€was€notÏapprised€by€the€Lomaxes€ð ðof€substantial€deficiencies€in€construction€that€affect[ed]€the€structuralÏintegrity€of€the€building.ðð€€ò òòòId.ó óóó€€At€most,€the€evidence€reveals€that€Mrs.€Lomax€complained€thatÏHeadley€Homes€ð ðwas€slow€about€doing€the€workðð€and€that€the€ð ðwork€wasnððt€going€right.ðð€ÏFurther,€Mrs.€Lomax€admitted€that€she€never€requested€Leader€Federal€to€withhold€furtherÏdisbursements€of€the€loan€proceeds€pending€the€satisfactory€resolution€of€Mrs.€LomaxððsÏcomplaints.€€Finally,€at€this€point€in€the€proceedings,€there€is€no€showing€that€the€Lomaxes€will€beÏunable€to€recover€damages€against€the€contractor,€Headley€Homes.Ì VÝ ƒ!ÝÔ€#ÔÝ  ÝÝ ƒ $Ýà àòòÚ  ÚÚ  ÚóóÝ  ÝIn€this€regard,€we€observe€that€the€public€interest€exception€requires€only€that€the€serviceÏbe€a€ð ðpracticalðð€necessity;€the€service€need€not€be€a€ð ðcompellingðð€necessity.€€ò òòòOlson€v.€Molzenó óóó,Ï558€S.W.2d€at€431.Ì ÂÝ ƒ!ÝÔ€#ÔÝ  ÝÝ ƒ $Ýà àòòÚ  ÚÚ  ÚóóÝ  ÝÑ  ÑWe€recognize€that€the€Construction€Loan€Agreement€executed€in€this€case€may€notÏpossess€all€of€the€characteristics€of€an€adhesion€contract€as€recently€set€forth€by€the€supreme€courtÏin€ò òòòWallace€v.€National€Bank€of€Commerceó óóó,€938€S.W.2d€684€(Tenn.€1996).€€Nevertheless,Ïwe€believe€that€the€Agreement€possesses€enough€adhesive€qualities€to€satisfy€the€fifth€publicÏinterest€criterion.€€In€reaching€this€conclusion,€we€are€reminded€that€not€all€of€the€public€interestÏcriteria€must€be€present€in€order€for€an€exculpatory€provision€to€be€found€invalid€as€contrary€toÏpublic€policy.€€ò òòòOlson€v.€Molzenó óóó,€558€S.W.2d€at€431;€ò òòòaccordó óóó€ò òòòCrawford€v.€Buckneró óóó,€Ô&  Ô839ÏS.W.2d€at€757;€ò òòòSmith€v.€Peoples€Bankó óóó,€No.€01A01„9111„CV„00421,€1992€WL€117061,€atÏ*4€(Tenn.€App.€June€3,€1992).Ô'  ÔÌPtPtHHÚ(ÿáÿâùFG(üHHÚ(d'hStyl{WP}01•ÃÃÃÃÃÃÃÃÃÃÃÃÃÃÃÃÃÃà Ãà Ãà Ãà Ãà ÃÃÃÃÃÃÃÃÃÃÃÐ ÐÐHHÐÐ  ÐÐ2ÐÐÿÿ¸æ$ÿÐÐHHÐÐÐÐÐÐÐÐ  ÐÐ ÐÐ ÐÑÑÑGenevaÑÑ ÑÑ € ÑÑ<Px–ÈÑÒÒÒ443!#4ÒÒ$ *$ÒÒ$*$ÒÒ ÿKK ÒÒ  Geneva ÒÒ  Geneva ÒÓ.,ÓÓÓÓ6ÓÓ ÓßßßßßßßßßßßßßßßßßßÑGenevaÑÑ ÑÒ  h HD: Geneva ÒÒ  h HD: Geneva ÒÝ ƒ!ÝÔ . ÔÔ€#ÔÝ  ÝÑ\R AØ'\ÑÓ` Ü` p”XÓÑ\R AØ'\Ñ›Þ ÞÌà@ àò òIN€THE€COURT€OF€APPEALS€OF€TENNESSEE,€WESTERN€SECTIONÌà@ àAT€JACKSONÌà@ à_______________________________________________________ÌÌó óà à)ò òÌWILLIE€LOMAX€and€wife,ó óà à)à àShelby€Equity€No.€104517„1Ìò òBOBBIE€LOMAXó ó,à à)Ìà à)Ì€€€€€Plaintiffs/Appellants.à à)Ìà à)ÌVS.à à)à àC.€A.€NO.€02A01„9607„CH„00163Ìà à)Ìò òœÙ€*ÙßR€&(%A1-j|ùùl` Å `€€@ÿRß›HEADLEY€HOMES,€a€Tennesseeó óà à)Ìò òGeneral€Partnership€composed€ofó óà à)Ìò òDennis€Headley€and€Betty€Headleyó ó,à à)Ìà à)Ì€€€€€Defendantsà à)Ìà à0ÌANDà à)Ìà à)Ìò òLEADER€FEDERAL€BANK€FORó óà à)Ìò òSAVINGS€and€GEORGE€E.€BURTONó ó,à à)Ìà à)Ì€€€€€Defendants/Appellees.à à)Ì______________________________________________________________________________ÌÌFrom€the€Chancery€Court€of€Shelby€County€at€Memphis.Ìò òHonorable€Neal€Small,€Chancellor€ó óÌÌÌÌò òJ.€Alan€Hanoveró ó,Ìò òJeffrey€S.€Rosenblumó ó,ÌHANOVER,€WALSH,€JALENAK€&€BLAIR,€PLLC,€Memphis,€TennesseeÌAttorney€for€Plaintiffs/Appellants.ÌÌÌÌò òRobert€œE.€Craddock,›€Jr.ó ó,Ìò òO.€John€Norris,€IIIó ó,ÌWYATT,€TARRANT€&€COMBS,€Memphis,€TennesseeÌAttorney€for€Defendants/Appellees€Union€Planters€National€Bank€and€George€E.€Burton.ÌÌÌÌOPINION€FILED:ÌÌò òAFFIRMED€IN€PART,€REVERSED€œIN€PART€AND›€REMANDEDÌÌÌà àFARMER,€J.ÌÌÌÌCRAWFORD,€P.J.,€W.S.€ó ó:€(Concurs)Ìò òLILLARD,€J.€ó ó:€œ(Concurs)ÌÌÌÌÌ›ÌÓÓÓ  ÓÓ` Ü` ˜XÓœà àPlaintiffs€Willie€and€Bobbie€Lomax€appeal€the€trial€courtððs€order€entering€summaryÏjudgment€in€favor€of€Defendants/Appellees€Leader€Federal€Bank€for€Savings× ƒ/ ××  ×€and€George€E.ÏBurton.€€The€trial€court€apparently€granted€the€Defendantsðð€motion€for€summary€judgment€basedÏupon€the€provisions€of€the€Construction€Loan€Agreement€entered€into€between€the€Lomaxes€andÏLeader€Federal.€€We€affirm€the€trial€courtððs€order€as€to€Defendant€George€E.€Burton.€€With€regardÏto€Defendant€Leader€Federal,€however,€we€reverse€and€remand€for€further€proceedings.ÌÌÔ&  Ôò òòòà@ àI.€€Factsó óóóÌÌà àFor€purposes€of€the€Defendantsðð€summary€judgment€motion,€the€following€factsÏwere€Ô'  Ôundisputed.€€In€April€1993,€the€Lomaxes€approached€Leader€Federal€to€obtain€a€constructionÏloan€for€a€home€the€Lomaxes€planned€to€build€in€southeast€Memphis.€€At€the€bank,€the€LomaxesÏfirst€spoke€with€Cheryl€Hayes.€€Ms.€Hayes€informed€the€Lomaxes€that€their€contractor,€HeadleyÏHomes,€was€on€Leader€Federalððs€approved€list€of€builders;€that€Leader€Federal€had€an€inspector€inÏits€employ€who€would€make€sure€Headley€Homes€was€paid€only€for€work€that€was€actuallyÏcompleted;€and€that€Leader€Federal€would€make€disbursements€to€Headley€Homes€only€for€workÏthat€was€actually€completed.ÌÌà àIn€reliance€on€Ms.€Hayesðð€representations,× ƒ0 ××  ×€the€Lomaxes€executed€a€ConstructionÏLoan€Agreement€with€Leader€Federal.€€Regarding€Leader€Federalððs€obligation€to€disburse€fundsÏthereunder,€the€Agreement€provided€that:ÌÌÓÓà8 àLender€[Leader€Federal]€agrees€to€advance€and€disburse€theÏloan,...