Pixley v. First Federal Savings & Loan Ass'n

This is a suit for damages for breach of a contract to convey a residential property.

The defendant savings and loan association, the appellant, contended in the lower court, as it likewise contends here, (1) that its escrow instructions—which together with the instructions signed by plaintiffs comprised the written contract between the parties—were not binding upon it as they were signed in its behalf only by its secretary and not by its secretary and its vice president; (2) that there was a mutual mistake of law and fact which voided the contract; and (3) that the trial court erred in finding the defendant was guilty of bad faith in refusing to convey and in its allowance of damages based on that theory.

The defendant in 1946 made a construction loan to one Grosbach in the sum of $8,000 and as security took back a trust deed on the property here involved. The defendant did not inspect the property prior to recording the deed to ascertain whether any building material had been deposited, or work done, upon the premises which might give mechanics’ liens subsequently filed a priority over the lien of the trust deed. Evidently this failure was due to the inadvertence of some one or more employees of the defendant charged with such duty. More than a year later four mechanics’ liens were filed against the property; one, in August, 1947, and three in January, 1948, but at the trial no evidence was offered to show that any of these mechanics’ liens were entitled to priority over defendant’s trust deed and for want of such evidence the court found they had no priority.

In October, 1948, the defendant caused notice of default under the terms of its trust deed to be filed, but the trustee’s

Prior to the trust deed sale the plaintiffs had several conferences with one Kibbe, vice president of the defendant, in which they sought to purchase the property. At a conference had on July 11, 1949, the parties orally agreed, subject to the approval of the defendant’s board of directors, that plaintiffs should not bid at the trustee’s sale, but that the defendant should purchase the property upon said sale, and resell it to plaintiffs at a price totaling the balance due on defendant’s trust deed, plus interest, foreclosure expenses, buyers’ and seller’s escrow expenses, title policy costs, and a $500 profit to defendant, and thereupon it would deliver a good title evidenced by a policy of title insurance. In these conferences there never was any discussion concerning mechanics’ liens.

On July 22d Kibbe having received the trustee’s deed along with its bill for fees and expenditures prepared a memorandum listing the sum of $9,244.05 as being the amount payable by the plaintiffs. The items aggregating this sum were the bid price of $8,378.55; interest thereon $12.12; policy of title insurance $45; internal revenue stamps and recording $12.45; taxes $295.93; agreed profit for defendant $500. He next procured from the board of directors a resolution which recited it was “Resolved, that the officers are hereby directed to sell” the lot involved “for $9,244.05. Vance C. Kibbe, Vice President and Carl D. Gibbons, Secretary, are authorized to execute the necessary papers to complete this sale.” Thereupon, Kibbe and Gibbons executed the corporation’s grant deed of the property to the plaintiffs as grantees, “subject to general and special taxes for 1949-50; covenants, conditions, restrictions, reservations, easements, rights and rights of way of record.” Kibbe thereupon telephoned the plaintiffs that he had procured the necessary resolution from the board of directors to sell the property for $9,244.05 and requested that they come to defendant’s office on July 25th with that sum prepared to enter into an escrow. Kibbe further stated that defendant’s escrow officer would prepare the escrow instructions and handle the transaction as he would have to be out of town. All this was orally agreed to by the plaintiffs. Before leaving for out of town Kibbe handed the grant deed and his price computation memorandum to the escrow officer. On July 25th the escrow officer prepared both the seller’s and the buyers’ escrow instructions. She then caused the plain

The initial contention urged upon us is that there was no binding written contract for want of the signature of Kibbe, in his capacity as vice president of the defendant. One difficulty with the contention is that it is not shown that such a signature was requisite, unless it may be implied that the resolution of the board of directors required such a signature to make the seller’s escrow instructions effective. The mere fact that the escrow officer provided signature lines for two officers to sign rather than one could not affect the authority the secretary had to bind the corporation. But assuming for the sake of argument, that the defendant was not bound by the seller’s instructions signed by the secretary in its behalf and in its name, for want of the signature of its vice

Second. Appellant contends that the appellant and the respondents assumed at all times that the foreclosure of the trust deed would extinguish all the mechanics ’ liens recorded against the property and hence, because of this mistake of fact or of law the contract was voidable at the instance of the appellant. Assuming for the sake of argument that appellant and the respondents both assumed that the lien of appellant’s trust deed was a first lien prior to the subsequent mechanics’ liens which were filed, that fact was legally immaterial. In the first place the respondents were entitled to assume that the trust deed having been filed prior to the mechanics’ liens was a prior lien as it appeared of record to be. If that was true the respondents were entitled to receive a title policy insuring such a title in their favor along with a conveyance both measured accordingly. The obligation to convey such a title, properly insured, rested upon the appellant despite the expense it might be put to in procuring it. In short, if the appellant under such circumstances failed to procure a policy of that character the fault would rest wholly with it. A further difficulty with appellant’s position is that it assumed—rightly or wrongly—that the mechanics’ liens in whole or in part were prior to its own lien and on that assumption declined to proceed to establish the fact that its lien was the prior lien and procure a title policy insuring the title accordingly. The truth of the matter is that appellant, in the trial below, wholly failed to show that any of the mechanics’ liens were superior to its own trust deed lien and on that basis the trial court rightly found the liens were not superior. Accordingly, the first trust deed on the evidence was the superior lien as assumed by the appellant and the respondents. That being true there was no mistake of fact or of law on the part of any of the parties to the lawsuit.

Third. The final contention of appellant is that the court erred in finding that it was guilty of “bad faith” and

If, as appellant contends, the parties dealt with one another on the assumption that the trust deed was the superior lien of record and its foreclosure would vest a title in appellant not subject to other liens of record, the assumption was not shown to be incorrect. The title company declined to insure the title not on the theory that subsequent liens of record were prior, but that through extrinsic evidence they might be shown to be entitled to priority. Accordingly, it was incumbent upon appellant to satisfy the title company as to the true fact based upon acceptable affidavits, releases or by a decree quieting the title. By its contract appellant had not only agreed to convey the premises free of all liens except current taxes, but it had also agreed to procure a title policy of like tenor. Unless and until it did so it was in default and if it ultimately failed, it breached its contract. There is nothing in the record to indicate that the appellant could not have fulfilled its obligation had it chosen to do so. In short, it is plain that the title company would have insured appellant’s title if appellant had taken the necessary steps to safeguard the company. Accordingly, upon the facts appellant was guilty of “bad faith” within the meaning of that phrase as it is used in Civil Code, section 3306. Bad faith is shown where there is a “deliberate refusal to perform” (Nelson v. Fernando Nelson & Sons, 5 Cal.2d 511 , 518 [ 55 P.2d 859 ]) or a refusal to convey, “where through his own negligence he has put it out of his power to fulfill the obligations of his contract” (Johnson v. Schimpf, 197 Cal. 43 , 48 [ 239 P. 401 ]) or “without just cause or excuse, he refuses to perform” (Engasser v. Jones, 88 Cal.App.2d 171 , 177 [ 198 P.2d 546 ]).

White, P. J., and Doran, J., concurred.

A petition for a rehearing was denied May 12, 1952, and appellant’s petition for a hearing by the Supreme Court was denied June 19, 1952.