Anderson v. Boone County Abstract Co., 52542

• Decision Date: 10 July 1967
• Docket Number: No. 52542,No. 1,52542,1
• Citation: 418 S.W.2d 123,34 A.L.R.3d 1111
• Parties: Jeremiah B. ANDERSON and Amy A. Anderson, Plaintiffs-Appellants, v. The BOONE COUNTY ABSTRACT COMPANY, a Corporation, Defendant-Respondent
• Court: Missouri Supreme Court

Page 123

418 S.W.2d 123

34 A.L.R.3d 1111

Jeremiah B. ANDERSON and Amy A. Anderson, Plaintiffs-Appellants, v. The BOONE COUNTY ABSTRACT COMPANY, a Corporation Defendant-Respondent.

No. 52542.

Supreme Court of Missouri, Division No. 1.

July 10, 1967.

Motion to Transfer to Court en Banc or for Rehearing Denied

Sept. 11, 1967.

Carl F. Sapp, Scott Orr, Sapp, Woods & Dannov, Columbia, for appellants.

Terence C. Porter, Columbia, Welliver, Porter & Cleaveland, Columbia, of counsel, for respondent.

WELBORN, Commissioner.

This is an appeal from a judgment of dismissal of plaintiffs' petition seeking damages from defendant abstract company, for negligent certification of an abstract, obtained from defendant by a predecessor in title of plaintiffs and upon which plaintiffs allegedly relied in purchasing property in the City of Columbia. Recovery was sought for damages totaling $25,000.

Plaintiffs' petition alleged that by warranty deed, dated May 21, 1962, Odus H. Powell and Francis R. Powell conveyed to Al H. Wulff and Bernice Wulff and William J. Wulff and Helen R. Wulff Lots 24 and 25 of McNab Subdivision in the City of Columbia. By deed dated November 21, 1962, to Wulffs conveyed the property to Frank H. and Harriette S. Fristoe by warranty deed. By warranty deed, dated July 1, 1963, the Fristoes conveyed a one-half interest in the property to plaintiffs.

The petition further alleged that plaintiffs purchased the property for the purpose of developing it for commercial and business purposes, subject to applicable zoning regulations; that, subsequent to their purchase, plaintiffs discovered that the property was subject to a duly recorded restrictive agreement entered into by the Powells on September 24, 1956, whereby the use of the land for commercial purposes was prohibited 'unless zoned by ordinance for a planned shopping center; * * *.'

The petition further alleged that, on January 5, 1962, the defendant abstract company had, for value received, prepared a certified abstract for the Powells which purported to include all matters of record affecting the real estate here involved, but that the restrictive covenant referred to above was not included in the abstract.

Plaintiffs alleged that the defendant knew, should have known or could reasonably foresee that the abstract which the Powells obtained was to be presented to a purchaser or purchasers for examination for sale of the real estate and that the defendant 'could reasonably foresee that the abstract with the aforesaid certificate would be relied upon by subsequent purchasers of the real estate.' The petition alleges that plaintiffs did rely upon the abstract and certificate and were willing, after the examination thereof, to accept the deed from the Fristoes, 'believing said real estate could be used for commercial purposes.'

The petition alleged that defendant was negligent in the preparation of the abstract and certificate and that the defendant carelessly and negligently failed to include the restrictive agreement in the abstract; that, as a direct and proximate result of such negligence of defendant, plaintiffs were damaged in the sum of $25,000. Of the damages, $18,000 was alleged to arise by reason of the differences in value of $25,000 of the land without the restriction and $7,000 with the restriction. The plaintiffs also alleged a loss of $7,000 for costs, charges and expenses incurred in attempting to develop the real estate for business purposes prior to discovery of the restrictive covenant.

Defendant moved to dismiss the petition on numerous grounds, including the ground that plaintiffs were in no way in privity of contract with the defendant and are, therefore, precluded from claiming any rights in connection with the certification. The trial court sustained defendant's motion without specifying the grounds therefor. On this appeal, appellants have briefed only the privity question and, although defendant has briefed other grounds on which it claims the action of the trial court may be sustained, we will look first to the issue briefed by appellants.

Plaintiffs-appellants state their position in their brief as follows:

'Plaintiffs ask this Court to overrule the case of Schade v. Gehner, 133 Mo. 252, 34 S.W. 576 (1896), which held that privity was required before there could be any recovery of damages for the negligent certification of abstracts of title. Plaintiffs ask that the law in Missouri be declared to be that the maker of a negligent misrepresentation relied on by a third person without privity between the parties should be liable for damages if the relying and injured party is one of the class of persons for whose guidance the information was supplied. Restatement, Torts, Section 552 (2d Ed.1938). Plaintiffs also ask the Court to declare that this class be limited by the foreseeability test and by the applicable statutes of limitation.'

In Schade v. Gehner, the widow of a purchaser of real estate who had employed a title examiner whose opinion on the validity of a title turned out to be erroneous was denied recovery on a claim charging negligence against the examiner.