€in€installments€as€work€progresses€in€accordance€withÏschedule€attached,€or€if€no€schedule€attached,€then€the€Lender€isÏauthorized€to€disburse€funds€under€its€control€in€said€constructionÏloan€account€only€in€proportion€to€its€inspectorððs€report€of€progressÏor€by€architectððs€certificate€accompanied€by€a€proper€affidavit€fromÏthe€contractor.€€ÌÌÓÓÌThe€Agreement€also€contained€the€following€provision:ÌÌÓÓà8 àLender€has€no€liability€in€connection€with€said€improvements€or€theÏconstruction€or€completion€thereof€or€work€performed€thereon€andÏhas€no€obligation€except€to€advance€the€loan€as€herein€agreed.€€TheÏBorrower€[the€Lomaxes]€acknowledges€and€hereby€accepts€the€soleÏresponsibility€for€the€selection€of€his€own€contractor,€materials,Ïsupplies€and€equipment€to€be€used€in€the€construction,€and€theÏLender€assumes€no€responsibility€for€the€completion€of€theÏimprovements€according€to€the€plans€and€specifications€and€for€theÏcontract€price,€all€inspections€by€Lender€or€its€representative€for€itsÏbenefit,€and€the€Borrower€should€not€rely€on€such€inspections€orÏacceptance€by€Lender€to€be€for€his€protection€regardless€of€theÏcircumstances,€representations€or€appearance€as€may€hereinafterÏexist.ÌÌÓÓÌà àThe€Construction€Loan€Agreement€authorized€Leader€Federal€to€disburse€loanÏproceeds€to€the€ð ðBorrower€or€to€the€Contractor€or€any€other€persons€furnishing€labor,€supplies€orÏservices€for€or€in€connection€with€the€construction€or€completion€of€said€improvements.ðð× ƒ1 ××  ×€€AfterÍexecuting€the€Agreement,€the€Lomaxes€authorized€Leader€Federal€to€disburse€the€loan€proceedsÏdirectly€to€their€contractor,€Headley€Homes.€€Mrs.€Lomax€thought€that€Leader€Federal€would€askÏfor€the€Lomaxesðð€permission€each€time€it€issued€a€check€to€Headley€Homes.€€Mrs.€Lomax€laterÏdiscovered€that€Leader€Federal€was€issuing€checks€directly€to€Headley€Homes€without€first€seekingÏpermission€from€the€Lomaxes.€€When€Mrs.€Lomax€questioned€someone€at€Leader€Federal€aboutÏthe€payments,€she€was€told€that€ð ðthat€was€the€procedure.ððÌÌà àLeader€Federalððs€construction€inspector€was€Defendant€George€E.€Burton.€€InÏconducting€his€final€inspection€of€the€Lomaxesðð€home€in€March1994,€Burton€authorizedÏdisbursements€to€Headley€Homes€for€work€that€was€never€completed.€€Burton€later€admitted€thatÏhe€missed€some€items€in€the€final€inspection€and€that€he€ð ðdid€a€really€bad€job€inspecting€the€LomaxÏhome.ðð€€As€a€result,€the€Lomaxes€obtained€a€home€which,€contrary€to€Burtonððs€final€inspectionÏreport,€was€not€substantially€complete.€€Additionally,€some€of€the€construction€work€that€had€beenÏcompleted€contained€blatant€and€obvious€defects.ÌÌà àThe€Lomaxes€subsequently€filed€this€action€against€Headley€Homes,€LeaderÏFederal,€and€Burton€for€the€faulty€construction€of€the€Lomaxesðð€house.€€The€Lomaxesðð€amendedÏcomplaint€sought€to€hold€Leader€Federal€liable€for€its€breach€of€the€duty€of€good€faith€and€fairÏdealing,€negligence,€and€misrepresentation.× ƒ2 ××  ×€€The€complaint€sought€to€hold€Burton€individuallyÏliable€for€his€negligent€inspection€of€the€home.ÌÌà àLeader€Federal€and€Burton€filed€a€motion€for€summary€judgment€and€attached€aÏcopy€of€the€Construction€Loan€Agreement.€€The€trial€court€granted€the€motion€and€directed€theÏentry€of€a€final€judgment€in€favor€of€Leader€Federal€and€Burton.€€ò òòòSeeó óóó€T.R.C.P.€54.02.€€OnÏappeal,€the€Lomaxes€present€the€following€issue€for€review:ÌÌÓÓà8 àà àWhether€an€exculpatory€clause€in€a€construction€loanÏagreement€can€relieve€a€lender€who€negligently€disburses€loanÏproceeds€to€a€builder€for€work€that€has€not€been€completed€from€anyÏand€all€liability€associated€with€construction€of€a€home,€includingÏblatant€misrepresentations€made€by€such€lender.ÌÌÓÓÌAccordingly,€this€appeal€requires€us€to€determine€whether€the€ð ðexculpatoryðð€provision€contained€inÏthe€Construction€Loan€Agreement€is€enforceable€against€the€Lomaxes€so€as€to€bar€their€presentÏaction€against€Leader€Federal.€€Whether€the€provision€is€an€exculpatory€clause€is€addressed€later.ÌÌÔ&  Ôòòò òà@ àII.€€Leader€Federalððs€Duty€to€Disburse€Construction€Loan€Proceedsó óóóÌÌà àAs€a€preliminary€matter,€however,€we€must€determine€what€duty,€if€any,€LeaderÏÔ'  ÔFederal€owed€to€the€Lomaxes€with€respect€to€inspection€of€the€Lomaxesðð€home€and€disbursementÏof€the€loan€proceeds.€€If€Leader€Federal€owed€no€duty€to€the€Lomaxes,€then€the€Lomaxes€have€noÏcause€of€action€against€Leader€Federal€and€we€need€not€decide€the€issue€of€the€enforceability€of€theÏexculpatory€provision€contained€in€Leader€Federalððs€contract.ÌÌà àIn€the€absence€of€a€contrary€agreement€between€the€parties,€the€general€rule€inÏTennessee€is€that€a€lender€owes€no€duty€to€a€borrower€to€disburse€loan€proceeds€for€the€borrowerððsÏbenefit.€€In€disbursing€loan€proceeds,€therefore,€a€lender€has€no€affirmative€duty€to€protect€theÏborrowerððs€interests.€€ò òòòGoodnerv.€Lawsonó óóó,€232€S.W.2d€587,€589„90€(Tenn.€App.€1950)€(inÏabsence€of€agreement,€loan€association€had€no€duty€to€pay€mechanicððs€liens€out€of€loan€proceedsÏprior€to€disbursing€loan€proceeds€to€contractor);€ò òòòsee€alsoóóó ó€ò òòòForest€Inc.v.€Guaranty€MortgageÏCo.ó óóó,€534€S.W.2d€853,€856„59€(Tenn.