Sala v. Security Title Insurance & Guarantee Co.

This is an appeal by defendant from the judgment and from the order denying defendant’s motion for judgment notwithstanding the verdict, as well as from the order denying a motion for a new trial, in an action on a

A. G. Sala and Harry M. Seigler, respondents herein, purchased certain land consisting of acreage in the vicinity of Clearwater, Los Angeles County, California, in February of 1928. The property had been lost through foreclosure, by the former owner, one W. L. Bessolo, and respondents acquired the property by sheriff’s deed after having purchased Bessolo’s equity of redemption. The purchase price was $12,000, which was obtained by Sala and Seigler from the Bank of Italy National Trust and Savings Association on a loan secured by a trust deed on the property so purchased. Incidental to the transaction a policy of title insurance was purchased from the Security Title Insurance and Guarantee Company (hereinafter referred to as “title company”), appellant herein, insuring the title to said property in the sum of $20,000. Thereafter, to wit, on May 14, 1929, one-half of the property was sold by Sala and Seigler, subject to the trust deed above mentioned, to the Collins Concrete Pipe Company of California for $15,000. This transaction was represented by a down payment and a contract of sale providing for the balance due to be paid in monthly installments of $300. In August of 1930, the Collins Concrete Pipe Company defaulted, repudiated the contract and discontinued further payments thereunder, after having paid to Sala and Seigler approximately $4,500 on account of the transaction. About the same time plaintiffs and respondents, Sala and Seigler, discontinued interest payments to the Bank, of Italy on account of the trust deed note, and after repeated demands by the bank the trust deed was foreclosed. The property was purchased by the bank at the foreclosure sale in March, 1932, for the total amount of the accrued debt in the sum of $14,000. Two years and five months later, to wit, on August 31, 1934, Sala and Seigler filed the action herein against the title company on the above-mentioned policy of title insurance.

In attempting to fabricate and complete a cause of action against the title company, respondents Sala and Seigler rely upon the following additional facts. For some time- prior to July 19, 1923, the land involved herein was owned by Frank Zamboni and Joe H. Masero, who sold the same to Bessolo, who in turn sold it to Sala and Seigler. On July 19, 1923,

On May 15, 1928, a motion for leave to amend the complaint was filed in the Zamboni action, to which was attached a copy of the proposed second amended complaint; the proposed amended complaint alleged, for the first time in said litigation, a purported cause of action for rescission based on fraud. Two days later, to wit, on May 17, 1928, the policy of title insurance, upon which the action herein is based, was

“The Company by this policy of title insurance . . . does hereby insure A. G. Sala and Harry M. Seigler . . . (as to an interest in fee simple), . . . and Bank of Italy National Trust and Savings Association ... (as beneficiary under Exception No. 6 herein), . . . against loss or damage not exceeding in all the sum of Twenty Thousand Dollars, which the said Insured shall sustain by reason of any incorrect statement in this policy concerning the title to the real property hereinafter described, . . . which said statement of title and conditions and stipulations- are hereby made a part of this policy. . . .

“Subject only to the following:

EXCEPTIONS AND ENCUMBRANCES

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“Taxes for the fiscal year 1928-1929.

“A Deed of Trust, with power of sale, dated May 11, 1928, to National Bankitaly Company, a corporation, trustee, executed by A. G. Sala and Paula Sala, his wife, and Harry M. Seigler and Josephine Seigler, his wife, to secure the payment of Twelve Thousand Dollars ($12,000.00), with interest thereon, according to the terms of their promissory note or notes . . .

“II. Liability of the Company: Except as otherwise shown by the statement of title contained herein, and subject to the terms hereof, the Company hereby insures a marketable title to the estate or interest of the Insured, . . . The Company may and will, at its own cost and expense, defend the Insured in all actions or proceedings founded on a record claim of title or encumbrance prior in date and time to this policy and hereby insured against. The Company will not be liable to anyone by reason of defects, liens or encumbrances by such person created or suffered, or created subsequent to the date hereof, or resulting in no pecuniary loss to the Insured; nor for any sum in costs, expenses and loss in excess of the amount of this policy . . .

