Burkons v. Ticor Title Ins. Co. of California, 1

• Decision Date: 21 December 1989
• Docket Number: CA-CIV,No. 1,1
• Citation: 165 Ariz. 299,798 P.2d 1308
• Parties: Earl M. BURKONS, Plaintiff-Appellant, v. TICOR TITLE INSURANCE COMPANY OF CALIFORNIA, a California corporation, Defendant-Appellee. 9775.
• Court: Arizona Court of Appeals

Page 1308

798 P.2d 1308

165 Ariz. 299

Earl M. BURKONS, Plaintiff-Appellant, v. TICOR TITLE INSURANCE COMPANY OF CALIFORNIA, a California corporation, Defendant-Appellee.

No. 1 CA-CIV 9775.

Court of Appeals of Arizona,

Division 1, Department C.

Dec. 21, 1989.

Reconsideration Denied June 8, 1990.

Review Granted Nov. 6, 1990.

[165 Ariz. 301] Jennings, Strouss & Salmon by Timothy W. Barton, Jefferson L. Lankford, Michael R. Palumbo, and Carol A. Cluff, Phoenix, for plaintiff-appellant.

Streich, Lang, Weeks & Cardon by Robert E. Miles, Marcia Horn Yavitz, and E. Jeffrey Walsh, Phoenix, for defendant-appellee.

OPINION

GRANT, Chief Judge.

This is an appeal from summary judgment in favor of a title company on claims against it for breach of an escrow contract and breach of fiduciary duties, and from dismissal for failure to state a claim of bad faith breach of contract.

FACTS

Earl M. Burkons provided his brother-in-law, Arthur Schnitzer, with a power of attorney to sell Burkons' real property located in Phoenix. In 1983 Schnitzer agreed, on behalf of Burkons, to sell the property for $135,000 to "Pyramid I", an Arizona joint venture composed of Mark R. Masias, Dr. Dennis Noss and Domenico Spano (Pyramid). The written contract provided that Burkons would receive a $1,000 earnest money deposit, a $24,000 cash down payment and a $110,000 carry-back promissory note and deed of trust. The contract also provided that the escrow would contain a subordination agreement and letter of intent. Schnitzer acted as Burkons' attorney-in-fact in the transaction. Neither Burkons nor Schnitzer was sophisticated in real estate matters, nor were they represented by legal counsel.

The parties employed Ticor Title Insurance Company of California, a California corporation (Ticor), to handle the escrow, and Ticor's escrow officer, Joyce Yancy, prepared the escrow instructions. The escrow instructions recited the purchase price of $135,000, with a $25,000 cash down payment and the balance of a $110,000 promissory note secured by a first lien deed of trust. The escrow instructions prohibited the buyer from placing "another lien of any type against this property without written permission from the Seller." The escrow instructions further stated that the seller (Burkons) was to accept a subordination agreement and letters of intent with financial statement in writing before the escrow closed.

Pursuant to the escrow instructions, the buyers prepared the letter of intent ¹ which described the buyers' plan to construct a medical complex on the property and reflected the parties' understanding that the buyers would finance the construction by obtaining a loan separate and apart from the money used to purchase the property. The letter of intent assured Burkons that subordination of his loan to the loan obtained for construction would be nominal--"approximately 50% of [the] selling price." The construction of improvements was critical; it would increase the value of the property, and thereby provide adequate security for both the construction lender and Burkons.

The buyers obtained a $67,000 loan from Tower Acceptance and Service Corporation (Tower) and prepared a subordination agreement which specifically incorporated the aforementioned letter of intent. Only the amount to which Burkons would be subordinated, $67,000, was filled in on the otherwise blank form. Although Ticor did not handle the escrow for the buyer's loan, Ticor's agent later completed the subordination agreement form, adding such terms as the identity of the lender, the interest rate, the payment terms, and the due date. Neither Burkons nor Schnitzer was consulted or notified about these terms. The buyers' real estate agent, George Stika, had previously obtained Schnitzer's signature on the essentially blank subordination form before it was filled in by Ticor.

Schnitzer died before the parties to this litigation had an opportunity to question him. Thus, the only evidence concerning conversations between Stika and Schnitzer comes from Stika, the buyers' real estate agent. Stika testified at deposition that he explained to Schnitzer that, as a result of the subordination, Burkons' deed of trust would be in second position. According to Stika, Schnitzer responded that he knew what a subordination agreement was. Stika also testified that he informed Schnitzer that the blanks in the partially completed subordination agreement would be filled in before the escrow closed or before the agreement was recorded. Again, according to Stika, Schnitzer responded that he understood.