€App.€1975)€(in€absence€of€express€contractual€provision€orÏindustry€custom,€lender€had€no€duty€to€subordinate€creditors,€such€as€suppliers,€materialmen,€andÏdeveloper,€to€inspect€construction€and€advance€funds€to€contractor€only€in€proportion€to€percentageÏof€construction€completed).ÌÌà àAn€exception€to€the€general€rule€arises,€however,€where€a€lender€assumes€such€aÏduty€by€express€or€implied€agreement.€€ò òòòGoodner€v.€Lawsonó óóó,€232€S.W.2d€at€589„90.€€ForÏexample,€where€a€lender€retains€the€loan€proceeds€and€assumes€the€responsibility€of€dischargingÏprior€liens,€the€lender€may€be€liable€for€its€negligent€failure€to€perform€this€duty.€€ò òòòPrater€v.ÏFidelity€Trust€Co.ó óóó,€34€S.W.2d€205,€207€(Tenn.€1930);€ò òòòsee€alsoó óóó€ò òòòCrum€v.€AVCO€Fin.ÏServs.óóó ó,€552€N.E.2d€823,€827€(Ind.€Ct.€App.€1990)€(lender€who€agrees€to€disburse€loan€proceedsÏfor€certain€purpose€must€exercise€due€care€in€performance€of€obligation);€59€C.J.S.€ò òòòMortgagesó óóó€ððÏ297€(1949)€(ð ðIf...€the€mortgagee€agrees€to€apply€the€proceeds€for€a€certain€purpose€he€is€liableÏfor€a€failure€to€do€so.ðð).ÌÌà àAlthough€a€lenderððs€duty€to€a€borrower€when€disbursing€construction€loan€proceedsÏapparently€has€not€been€considered€by€Tennessee€courts,× ƒ3 ××  ×€courts€in€other€jurisdictions€haveÏrecognized€that€a€lenderððs€duty€in€this€situation€is€governed€by€the€provisions€of€the€constructionÏloan€agreement€between€the€lender€and€the€borrower.€€Thus,€in€òòò òHenryv.€First€FederalÏSavings€&€Loan€Assððnó óóó,€459€A.2d€772,€775€(Pa.€Super.€Ct.€1983),€a€Pennsylvania€court€heldÏthat,€in€the€absence€of€a€contractually€assumed€duty,€a€loan€association€owed€no€duty€to€borrowersÏto€inspect€construction€of€the€borrowersðð€home€prior€to€making€progress€payments€to€theÏborrowersðð€contractor.€€Although€the€construction€loan€agreementððs€terms€gave€the€association€theÏright€to€enter€the€construction€premises€and€to€conduct€inspections,€the€agreement€did€not€requireÏthe€association€to€do€so.€€Similarly,€in€ò òòòDanielsv.€Army€National€Bankó óóó,€822€P.2d€39,€42Ï(Kan.€1991),€the€Kansas€court€held€that,€in€the€absence€of€a€contractual€provision€to€the€contrary,Ïthe€bank€had€no€duty€to€inspect€the€construction€site€for€the€protection€of€the€borrowers€prior€toÏdisbursing€loan€proceeds.€€There,€the€contract€authorized,€but€did€not€require,€the€bank€to€inspectÍthe€progress€of€the€work€and€the€quality€of€the€workmanship.€€ò òòòSee€alsoó óóó€ò òòòMeyersv.€GuaranteeÏSav.€&€Loan€Assððnó óóó,€144€Cal.€Rptr.€616,€619„20€(Ct.€App.€1978)€(holding€that,€in€absence€ofÏcontractual€provision€imposing€such€duty,€savings€and€loan€association€had€no€duty€to€inspectÏconstruction€to€determine€that€work€had€been€done€according€to€specifications€prior€to€makingÏpayments€to€contractor€from€loan€proceeds).ÌÌà àIn€contrast,€the€Construction€Loan€Agreement€at€issue€in€the€present€case€didÏimpose€a€duty,€albeit€a€limited€one,€on€Leader€Federal€relative€to€its€disbursement€of€the€loanÏproceeds.€€The€Agreement€authorized€Leader€Federal€ð ðto€disburse€funds€under€its€control€in€saidÏconstruction€loan€account€only€in€proportion€to€its€inspectorððs€report€of€progress.ðð€€By€its€expressÏterms,€this€provision€imposed€a€two„fold€duty€on€Leader€Federal:€€(1)Leader€Federal,€through€itsÏinspector,€was€obligated€to€make€a€report€of€progress€of€the€construction;× ƒ4 ××  ×€and€(2)Leader€FederalÏwas€obligated€to€disburse€loan€proceeds€only€in€proportion€to€the€inspectorððs€report€of€progress.€ÏInasmuch€as€Leader€Federal€retained€the€loan€proceeds€and€expressly€assumed€the€duty€to€disburseÏthe€proceeds€subject€to€the€provisions€of€the€partiesðð€Agreement,€Leader€Federal€may€be€held€liableÏfor€its€negligent€performance€of€this€duty.€€ò òòòPraterv.€Fidelity€Trust€Co.ó óóó,€34€S.W.2d€at€207;Ïòòò òGoodnerv.€Lawsonó óóó,€232€S.W.2d€at€589„90;€59€C.J.S.€ò òòòMortgagesó óóó€ðð€297€(1949).× ƒ5 ××  ×ÌÌà àAlthough€we€conclude€that€Leader€Federal€did€owe€a€duty€to€the€Lomaxes,€we€findÏit€necessary€to€explain€why€we€have€described€the€duty€as€a€limited€one.€€By€the€express€terms€ofÍthe€Construction€Loan€Agreement,€Leader€Federal€only€assumed€a€duty€to€inspect€the€progress€ofÏthe€work€and€to€make€loan€disbursements€in€proportion€to€such€progress.€€Leader€Federal€did€notÏundertake€to€inspect€the€construction€for€defective,€as€opposed€to€incomplete,€work.€€Accordingly,Ïto€the€extent€that€the€Lomaxesðð€complaint€seeks€to€recover€against€Leader€Federal€for€any€defects€inÏthe€construction€of€their€home,€we€conclude€that€the€trial€court€properly€granted€summary€judgmentÏin€favor€of€Leader€Federal.× ƒ6 ××  ×€€ò òòòSeeó óóó€ò òòòDanielsv.€Army€Natððl€Bankó óóó,€822€P.2d€at€42€(absentÏcontractual€provision€imposing€such€a€duty,€bank€had€no€duty€to€inspect€construction€site€forÏquality€of€workmanship€prior€to€disbursing€loan€proceeds€to€contractor);€ò òòòHenryv.€First€Fed.ÏSav.€&€Loan€Assððnó óóó,€459€A.2d€at€775€(absent€provision€in€construction€loan€agreementÏimposing€such€duty,€loan€association€had€no€duty€to€inspect€construction€work€for€quality€ofÏworkmanship€as€well€as€quantity€of€work€before€disbursing€construction€loan€funds);€ò òòòsee€alsoó óóóÏò òòòDavisv.