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“IV. Notice—Right of Action: In case any action or proceeding is begun as mentioned in Paragraph II, and the

Insured shall be made a party thereto, or in case actual knowledge shall come to the Insured of such adverse claim of title or interest, the Insured shall at once notify the Company thereof in writing and secure to it, in the name of the Insured, the right to pay, satisfy, compromise, or, at the option of the Company, resist and defend such adverse claim to final determination. If such notice shall not be given to the Company within thirty days after actual notice to the Insured of the pendency of such action then this policy shall be void, but only as to the Insured receiving such notice and failing to notify the Company within said time, otherwise in full force. Bight of action against the Company shall accrue under this policy (1) when and if, after receiving such notice, it shall fail within a reasonable time, in the name of the Insured, to institute and faithfully prosecute proper action to remove, or otherwise pay, satisfy, compromise or defend to final determination, such adverse claim of title or interest, and (2) when there has been a final determination by a court of competent jurisdiction adverse to the title as insured.

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“VI. As to Payment: The Company reserves the option to settle any claim insured against by this policy, or to pay this policy in full; and the payment to the full amount of this, policy shall terminate all liability of the Company hereunder. ...”

Before the second trial of the Zamboni action, appellant herein, the title company, became associated with the defendant Bessolo’s attorneys, and participated, as such, in the second trial. The above mentioned second amended complaint, based on fraud, was permitted to be filed over the defendant Bessolo’s objection and after demurrer thereto. At the conclusion of the trial the judgment was adverse to Bessolo who thereafter perfected an appeal, but before the determination thereof, through the efforts of the title company, the action was settled. A judgment was entered in favor of Bessolo which effectively cleared the title to the property, which, it should be remembered, is the same property Sala and Seigler had purchased.

In substance, it is contended by respondents Sala and Seigler in connection with the within appeal, and alleged in the complaint as well, that the insurance policy guaran

The theory of the trial court may be gathered from the remarks of the judge who presided at the trial, as follows: “It seems to me we are getting pretty far from what is really rather a simple issue; first, whether there was a policy of insurance issued; that seems to be admitted by everyone; second, whether there was a defect in the title; third, whether that defect rendered the title bad or unmarketable, and fourth, what, if anything, was the difference in value between the property if the title had been good as it was assured to be, and what it was with any defect, if any existed, assuming that the value was there. That is all there is to this case, as I see it.” And again: “ . . . I think, in this type of ease, the measure of damages is the difference between the value of the property, if it had a good, marketable title, which the company assured that it did have, and the value of the property if the title was not marketable, and if that non-marketability was by reason of some defect, which was a matter of record, which the company failed to show in its certificate of title.’’ And, in a later observation: “It seems to me, the more I think of it, the more I am convinced it is correct that the only possible measure of damages for the

Before analyzing the respondents’ contentions and the theory of the trial court, above noted, the facts may be summed up as follows: During the second trial of the Zamboni action, as indeed was the case at all times, respondents Sala and Seigler were in this position: There being a lis pendens on record, the outcome of the Zamboni trial would affect the title of the property which was the subject of the lawsuit, although the record title thereof was in the name of respondents Sala and Seigler, who were not parties to that action. At the conclusion of the Zamboni trial when the judgment was adverse to the interests of respondents Sala and Seigler, it was evident that respondents would lose the property by virtue of the judgment, unless such judgment could be set aside or reversed, or unless a settlement could be reached, the effect of which would clear the title. After the adverse judgment in said action an appeal was taken and perfected and appellant’s opening brief was filed. Pending the appeal in that action, respondents herein lost the property as a result of the foreclosure of the trust deed, which foreclosure vested the title to the property in the Bank of Italy. At the same time the foreclosure relieved respondents Sala and Seigler of the total amount of the debt secured by the trust deed. Thereupon, according to its terms, the benefits of the policy inured to the Bank of Italy, the new title holder of the property. Manifestly, if the judgment in the Zamboni case could not be reversed on appeal and a different judgment obtained that would clear the title, or the same result achieved by settlement, then, and in that event, a cause of action would follow in favor of the Bank of Italy, and against the title company. Under such circumstances would respondents Sala and Seigler also have a cause of action against the title company by virtue of the same policy of insurance? And if so, for what?

Returning now to the contentions of respondents, from a review of the record and in the light of the foregoing summary, each and all of such contentions are without merit.

In connection with respondents’ claim that the insurance policy did not contain a true and correct statement concerning the title, exaggerated and unwarranted importance is attributed to the failure of the title company to mention the lis pendens in the insurance policy, when, in

The title company had the right to include or omit a reference to the Us pendens in the insurance policy as it chose, and by no process of logical reasoning, in the light of the

With regard to respondents’ contention above mentioned, namely, that if the title to the property had not been misrepresented in the policy of insurance respondents would not have purchased the property or secured the loan of $12,0C0, it is at once apparent that such argument is unsound, and from the standpoint of logic merely consists of one of a series of “ifs”, which can be multiplied on the one hand by appellant as readily as they can be increased on the other by respondents, and so on ad infinitum,. Moreover, appellant owed no duty to include any reference to the lis pendens in the contract of insurance, and the failure so to do in no sense was a misrepresentation either directly or in effect.

