Central Bank v. Transamerica Title Ins. Co.

• Decision Date: 27 October 1978
• Citation: 149 Cal.Rptr. 822,85 Cal.App.3d 859
• Court: California Court of Appeals Court of Appeals
• Parties: CENTRAL BANK et al., Plaintiffs and Appellants, v. TRANSAMERICA TITLE INSURANCE COMPANY, Defendant and Respondent. Civ. 41712.

Page 822

149 Cal.Rptr. 822

85 Cal.App.3d 859

CENTRAL BANK et al., Plaintiffs and Appellants, v. TRANSAMERICA TITLE INSURANCE COMPANY, Defendant and Respondent.

Civ. 41712.

Court of Appeal, First District, Division 3, California.

Oct. 27, 1978.

Hearing Denied Dec. 20, 1978.

Anthony W. Hawthorne, Walnut Creek, for plaintiffs and appellants.

Reid, Babbage & Coil, Donald F. Powell, Riverside, for defendant and respondent.

WHITE, Presiding Justice.

Appellants Central Bank and United Communities Corporation appeal from a judgment entered in favor of respondent Transamerica Title Insurance Company after the trial court granted respondent's motion to dismiss and sustained its demurrer to the complaint without leave to amend. Appellants contend that their causes of action were not barred by the statute of limitations and the trial court improperly applied the doctrine of res judicata. We find res judicata is not a bar, but the statute of limitation is, and affirm and judgment.

In April of 1970 Waray, Inc. (hereinafter Waray), was the owner of certain real property located in Riverside County, California. That month Waray entered into a written contract with Paul Sam whereby Sam, or his nominee, agreed to purchase the property from Waray for $410,000. It was further agreed by the parties that Waray was to receive a purchase money deed of trust in the amount of $160,000 which deed of trust would be subordinate to a first deed of trust. The parties also agreed that the first deed of trust would be for the purpose of securing a construction loan which funds were to be entirely used by the purchaser for the construction of a mobile park on the real property.

In July of 1970, Sam told Waray that Wonder Palms would be the ultimate purchaser of the property. Central Valley National Bank (appellant herein) agreed to lend Wonder Palms $1,270,000 as a construction loan to build a mobile home park. Central Bank required that Waray's deed of trust be subordinated to its deed of trust through priority of recording rather than through a formal subordination agreement. Waray agreed to subordinate its deed of trust pursuant to the understanding that Central Bank would disburse funds only for construction of improvements on the property.

On February 2, 1973, Waray brought suit (hereinafter Waray Action) against appellants Central Bank and United Communities Corporation, among others, alleging as follows: Central Bank disbursed funds from its construction loan account other than for the construction of improvements on the property. The construction of the mobile home project was abandoned before completion although all or substantially all of the construction loan funds had been disbursed. Central Bank conducted foreclosure proceedings under the power of sale contained in its deed of trust. Central Bank purchased the property for the amount of its loan. Waray is entitled to its security interest reinstated as superior to Central Bank or to damages in the amount of $190,000 plus interest.

Central Bank asked respondent Transamerica Title Insurance Company to represent it in the Waray Action. In a letter dated November 14, 1973, respondent notified Central Bank that since it was respondent's opinion that its policy did not afford coverage to Central Bank respondent would not defend the Waray Action for Central Bank. On December 9, 1975, judgment was entered in the Waray Action in favor of Waray in the amount of $228,829.56.

On March 18, 1975, before the judgment was entered in the Waray Action, appellants filed a complaint in the Superior Court of Contra Costa County naming respondent as a defendant, as well as Cristine Reyes. Appellants allege in the complaint that respondent acted as the escrow holder involving the sale of the real property in Riverside County and respondent failed to follow Central Bank's instructions in that escrow in regard to the preparation and recordation of a subordination agreement. Appellants allege that respondent's conduct, a breach of fiduciary duty, resulted in appellants being named as defendants in the Waray Action. Thereafter this action was transferred to the County of Riverside.

On October 10, 1975, appellants moved for leave to file an amended complaint adding a second cause of action. The motion was granted and appellants filed the amended complaint alleging that Central Bank was induced to withdraw its request for a written and recorded subordination agreement by the statements of Cristine Reyes, an agent of respondent.