€Nevada€Natððl€Bankó óóó,€737€P.2d€503,€505€(Nev.€1987)€(normally,€lender€ð ðhas€no€dutyÏto€exercise€care€to€identify€unworkmanlike€or€deficient€constructionðð).× ƒ7 ××  ×ÌÔ&  ÔÌòòò òà@ àIII.€€The€Construction€Loan€Agreementððs€Exculpatory€Provisionó óóóÌÌà àHaving€defined€the€duty€owed€by€Leader€Federal€to€the€Lomaxes,€we€next€mustÏÔ'  Ôdetermine€the€validity€of€the€Construction€Loan€Agreementððs€exculpatory€provision.€€As€an€initialÏmatter,€we€must€determine€whether€the€provision€at€issue€even€qualifies€as€an€exculpatory€clause.€ÏAn€exculpatory€clause€is€one€which€deprives€one€party€to€the€agreement€of€the€right€to€recoverÏdamages€for€harm€caused€by€the€other€partyððs€negligence.€€ò òòòCrawfordv.€Buckneró óóó,€839€S.W.2dÏ754,€755„56€(Tenn.€1992).€€The€clauses€typically€contain€such€language€as€ð ðlandlord...€shall€notÏbe€liable€to€tenant...€for€any€injury€to€the€person€or€loss€of€or€damage€to€property€for€any€cause,ððÏò òòòId.ó óóó€at€755,€and€ð ðI€completely€release€[the€doctor]€and€his€staff€from€any€present€or€futureÏresponsibility.ðð€€ò òòòOlsonv.€Molzenó óóó,€558€S.W.2d€429,€430€(Tenn.€1977).€€It€is€not€necessary€thatÏthe€word€ð ðnegligenceðð€appear€in€the€exculpatory€clause.€€ò òòòEmpress€Health€&€Beauty€Spav.ÏTurneró óóó,€503€S.W.2d€188,€190€(Tenn.€1973).ÌÌà àUpon€reflection,€we€believe€that€the€provision€at€issue€in€this€case€meets€the€aboveÏdefinition€of€an€exculpatory€clause€because€the€provision€seeks€to€relieve€Leader€Federal€of€anyÏliability€in€connection€with€inspection€and€completion€of€construction€of€the€Lomaxesðð€home.€ÏSpecifically,€the€provision€states€that€Leader€Federal€has€no€liability€in€connection€with€theÍconstruction,€that€Leader€Federal€assumes€no€responsibility€for€completion€of€the€construction,€andÏthat€the€Lomaxes€should€not€rely€on€Leader€Federalððs€inspections€of€the€construction€to€be€for€theÏLomaxesðð€protection.€€As€previously€discussed,€Leader€Federal€assumed€a€duty€under€theÏConstruction€Loan€Agreement€to€inspect€the€progress€of€the€construction€and€to€disburse€fundsÏonly€in€proportion€to€its€report€of€progress.€€Having€expressly€assumed€this€duty,€Leader€FederalÏmay€be€held€liable€for€its€negligent€performance€of€such€duty.€€ò òòòPraterv.€Fidelity€Trust€Co.ó óóó,Ï34€S.W.2d€at€207;€òòò òGoodner€v.€Lawsonó óóó,€232€S.W.2d€at€589„90;€59€C.J.S.€ò òòòMortgagesó óóó€ðð€297Ï(1949).€€Accordingly,€to€the€extent€that€the€foregoing€provision€seeks€to€relieve€Leader€FederalÏfrom€any€liability€associated€with€its€performance€of€this€duty,€we€conclude€that€the€provisionÏqualifies€as€an€exculpatory€clause.ÌÌà àAs€for€the€validity€of€the€exculpatory€clause,€Tennessee€courts€ð ðhave€longÏrecognized€that,€subject€to€certain€exceptions,€parties€may€contract€that€one€shall€not€be€liable€forÏhis€negligence€to€another.ðð€€ò òòòOlson€v.€Molzenó óóó,€558€S.W.2d€429,€430€(Tenn.€1977).€€Indeed,Ïð ðthe€public€policy€of€Tennessee€favors€freedom€to€contract€against€liability€for€negligence.ðð€Ïò òòòEmpress€Health€&€Beauty€Spa€v.€Turneró óóó,€503€S.W.2d€188,€190€(Tenn.€1973).€€In€theÏabsence€of€fraud€or€overreaching,€therefore,€such€exculpatory€provisions€generally€are€held€to€beÏenforceable.€€ò òòòHoughland€v.€Security€Alarms€&€Servs.ó óóó,€755€S.W.2d€769,€773€(Tenn.Ï1988).ÌÌà àNevertheless,€under€certain€circumstances,€such€exculpatory€clauses€may€be€invalidÏas€contrary€to€public€policy.€€In€ò òòòOlson€v.€Molzenó óóó,€558€S.W.2d€429€(Tenn.€1977),€our€supremeÏcourt€adopted€criteria€to€be€used€in€determining€the€validity€of€a€particular€exculpatory€provision.€ÏIn€order€for€such€an€exculpatory€provision€to€be€held€invalid€under€the€ð ðpublic€interestðð€exception,Ïthe€underlying€transaction€must€possess€at€least€some€of€the€following€characteristics:ÌÌÓÓà8 à(a.)à à[The€transaction]€concerns€a€business€of€a€type€generallyÏthought€suitable€for€public€regulation.ÌÌà8 à(b.)à àThe€party€seeking€exculpation€is€engaged€in€performing€aÏservice€of€great€importance€to€the€public,€which€is€often€a€matter€ofÏpractical€necessity€for€some€members€of€the€public.ÌÌà8 à(c.)à àThe€party€holds€himself€out€as€willing€to€perform€this€serviceÏfor€any€member€of€the€public€who€seeks€it,€or€at€least€for€anyÏmember€coming€within€certain€established€standards.ÌÌÔ&  Ôà8 à(d.)à àAs€a€result€of€the€essential€nature€of€the€service,€in€theÏeconomic€setting€of€the€transaction,€the€party€invoking€exculpationÏpossesses€a€decisive€advantage€of€bargaining€strength€against€anyÏmember€of€the€public€who€seeks€his€services.Ô'  ÔÌÔ&  ÔÌà8 à(e.)à àIn€exercising€a€superior€bargaining€power,€the€partyÏconfronts€the€public€with€a€standardized€adhesion€contract€ofÏexculpation,€and€makes€no€provision€whereby€a€purchaser€may€payÏadditional€reasonable€fees€and€obtain€protection€against€negligence.Ô'  ÔÌÌà8 à(f.)à àFinally,€as€a€result€of€the€transaction,€the€person€or€propertyÏof€the€purchaser€is€placed€under€the€control€of€the€seller,€subject€toÏthe€risk€of€carelessness€by€the€seller€or€his€agents.