The court stated: 'Conceding, then, the defendant's negligence, and that a right of action accrued therefor, * * * to whom did such right to action accrue? That it accrued to George Schade, with whom the contract of employment was made, is matter of course. That a right of action could not accrue to any one else who was not privy to the contract, although damage may have resulted to such other person by reason of the negligence, is the uniform doctrine of the authorities.' 34 S.W. 577. Among the Missouri authorities cited were Zweigardt v. Birdseye, 57 Mo.App. 462, and Gordon v. Livingston, 12 Mo.App. 267. In Zweigardt, absence of privity was held to bar an action by a purchaser for an abstracter's negligence in preparing an abstract for the purchaser's vendor. In that case, the court stated that the rule applied by it 'applies with like force even where the abstractor or examiner has knowledge that the certificate as to title is to be used in a sale or loan to advise the purchaser or loanor.' 57 Mo.App. 467. In Gordon, the court held that a grain inspector's liability for a false certificate, given negligently, but not fraudulently, did not extent to the purchaser of the grain who bought on the faith of the certificate but with whom the inspector had not contracted.

Appellants contend that, since those decisions of the prior century, the 'assault upon the citadel of privity * * * (has proceeded) apace' (Cardozo, J., in Ultramares Corporation v. Touche, 255 N.Y. 170, 174 N.E. 441, 445, 74 A.L.R. 1139) and that the time has arrived for the limitation or abrogation of the protection against liability which the doctrine of privity has afforded abstracters.

The plaintiffs acknowledge that breaches in the privity defense as applied to abstracters have been minor. Plaintiffs accept the requirement of privity as the general rule. 1 C.J.S. Abstracts of Title § 11(c), pp. 393--396; 1 Am.Jur.2d, Abstracts of Title, §§ 15 and 16, pp. 240--242; Annotations, 34 A.L.R. 67, 68 A.L.R. 375; Roady, 'Professional Liability of Abstracters,' 12 Vanderbilt Law Rev. 783. The major exceptions to the rule have resulted from abstracters' licensing laws in several states. See Eckhardt, 'Abstracters' Licensing Laws,' 28 Mo. Law Rev. 1 (1963). In the following states, recovery on the bond required as a condition for licensing is not limited to those in privity with the abstracter: Idaho (Idaho Code, § 54--101; see Merrill v. Fremont Abstract Co., 39 Idaho 238, 227 P. 34); Kansas (K.S.A. § 58--2802); Montana (Rev.Code, 1947, § 66--2113); Nebraska (Rev.Stat.1943, § 76--501; see Gate City Abstract Co. v. Post, 55 Neb. 742, 76 N.W. 471); New Mexico (New Mexico Stat.Ann., § 70--2--1; see Gallegos v. Ortiz, 28 N.M. 598, 216 P. 502); Oklahoma (Okla.Stat.Ann., Title 1, § 1; see Sackett v. Rose, 55 Okl. 398, 154 P. 1177, L.R.A. 1916 D, 820); South Dakota (S.D.Code, § 1.0107; see Goldberg v. Sisseton Loan & Title Co., 24 S.D. 49, 123 N.W. 266); Utah (Utah Code Ann. § 1--1--12), and Wyoming (Wyo.Stat., § 33--12). In Oregon, a statute eliminates the defense of privity unless the abstracter's certificate is limited to a named person. Or.Rev.Stat. § 30.750. Aside from statutes, the privity requirement has been held satisfied where the contract with the abstracter was by an agent for an undisclosed owner (Young v. Lohr, 118 Iowa 624, 92 N.W. 684), or where the purchaser obtains a recertification of the abstract. Beckovsky v. Burton Abstract & Title Co., 208 Mich. 224, 175 N.W. 235, 178 N.W. 238.

The most significant cases from appellants' standpoint are those in which recovery has been allowed by a purchaser or lender who the abstracter knew was to make use of the abstract ordered by the vendor or borrower. A number of such cases have permited action by a particular person known to the abstracter to be the person to whom the abstract will be exhibited. Dickle v. Nashville Abstract Co., 89 Tenn. 431, 14 S.W. 896; Denton v. Nashville Title Co., 112 Tenn. 320, 79 S.W. 799; Anderson v. Spriestersbach et ux., 69 Wash. 393, 125 P. 166, 42 L.R.A.,N.S., 176; Brown v. Sims, 22 Ind.App. 317, 53 N.E. 779; Shine v. Nash Abstract & Investment Co., 217 Ala. 498, 117 So. 47; Western Loan & Savings Co. v. Silver Bow Abstract Co., 31 Mont. 448, 78 P. 774. 'While the existence of a custom for a vendor or borrower to procure an abstract for the use of prospective purchasers or lenders, and of such purchaser or lender to rely thereon, has been urged in a number of cases as a ground for holding the abstracter liable to such person, generally the courts have declined to give effect to such custom as a basis for holding an abstracter liable to any person other than his employer who suffers damage by reason of negligent work in preparing the abstract.' 1 Am.Jur.2d, op. cit., § 16, p. 242, citing Thomas v. Guarantee...