On March 10, 1976, appellants moved for the second time in the Riverside County Superior Court for an order allowing them to file an amended complaint. The proposed amended complaint alleged 10 additional causes of action. ¹ On September 30 1976, the Superior Court of Riverside County denied appellants' motion to amend their complaint. Pursuant to appellants' request, the trial court prepared a memorandum opinion in support of its ruling.

Before the trial court in Riverside County had ruled on appellants' motion to amend their complaint, appellants brought the instant action in the Superior Court of Alameda County on March 26, 1976, naming respondent as the defendant. This complaint purports to state 10 causes of action which are basically identical in form and content to the 10 causes of action appellants sought to add to their complaint in the Riverside County action by way of amendment.

Respondent demurred to the complaint in Alameda County on the grounds that the complaint does not state a cause of action, is barred by the statute of limitations, is barred by the doctrine of res judicata, and another action pending between same parties on same cause of action. Respondent also moved to dismiss the complaint on the ground of res judicata. Respondent asked the court "to request the Chairman of the Judicial Council to assign a judge to determine the appropriateness of coordinating" the Riverside and Alameda actions.

On March 15, 1977, the Honorable John P. Sparrow sustained respondent's demurrer without leave to amend on the grounds that the complaint was barred by the statute of limitations and that there had been an adjudication on the merits of the issues raised in the complaint in the Riverside County Superior Court. The trial court also granted respondent's motion to dismiss. The motion to coordinate was denied. Judgment of dismissal was entered on March 18, 1977.

The parties agree that the applicable statute of limitations is contained in Code of Civil Procedure section 339, subdivision 1, which provides for a two-year statute of limitation. Section 339, subdivision 1 of the Code of Civil Procedure provides: "Within two years: 1. An action upon a contract, obligation or liability not founded upon an instrument of writing, other than that mentioned in subdivision (2) of Section (337) of this code; or an action founded upon a contract, obligation or liability, evidenced by a certificate, or abstract or guaranty of title of real property, or by a policy of title insurance; provided, that the cause of action upon a contract, obligation or liability evidenced by a certificate, or abstract or guaranty of title of real property or policy of title insurance shall not be deemed to have accrued until the discovery of the loss or damage suffered by the aggrieved party thereunder."

Appellants argue that their causes of action alleged in their complaint filed in Alameda County did not accrue until judgment was entered in the Waray Action because until that time they were unable to discover the full extent of their loss or damage. Respondent, on the other hand, argues that it was not necessary for appellants to discover the full extent of their loss for appellants' causes of action to accrue, but rather their causes of action accrued when appellants discovered appreciable harm.

No case has been brought to our attention that addresses the issue raised by the parties in the instant case in the context of discovery of loss or damage claimed to be covered by a title insurance policy. In Contini v. Western Title Ins. Co. (1974) 40 Cal.App.3d 536, 548, 115 Cal.Rptr. 257, the court addressed "discovery" with respect to a cause of action for negligence of a title abstractor. The concept of "discovery" has been defined in the professional negligence (malpractice) context. In Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176, 98 Cal.Rptr. 837, 491 P.2d 421, the California Supreme Court concluded that the statute of limitations for legal malpractice contained in section 339, subdivision 1, as for all professional malpractice, commences to run when the client discovers his cause of action. In Budd v. Nixen (1971) 6 Cal.3d 195, 98 Cal.Rptr. 849, 491 P.2d 433, a companion case to Neel, the California Supreme Court held that a cause of action for legal malpractice does not accrue until the plaintiff has suffered appreciable harm. In Davies v. Krasna (1975), 14 Cal.3d 502, 514, 121 Cal.Rptr. 705, 713, 535 P.2d 1161, 1169, the California Supreme Court stated the principle as follows: "(A)lthough a right to recover nominal damages will not trigger the running of the period of limitation, the infliction of appreciable and actual harm, however uncertain in amount, will commence the statutory period. Under present authority, neither uncertainty as to the amount of damages nor difficulty in proving damages tolls the period of limitations."

An action for professional malpractice is covered by the first part of subdivision 1 of section 339 which does not specifically provide that a cause of action does not accrue until discovery of the loss or damage, while appellants' action upon a policy of title insurance is covered by the second part of subdivision 1 of section 339 which specifically provides that a cause of action accrues only upon discovery of the loss or damage. However, as noted above by judicial declaration a cause of action for professional malpractice...