ÌÌÓÓÌò òòòOlson€v.€Molzenó óóó,€558€S.W.2d€at€431€(quoting€ò òòòTunkl€v.€Regents€of€University€ofÏCaliforniaó óóó,€383€P.2d€441,€445„46€(Cal.€1963)).ÌÌà àIn€ò òòòOlson€v.€Molzenó óóó,€the€court€explained€that€not€all€of€these€transactional€criteriaÏneeded€to€be€present€to€invalidate€an€exculpatory€provision€under€the€public€interest€exception,€butÏthe€court€did€not€indicate€just€how€many€of€the€criteria€needed€to€be€present,€other€than€ð ðsome.ðð€Ïò òòòOlson€v.€Molzenó óóó,€558€S.W.2d€at€431.€€In€any€event,€the€court€found€that€all€of€theÏcharacteristics€were€present€in€that€case.€€There,€the€plaintiff€signed€a€release€which€purported€toÏrelieve€an€osteopath€from€any€legal€responsibility€associated€with€the€osteopathððs€performance€ofÏan€abortion€on€the€plaintiff.€€In€invalidating€the€release,€the€court€analyzed€the€application€of€theÏpublic€interest€criteria:ÌÌÓÓà8 àà àApplying€the€first€criterion,€we€can€hardly€think€of€any€areaÏmore€suitable€for€public€regulation€than€abortions....ÌÌÔ&  Ôà8 àà à[The€doctor]€held€himself€out€as€being€willing€to€performÏabortions€for€the€general€public.€€This€is€obvious€from€the€fact€thatÏhe€operated€an€abortion€clinic.€€[The€plaintiff]€met€the€statutorilyÏestablished€standards....Ô'  ÔÌÌà8 àà à[The€plaintiff]€wanted€an€abortion.€€[The€doctor]€performedÏabortions.€€It€begs€the€question€to€say€she€could€have€gone€toÏanother€doctor€or€that€she€elected€to€undergo€a€surgical€procedureÏthat€was€not€mandatory.€€Perhaps€so.€€However,€there€is€noÏassurance€that€any€other€doctor€would€not€have€made€a€similarÏdemand.€€The€record€does€not€show€how€many€other€physicians€inÏthe€Knoxville€area€perform€abortions,€but€we€have€no€doubt€but€thatÏthe€number€is€limited.€€Physicians€are€not€required€to€performÏabortions....€€[The€plaintiff]€had€a€right€to€elect€to€have€a€legalÏsurgical€procedure€performed€even€Ô&  Ôthough€there€was€no€compellingÏmedical€necessity.ÌÌà8 àà à....ÌÔ'  ÔÌÔ&  Ôà8 àà àThe€doctor€not€only€exercised€a€superior€bargaining€power,Ïbut€there€is€nothing€to€indicate€that€he€made€any€provision€for€theÏpayment€of€additional€compensation€or€fees€to€obtain€insurance€orÏprotection€against€negligence.Ô'  ÔÌÌà8 àà àAs€a€direct€consequence€of€this€transaction,€[the€plaintiff]Ïplaced€her€person€under€the€control€of€[the€doctor]€subject€to€the€riskÏof€negligence€after€he€had€demanded€that€she€contract€away€anyÏcause€Ô&  Ôof€action€that€might€arise.ÌÌà8 àà à....ÌÔ'  ÔÌà8 àà àUnder€the€guidelines€herein€adopted,€we€hold€that€anÏexculpatory€contract€signed€by€a€patient€as€a€condition€of€receivingÏmedical€treatment€is€invalid€as€contrary€to€public€policy€and€may€notÏÔ&  Ôbe€pleaded€as€a€bar€to€the€patientððs€suit€for€negligence.ÌÌÓÓÌò òòòId.ó óóó€at€431„32.Ô'  ÔÌÌà àThe€supreme€court€similarly€invalidated€an€exculpatory€provision€in€ò òòòCrawford€v.ÏBuckneró óóó,€839€S.W.2d€754€(Tenn.€1992).€€In€that€case,€as€a€condition€of€renting€an€apartmentÏfrom€the€defendants,€the€plaintiff€was€required€to€sign€the€defendantsðð€standard€form€lease.€€TheÏlease€contained€an€exculpatory€clause€which€purported€to€relieve€the€defendants€from€any€liabilityÏto€the€plaintiff€ð ðfor€any€injury€to€the€person€or€loss€of€or€damage€to€property€for€any€cause.ðð€€ò òòòId.ó óóó€atÏ755.€€After€the€plaintiff€suffered€injuries€while€escaping€a€fire€in€the€apartment€complex,€theÍplaintiff€sued€the€defendants€for€negligence,€citing€the€defendantsðð€negligent€failure€to€maintain€theÏfire€alarm€and€other€theories.€€ò òòòId.ó óóó€€As€before,€the€court€applied€the€public€interest€criteria€to€theÏfacts€of€the€case€and€concluded€that€all€of€the€criteria€were€present:ÌÌÓÓà8 à[F]irst,€we€conclude€a€residential€lease€concerns€a€business€of€a€typeÏthat€is€generally€thought€suitable€for€public€regulation.€€OurÏconclusion€is€bolstered€by€the€fact€that€the€legislature€of€this€state€hasÏseen€fit€to€regulate€this€area,€and€that€other€states,...€have€enactedÏlegislation€regulating€the€residential€landlord„tenant€relationship....ÌÌà8 àà àSecond,€it€is€clear€we€no€longer€live€in€an€agrarian€societyÏwhere€land,€not€housing,€was€the€important€part€of€a€rentalÏagreement.€€Nor€do€we€live€in€an€era€of€the€occasional€rental€ofÏrooms€in€a€private€home€or€over€the€corner€grocery.€€ResidentialÏlandlords€offer€shelter,€a€basic€necessity€of€life,€to€more€than€aÏmillion€inhabitants€of€this€state....€€Accordingly,€it€is€self„evidentÏthat€a€residential€landlord€is€engaged€in€performing€a€service€of€greatÏimportance€to€the€public,€which€is€often€a€matter€of€practicalÏnecessity€for€some€members€of€the€public.€€In€addition,€a€residentialÏlandlord€holds€itself€out€as€willing€to€perform€a€service€for€anyÏmember€of€the€public€who€seeks€it....ÌÌà8 àà àWith€respect€to€the€fourth€public€interest€criterion,€as€a€resultÏof€the€essential€nature€of€the€service€and€the€economic€setting€of€theÏtransaction,€a€residential€landlord€has€a€decisive€advantage€inÏbargaining€strength€against€any€member€of€the€public€who€seeks€itsÏservices.€€A€potential€tenant€is€usually€confronted€with€a€ð ðtake€it€orÏleave€itðð€form€contract,€which€the€tenant€is€powerless€to€alter.