Yancy, the escrow officer, was aware prior to closing of escrow that the combined deeds of trust on the property--the $110,000 lien plus the $67,000 lien--were greater than the $135,000 purchase price. She was concerned that this overencumbrance might violate the internal Ticor policy against handling escrows in which liens on the property exceeded the sales price. She consulted Ticor's senior advisory escrow officer, Lee Vrooman, who told her that, because the internal policy was inapplicable to the Burkons escrow, Yancy should proceed with processing the escrow. The Burkons escrow was the fourth in a series of seven escrows Ticor handled involving Pyramid, and each was overencumbered.

Escrow closed on January 5, 1984. Ticor received $46,705.69 in loan proceeds from another title company acting for the buyers to deposit into escrow. Ticor applied $24,000 of these loan proceeds toward the down payment and turned over the remainder of these funds to the buyer, minus certain costs and escrow fees. A settlement statement prepared by Yancy reflected that the money used to make the down payment was, in fact, taken from the Tower loan to which Burkons had been subordinated. In other words, the "construction loan" money was used for purchase rather than improvement of the property. Yancy did not inform Burkons or Schnitzer of either the overencumbrance or the source of the down payment.

Ticor filed the escrow documents in the following order: construction loan deed, Burkons' deed, the subordination agreement, and the letter of intent. As a result of the order in which the documents were filed, the Burkons' deed of trust was in second position to the "construction loan," not simply as a result of the subordination agreement, but also as a result of recording order. Ticor's fee for its services was $240.25.

Pyramid failed to improve the property and eventually defaulted on the promissory note payments to Burkons. Sixteen months after close of escrow, Burkons filed suit against Ticor. Count I alleged Ticor breached the escrow contract for recording the deed in the wrong order, subordinating Burkons' deed to other than a construction loan, and filling in the blanks on the subordination agreement without authority; Count II alleged that Ticor breached a fiduciary duty for failure to follow escrow instructions; Count III alleged that Ticor breached a fiduciary duty for failure to disclose a known fraud; Count IV alleged that Ticor committed bad faith breach of contract; and Count V sought damages for emotional and mental distress.

PROCEDURAL HISTORY

Burkons filed his complaint on April 26, 1985. Ticor answered on June 10, 1985, denying all counts. Burkons moved to consolidate his case (C-543017) with related cases (Manley v. Ticor Title Ins. Co., C-540936; Cline v. Ticor Title Ins. Co., C-546020; and Dickens v. Ticor Title Ins. Co., C-550494), but the motion was granted only for pretrial purposes. ²

On August 6, 1986 Ticor filed a motion for summary judgment on Counts I, II, III, and V of Burkons' complaint. Count IV, the bad faith claim, was earlier dismissed for failure to state a claim. On September 9th the trial court granted summary judgment with respect to Counts III and V of the complaint and denied summary judgment on Counts I and II. Both sides filed motions for reconsideration of their respective positions, and on March 20, 1987, the court granted Ticor's motion for summary judgment on Counts I and II and denied Burkons' motion for reconsideration of Count III. Final judgment was entered on July 7, 1987, dismissing all of Burkons' claims against Ticor and awarding Ticor $35,000 in attorney's fees. Burkons filed a timely notice of appeal on July 17, 1987.

ISSUES PRESENTED

On appeal, Burkons contends that the trial court erred in granting summary judgment for Ticor on the questions whether Ticor breached its fiduciary duty and whether Ticor breached the escrow contract. Burkons also contends that the trial court erred by finding that Ticor was not liable in tort for intentional breach of the implied covenant of good faith.

STANDARD OF REVIEW

It is well established that summary judgment may be granted only if there is no genuine dispute as to any material fact, if only one inference can be drawn from the facts, and if the moving party is entitled to judgment as a matter of law. Nicoletti v. Westcor, Inc., 131 Ariz. 140, 142, 639 P.2d 330, 332 (1982). On appeal from a grant of summary judgment, we must view the evidence in the light most favorable to the party opposing the motion. State ex rel. Corbin v. Challenge, Inc., 151 Ariz. 20, 24, 725 P.2d 727, 731 (App.1986).

This court is free to substitute its analysis of the record for the trial court's where the case turns upon the interpretation applicable to undisputed facts. Goodyear Aircraft Corp. v. Arizona State Tax Comm'n, 1 Ariz.App. 302, 303, 402 P.2d 423, 424 (1965). Interpretation of legal instruments is also a question of law to be determined by this court independent of the trial court's findings. LeBaron v. Crismon, 100 Ariz. 206, 208, 412 P.2d 705, 706 (1966); Stika v. Albion, 150 Ariz. 521, 523, 724 P.2d 607, 609 (App.1986).

DUTY OF ESCROW AGENTS

The law is well settled that escrow agents owe a fiduciary duty to their clients. Fiduciary relationships are of two types: 1) those specifically created by contract or formal legal...