With regard to respondents’ contentions that the Collins Concrete Pipe Company defaulted on account of the defective title, and that the title company acted in bad faith and was in collusion with the Bank of Italy, it is sufficient to note that the record is destitute of any legal evidence in support of such contentions, nor is there any evidence in the record in support of respondents’ contention that the title company was guilty of unreasonable delay in clearing the title. To the contrary, the record reveals that two of the parties to the Zamboni action died, which of necessity required the appointment of administrators and substitutions in order to carry on the litigation. And, also, the chief counsel for one of the parties was in a sanitarium for six months, which, together with other facts and circumstances in connection with the progress of the litigation, accounts for the delay in every respect, and leaves the title company free from warranted criticism in this regard.

The theory of the trial judge, as above outlined, apparently results from a misconception of the legal effect of the insurance policy in question. Its legal effect may be determined by familiar rules, for example, as pointed out by respondents, “Obviously, the parties may contract in any particular policy, as they see fit”, and further quoting from respondents’ brief, “A policy of title insurance is a contract of indemnity ... To determine the rights and liabilities of the parties to the contract it is necessary to deter

The theory of the trial court, and the contention of respondents as well, fails to take into account the contract in its entirety, and by thus disregarding the rights of the title company under the terms of the contract, assumes that the title company breached the contract as of the day the insurance policy was issued and that therefore and on said date was liable in damages for the difference between the value of the land with a marketable title and its value with an unmarketable title. Such a theory is obviously unsound for the reason that it forecloses the title company, if it elects so to do, from exercising its right, according to the terms of the policy, to clear the title. Manifestly, the insurance policy must be construed in its entirety, and it was as much the right of the insurance company to perform the contract according to its terms as it was the right of the assured to expect payment in the event of a failure upon the part of the title company so to do.

Respondents complain bitterly because the title company did not commence “in the name of the Insured” an action to clear the title, which omission, it is argued, constituted a breach of the insurance contract on the part of the title company, and from which breach the alleged cause of action herein in part accrued. The complaint is trivial; it is based on the clause in paragraph IY of the insurance contract wherein, as above noted, it is provided that a right of action against the company shall accrue when the company shall fail within a reasonable time in the name of the Insured to institute and faithfully prosecute proper action to remove the adverse claim. But the same clause further provides, “or otherwise pay, satisfy, compromise or defend to final determination, such adverse claim”, and this is precisely what the title company did, in fact, do. Assuming that a cause of action existed against the title company, the clause in question merely determined when such action could be commenced. The fact remains that the title company performed

With regard to the plea by defendant of the bar of the statute of limitations, it is appropriately recited in appellant’s brief, that “if it is an action in tort growing out of defendant’s negligence, the right of recovery was barred, at least after two years from the time their property was lost through foreclosure, and no claim of lack of knowledge of the existence of the cause of action would suspend the running of the statute. On the other hand, if the cause of action was based on fraud, the complaint was deficient in several respects, but especially in failing to set forth facts excusing their alleged failure to discover the fraud within a period of three years prior to the commencement of the action.” It is sufficient to note in this connection that, in the light of the record, upon whatever theory plaintiffs seek to base a cause of action against the title company, such attempt is effectively barred by the statute of limitations.

The evidence reveals that Sala and Seigler had known each other for many years and had been in many real estate transactions together. The only logical, reasonable deduction from the evidence indicates that respondents purchased the land in question with borrowed money, and being unable to pay the loan when due, lost the property. They may have profited more if they had been able to retain the land, but nevertheless neither the loss of the land nor the loss of contemplated profits can be attributed to any actionable act or omission of the title company or to the failure of the title company to perform its obligations under and according to the terms of the insurance contract.

The motion for a judgment notwithstanding the verdict should have been granted.

For the reasons heretofore given the judgment is reversed with directions to enter judgment for the defendant. There being no appeal authorized from the order denying

York, P. J., and White, J., concurred.

A petition by respondents to have the cause heard in the Supreme Court, after judgment in the District Court of Appeal, was denied by the Supreme Court on September 17, 1938.