€€TheÏtenantððs€only€alternative€is€to€reject€the€entire€transaction.ÌÌà8 àà àMoreover,€due€to€its€superior€bargaining€position,€aÏresidential€landlord€confronts€the€public€with€a€standardizedÏadhesion€contract€of€exculpation,€which€contains€no€provisionÏwhereby€a€tenant€can€pay€additional€reasonable€fees€to€obtainÏprotection€from€the€landlordððs€negligence.€€The€lease€in€this€case€is€aÏgood€example.€€In€her€affidavit€in€opposition€to€the€defendantsððÏmotion€for€summary€judgment,€[the€plaintiff]€testified€that€she€wasÏgiven€the€defendantsðð€standard€lease€form€to€sign,€and€was€neverÏoffered€the€opportunity€to€pay€additional€reasonable€fees€to€obtainÏprotection€from€the€landlordsðð€negligence....ÌÌà8 àà àFinally,€we€conclude€that€by€definition€a€residential€leaseÏplaces€the€person€and€the€property€of€the€tenant€under€the€control€ofÏthe€landlord,€subject€to€the€risk€of€carelessness€by€the€landlord€andÏhis€Ô&  Ôagents....ÌÌà8 àà à....ÌÔ'  ÔÌà8 àà àBased€on€the€foregoing,€we€conclude€that€the€exculpatoryÍÔ&  Ôclause€in€the€residential€lease€in€this€case€is€contrary€to€public€policy.ÌÌÓÓÌò òòòId.ó óóó€at€757„59.Ô'  ÔÌÌà àTurning€to€the€case€at€bar,€we€conclude€that€these€public€interest€criteria€apply€to€theÏhome€construction€loan€transacted€by€the€Lomaxes€and€Leader€Federal.€€As€an€initial€matter,€weÏnote€that€the€consumer€lending€activities€of€banks€and€other€financial€institutions€fall€within€the€typeÏof€business€generally€thought€suitable€for€public€regulation.€€The€legislature€of€this€state,€forÏexample,€has€enacted€legislation€authorizing€financial€institutions€to€make€loans€and€imposingÏcertain€restrictions€on€such€activities.€€ò òòòSeeó óóó€T.C.A.€ðððð€45„2„1101€to€„1108€(1993€&€Supp.€1996)Ï(banks);€T.C.A.€ðððð€45„3„701€to€„707€(1993)€(savings€and€loan€associations);€T.C.A.€ðððð€45„4„601Ïto€„610€(1993)€(credit€unions);€T.C.A.€ðððð€45„5„401€to€„405€(1993€&€Supp.€1996)€(industrial€loanÏand€thrift€companies).€€The€United€States€Congress€also€has€enacted€laws€regulating€this€area.€€ò òòòSeeóóó óÏ12€U.S.C.A.€ðððð€83„„86€(West€1989)€(lending€powers€of€national€banks);€12€U.S.C.A.€ððððÏ2801„„2810€(West€1989€&€Supp.€1997)€(home€mortgage€disclosure€requirements);€15€U.S.C.A.Ïðððð€1601„„1667€(West€1982€&€Supp.€1997)€(truth€in€lending€requirements).ÌÌà àMoreover,€Leader€Federal,€the€party€seeking€exculpation,€was€engaged€inÏperforming€a€service€of€great€importance€which€was€a€practical€necessity€for€some€members€of€theÏpublic.€€ò òòòSeeó óóó€ò òòòCrawford€v.€Buckneró óóó,€839€S.W.2d€at€758€(noting€that€shelter€is€ð ðbasic€necessityÏof€lifeðð).€€In€her€deposition,€Mrs.€Lomax€testified€that€neither€she€nor€her€husband€had€ever€beenÏinvolved€in€the€construction€of€a€new€home,€although€they€had€purchased€existing€homes€before.€ÏWhen€the€Lomaxes€decided€to€buy€a€new€house€during€the€spring€of€1993,€they€began€looking€atÏexisting€homes,€but€they€were€unable€to€find€a€home€that€suited€their€needs.€€As€a€result,€like€manyÏcouples,€the€Lomaxes€decided€to€build€a€new€home.× ƒ8 ××  ×€€The€Lomaxes€found€a€lot€that€they€liked,Ípurchased€the€lot€from€Headley€Homes,€and€then€proceeded€to€negotiate€with€Headley€Homes€toÏconstruct€the€home.€€In€order€to€finance€the€construction€project,€the€Lomaxes€turned€to€LeaderÏFederal.€€In€this€regard,€Leader€Federal€held€itself€out€as€willing€to€make€home€construction€loansÏto€any€members€of€the€public€who€sought€such€loans,€provided€the€customers€met€certainÏestablished€standards.€€Here,€the€Lomaxes€met€the€loan€qualifications€and,€thus,€were€extended€aÏhome€construction€loan€by€Leader€Federal.ÌÌà àWith€respect€to€the€fourth€public€interest€criterion,€as€a€result€of€the€essential€natureÏof€the€service€and€the€economic€setting€of€the€transaction,€Leader€Federal€had€a€decisive€advantageÏin€bargaining€strength€against€the€Lomaxes€or€any€other€member€of€the€public€who€sought€itsÏservices.€€This€conclusion€is€supported€by€evidence€in€this€case€that€the€Lomaxes€were€confrontedÏwith€a€ð ðtake„it„or„leave„itðð€form€agreement€which€they€were€powerless€to€alter.€€In€his€deposition,ÏWayne€Anderson,€the€Senior€Vice€President€in€charge€of€Leader€Federalððs€Construction€LendingÏDepartment,€gave€the€following€testimony:ÌÌÔ&  ÔÓÓà8 àQ.à àIs€this€the€same€construction€loan€agreement€the€bank€usesÏon€every€single€one€of€its€construction€loan€agreements?ÌÌà8 àA.à àYes.Ô'  ÔÌÌÔ&  Ôà8 àQ.à àEvery€provision€thatððs€contained€in€the€seven€pages€of€thisÏconstruction€loan€agreement€is€in€every€other€construction€loanÏagreement.ÌÌà8 àA.à àYes.Ô'  ÔÌÌÔ&  Ôà8 àQ.à àIncluding€the€paragraph,€the€famous€paragraph€which€is,€IÏbelieve,€3„H,€which€I€will€refer€to€as€the€exculpatory€clause.ÌÌà8 àA.à àYes.Ô'  ÔÌÌÔ&  Ôà8 àQ.à àHas€Leader€Federal€ever€agreed€to€take€out€the€provisionÏcontained€in€paragraph3„H€in€any€of€its€construction€loanÏagreements,€to€the€best€of€your€knowledge?ÌÌà8 àA.à àNo.Ô'  ÔÌÌÔ&  Ôà8 àQ.à àItððs€in€every€single€one€of€those€agreements.ÌÌà8 àA.à àEvery€single€one.Ô'  ÔÌÌÔ&  Ôà8 àQ.à àTo€the€best€of€your€knowledge,€do€you€know€if€anyone€hasÏever€asked€that€Leader€Federal€remove€that€provision?ÌÌà8 àA.à àNo.Ô'  ÔÌÌÔ&  Ôà8 àQ.à àBut€if€they€would€ask,€Leader€Federal€would€refuse;€is€thatÏcorrect?ÌÌà8 àA.à àYes.Ô'  ÔÌÌÓÓÌUnder€these€circumstances,€the€Lomaxesðð€only€alternative€was€to€reject€the€entire€transaction€withÏLeader€Federal.€€ÌÌà àBased€on€the€foregoing€testimony,€we€also€conclude€that€the€Construction€LoanÏAgreement€executed€in€this€case€possessed€sufficient€characteristics€of€an€adhesion€contract€toÏsatisfy€the€fifth€public€interest€criterion.× ƒ9 ××  ×€€In€extending€a€loan€to€the€Lomaxes,€Leader€FederalÏconfronted€them€with€a€standardized€Construction€Loan€Agreement€which€authorized€LeaderÏFederal€to€disburse€the€loan€proceeds€to€the€Lomaxesðð€contractor€in€accordance€with€the€progressÏreports€of€Leader€Federalððs€inspector.€€In€a€subsequent€provision,€however,€the€form€AgreementÏpurported€to€exculpate€Leader€Federal€from€any€liability€in€connection€with€completion€of€theÏconstruction€and,€relative€thereto,€provided€that€the€Lomaxes€had€no€right€to€rely€on€LeaderÏFederalððs€inspections€of€the€construction.€€The€Lomaxes€were€never€offered€the€opportunity€to€payÏadditional€reasonable€fees€to€obtain€protection€from€Leader€Federalððs€negligence€in€disbursing€theÏloan€proceeds.€€Although€customers€might€or€might€not€choose€to€pay€higher€interest€rates€to€obtainÍsuch€protection,€in€our€view€the€important€consideration€is€that€the€Lomaxes€were€never€offeredÏsuch€an€opportunity.ÌÌà àFinally,€we€conclude€that€by€definition€the€Construction€Loan€Agreement€placed€theÏLomaxesðð€property€under€the€control€of€Leader€Federal,€subject€to€the€risk€of€carelessness€byÏLeader€Federal€and€its€agent,€George€Burton.€€Although€the€Agreement€advanced€a€constructionÏloan€to€the€Lomaxes,€the€Agreement€placed€the€loan€proceeds€under€the€control€of€Leader€Federal.€ÏBecause€of€Burtonððs€admitted€carelessness,€some€of€the€loan€proceeds€were€applied€toward€phasesÏof€construction€which€never€were€completed.€€Despite€the€fact€that€the€Lomaxesðð€loss€may€haveÏbeen€occasioned€by€the€acts€of€Leader€Federalððs€employee,€if€the€Agreementððs€exculpatoryÏprovision€were€upheld,€the€Lomaxes€still€would€be€responsible€for€repaying€the€entire€amount€ofÏthe€loan€proceeds€to€Leader€Federal.ÌÌà àBased€on€the€foregoing€analysis€of€the€public€interest€criteria,€we€conclude€that€theÏexculpatory€clause€in€the€Construction€Loan€Agreement€executed€by€the€Lomaxes€and€LeaderÏFederal€is€contrary€to€public€policy€and,€thus,€is€unenforceable.€€Accordingly,€we€reverse€the€trialÏcourtððs€order€granting€summary€judgment€to€Leader€Federal.ÌÌÔ&  Ôòòò òà@ àIV.€€Burtonððs€Liability€for€Negligenceó óóóÌÌà àWe€affirm,€however,€that€portion€of€the€trial€courtððs€order€granting€summaryÏjudgment€to€Ô'  ÔGeorge€Burton.€€The€Lomaxesðð€negligence€action€against€Burton€is€based€on€sectionÏ552€of€the€ò òòòRestatement€(Second)€of€Tortsó óóó:ÌÌÓÓà8 à(1)à àOne€who,€in€the€course€of€his€business,€profession€orÏemployment,€or€in€any€other€transaction€in€which€he€has€a€pecuniaryÏinterest,€supplies€false€information€for€the€guidance€of€others€in€theirÏbusiness€transactions,€is€subject€to€liability€for€pecuniary€loss€causedÏto€them€by€their€justifiable€reliance€upon€the€information,€if€he€failsÏto€exercise€reasonable€care€or€competence€in€the€obtaining€orÍcommunicating€of€the€information.ÌÌà8 à(2)à àExcept€as€stated€in€Subsection(3),€the€liability€stated€inÏSubsection(1),€is€limited€to€loss€sufferedÌÌà8 àà à(a)à àby€the€person€or€one€of€a€limited€group€of€personsÏfor€whose€benefit€and€guidance€he€intends€to€supply€the€informationÏor€knows€that€the€recipient€intends€to€supply€it;€andÌÌà8 àà à(b)à àthrough€reliance€upon€it€in€a€transaction€that€heÏintends€the€information€to€influence€or€knows€that€the€recipient€soÏintends€or€in€a€substantially€similar€transaction.ÌÌÓÓÌò òòòJohn€Martin€Co.v.€Morse/Diesel,€Inc.ó óóó,€819€S.W.2d€428,€431€(Tenn.€1991)€(quotingÏò òòòRestatement€(Second)€of€Tortsó óóó€ðð€552€(1977)).ÌÌà à€€The€Supreme€Court€of€Tennessee€has€adopted€section€552€as€the€appropriateÏstandard€for€actions€by€third€parties€against€professionals€and€business€persons€based€on€negligentÏmisrepresentation.€€ò òòòJohn€Martin€Co.ó óóó,€819€S.W.2d€at€431;€ò òòòsee€alsoó óóó€ò òòòBethlehem€SteelÏCorp.v.€Ernst&€Whinneyó óóó,€822€S.W.2d€592,€595€(Tenn.€1991).€€Under€this€standard,€aÏdefendant€may€incur€liability€in€tort€when,€despite€a€lack€of€contractual€privity€with€the€plaintiff,ÌÌÓÓà8 àà à(1)à àthe€defendant€is€acting€in€the€course€of€his€business,Ïprofession,€or€employment,€or€in€a€transaction€in€which€he€has€aÏpecuniary€(as€opposed€to€gratuitous)€interest;€ò òòòandó óóóÌÌà8 àà à(2)à àthe€defendant€supplies€faulty€information€meant€toÏguide€others€in€their€business€transaction;€ò òòòandó óóóÌÌà8 àà à(3)à àthe€defendant€fails€to€exercise€reasonable€care€inÏobtaining€or€communicating€the€information;€ò òòòandó óóóÌÌà8 àà à(4)à àthe€plaintiff€justifiably€relies€upon€the€information.ÌÌÓÓÌò òòòJohn€Martin€Co.ó óóó,€819€S.W.2d€at€431€(emphases€in€original).ÌÌà àThe€principal€requirements€of€this€rule€are€that€ð ðthe€information€supplied€must€beÏfalse€and€the€supplier€must€have€failed€to€exercise€reasonable€care€or€competence€in€obtaining€orÍcommunicating€the€information.ðð€€ò òòòMcFarlinv.€Wattsó óóó,€895€S.W.2d€687,€690€(Tenn.€App.Ï1994).€€The€rule€is€not€limited€to€professionals€but€includes€non„professionals€involved€in€businessÏactivities€or€transactions.€€ò òòòRitterv.€Custom€Chemicides,€Inc.ó óóó,€912€S.W.2d€128,€131€(Tenn.Ï1995).€€As€in€other€negligence€actions,€the€defendant€may€raise€the€plaintiffððs€comparativeÏnegligence€as€a€defense.€€ò òòòJohn€Martin€Co.ó óóó,€819€S.W.2d€at€432.ÌÌà àApplying€the€foregoing€standard,€we€conclude€that€the€trial€court€properly€enteredÏsummary€judgment€in€favor€of€Burton€on€the€Lomaxesðð€claim€under€section€552.€€Although€theÏfirst€three€elements€of€this€cause€of€action€appear€to€be€present€in€this€case,€the€undisputed€evidenceÏshows€that€the€fourth€element€has€not€been€met€because€the€Lomaxes€did€not€justifiably€rely€on€theÏfaulty€information€provided€by€Burton.ÌÌà àWith€regard€to€the€first€two€elements€of€this€cause€of€action,€it€is€undisputed€thatÏBurton,€acting€in€the€course€of€his€employment,€supplied€faulty€information€which€was€intended€toÏguide€others€in€their€business€transaction.€€Specifically,€Burton€falsely€represented€that€certainÏphases€in€the€construction€of€the€Lomaxesðð€home€had€been€completed€when,€in€fact,€theÏconstruction€had€not€been€completed.€€Moreover,€the€intended€result€of€this€information€was€toÏinfluence€Leader€Federal€to€disburse€the€Lomaxesðð€construction€loan€proceeds€to€the€contractor,ÏHeadley€Homes.€€As€for€the€third€element,€the€evidence€indicates€that€Burton€failed€to€exerciseÏreasonable€care€in€obtaining€or€communicating€this€information,€at€least€with€regard€to€the€finalÏinspection€report.ÌÌà àRegarding€the€fourth€element,€however,€the€undisputed€evidence€demonstrates€that,Ïcontrary€to€their€contention,€the€Lomaxes€(as€opposed€to€Leader€Federal)€did€not€act€in€relianceÏupon€Burtonððs€faulty€inspection€report.€€The€Lomaxesðð€amended€complaint€alleges€that,€inÏcompleting€the€closing€transaction€on€the€house,€the€Lomaxes€relied€on€the€representation€containedÏin€Burtonððs€final€inspection€report€that€the€home€was€ð ðO.K.€for€satisfactory€completion.ðð€€TheÍuncontradicted€deposition€testimony€of€Mrs.€Lomax,€however,€fails€to€support€this€allegation€ofÏreliance.ÌÌà àThe€purpose€of€the€closing€was€to€convert€the€Lomaxesðð€construction€loan€into€aÏpermanent€mortgage.€€Mrs.€Lomaxððs€deposition€reveals€that,€prior€to€the€closing,€the€LomaxesÏvisited€the€site€on€a€regular€basis€to€observe€the€progress€of€the€construction€of€their€home.€€InÏaccordance€with€this€practice,€the€Lomaxes€inspected€the€site€on€the€day€of€the€closing.€€At€the€timeÏof€the€closing,€therefore,€the€Lomaxes€knew€which€portions€of€the€construction€had€not€beenÏcompleted.€€The€Lomaxes€were€given€a€final€accounting€statement€showing€the€amount€of€loanÏproceeds€being€disbursed€to€Headley€Homes,€the€amount€of€proceeds€being€retained€to€pay€forÏuncompleted€items,€and€the€items€that€had€not€been€completed.€€The€final€accounting€statementÏshowed€that,€upon€completion€of€the€closing,€most€of€the€loan€proceeds€would€be€disbursed€toÏHeadley€Homes.€€Because€the€Lomaxes€had€inspected€the€house€themselves€and€knew€many€of€theÏconstruction€items€had€not€been€completed,€they€asked€the€closing€attorney€if€more€of€the€loanÏproceeds€could€be€retained€and€then€disbursed€at€a€later€time€when€the€incomplete€items€wereÏfinished.€€Despite€their€knowledge€that€the€house€was€not€complete€and€that€most€of€theÏconstruction€loan€proceeds€were€being€disbursed€to€Headley€Homes,€the€Lomaxes€still€chose€toÏcomplete€the€closing.€€Mrs.€Lomax€explained€that,€if€the€Lomaxes€had€not€closed€on€the€date€inÏquestion,€they€would€have€incurred€a€penalty.ÌÌà àBased€on€the€undisputed€evidence,€we€conclude€that€summary€judgment€wasÏproperly€granted€because€no€genuine€issue€of€material€fact€exists€with€regard€to€whether€theÏLomaxes€relied€upon€the€faulty€information€provided€by€Burton.€€The€evidence€reveals€that,€inÏspite€of€their€knowledge€of€the€discrepancy€between€the€percentage€of€the€house€that€wasÏcompleted€and€the€percentage€of€the€loan€proceeds€that€were€being€disbursed,€the€LomaxesÏproceeded€to€close€on€the€house€in€order€to€avoid€paying€a€penalty.€€Under€these€circumstances,€theÏLomaxes€could€not€have€justifiably€relied€on€the€information€provided€in€Burtonððs€final€inspectionÍreport.ÌÌòòò òà@ àV.€€Conclusionó óóóÌÌà àThe€trial€courtððs€judgment€in€favor€of€Burton€is€affirmed;€however,€the€trial€courtððsÏjudgment€in€favor€of€Leader€Federal€is€reversed€and€this€cause€remanded€for€proceedingsÏconsistent€with€this€opinion.€€Costs€of€this€appeal€are€taxed€to€Leader€Federal,€for€which€executionÏmay€issue€if€necessary.ÌÌÓÓà àà àà àà àà àà àà à________________________________Ìà àà àà àà àà àà àà àFARMER,€J.ÌÌÌÌ______________________________ÌCRAWFORD,€P.J.,€W.S.€(Concurs)ÌÌÌÌ______________________________ÌLILLARD,€J.€(Concurs)›