Claussen v. First America Title Guaranty Co.

• Decision Date: 14 October 1986
• Citation: 230 Cal.Rptr. 749,186 Cal.App.3d 429
• Court: California Court of Appeals Court of Appeals
• Parties: Judith C. CLAUSSEN, Plaintiff and Respondent, v. FIRST AMERICAN TITLE GUARANTY CO., Defendant and Appellant. H001142.

Page 749

230 Cal.Rptr. 749

186 Cal.App.3d 429

Judith C. CLAUSSEN, Plaintiff and Respondent, v. FIRST AMERICAN TITLE GUARANTY CO., Defendant and Appellant.

H001142.

Court of Appeal, Sixth District, California.

Oct. 14, 1986.

Scott L. Thomas, Schneider & Wallerstein, San Jose, for defendant and appellant.

Bernard J. Vogel, Jr., Anastasi, Frasse, Vogel & Nielsen, San Jose, for plaintiff and respondent.

AGLIANO, Presiding Justice.

I

Plaintiff recovered judgment for $64,978.95 against defendant/appellant First American Title Guaranty Company for negligence and breach of contract in defendant's handling of the escrow among plaintiff lenders and the borrower-buyer and seller. We reverse, disagreeing with the trial court's conclusion that a telephone conversation between plaintiff's agent and defendant resulted in an escrow instruction to defendant.

II Facts

We review the evidence on appeal in favor of the prevailing party, resolving conflicts and drawing reasonable inferences in support of the judgment. (California Bank v. Sayre (1890) 85 Cal. 102, 104, 24 P. 713; Dunphy v. Dunphy (1911) 161 Cal. 380, 384, 119 P. 512; Bancroft-Whitney Co. v. McHugh (1913) 166 Cal. 140, 142, 134 P. 27.)

In August 1982, Bonnie Beddingfield sold her property at 6400 Camden Avenue in San Jose for $127,000 to Paul Colagiovanni. She believed Harold Smith, who held himself out as a real estate broker, also was acquiring the property. Colagiovanni took title to the subject property by assuming the first and second deeds of trust and making a $6,000 down payment to Beddingfield. She thought the property was worth $150,000 at the time but she had to sell for less because she could not afford to keep it.

Smith concurrently arranged for James Dixon to buy the property from Colagiovanni for $217,000. Dixon's loan application was referred by Sentinel Mortgage Company to California Plan, a mortgage loan broker. Dino Bisordi of California Plan interviewed Dixon on August 13, 1982 at the latter's office, with Smith present. Bisordi was given a deposit receipt indicating the price of the property to be $217,000 and an appraisal of the property by Jeannete Reyla, valuing the property at $215,000. The deposit receipt also showed the buyer, Dixon, was making a deposit of $5,000 and a cash down payment of $57,750 and would assume the first deed of trust held by Glendale Federal in the amount of $72,650 and the second held by Old National in the amount of $49,000, contingent on the buyer obtaining a loan secured by a third deed of trust in the amount of $37,600. The receipt did not indicate whether the down payment was to pass through escrow. Bisordi discussed the terms of the loan with Dixon and Smith and they seemed to agree the down payment would pass through escrow. Bisordi filled out a California Plan loan application which Dixon signed.

Bisordi brought the loan application to John Williamson, the president and majority shareholder of California Plan. Williamson questioned the appraisal, being generally familiar with the location of the property and unfamiliar with Reyla as an appraiser. He requested another appraisal, by Elmer Vincent, Jr., one of several independent appraisers with whom California Plan customarily dealt. On the back of the borrower's loan application was a form for the appraiser to complete, which identified the amounts of outstanding loans, the physical condition, size, and layout of the structure, and four comparable sales. Vincent appraised the property at $220,000, based in part on the proposed purchase price.

California Plan also obtained a credit check and an employment verification of Dixon, who had been employed by an insurance company for eight years and was receiving an annual salary of almost $74,000. When Vincent's appraisal confirmed the sale price, Williamson finally decided to approve the loan. It was important to him the buyer was going to pay almost $60,000 of his own money, indicating he was not likely to abandon the transaction. He assumed from the deposit receipt the down payment would pass through escrow. California Plan then prepared a lender's bulletin.

Williamson and James Lux, another California Plan employee, presented the prospect of making this loan to George Claussen. Claussen had been involved with California Plan for about six years, and was a knowledgeable investor who had made about twenty investments with them. Lux, Williamson and Claussen were friends. Williamson and Lux showed him the lender's bulletin, which described the buyer's employment and income, California Plan's appraisal of the property, and other information, such as existing deeds of trust. Claussen was shown the deposit receipt and it was also his feeling that a buyer who was making a $60,000 down payment was serious. He was aware it was a third deed of trust, but decided to make the loan. The following day, Lux had Mr. Claussen sign the necessary loan documents. George made the loan from the George E. Claussen, D.M.D., Inc. Money Purchase Pension Plan, of which he and plaintiff Judith Claussen were trustees.

Smith and Colagiovanni opened escrow for the purchase of the property by Dixon with Stella Hagdohl at defendant First American Title. She never saw Dixon, but it was not unusual for the buyer not to appear before the escrow holder unless the seller requested it. Smith advised Hagdohl that Dixon would be assuming the first and second deeds of trust, and he requested Hagdohl not to notify those lenders. Near the close of escrow, Hagdohl had the buyer and seller sign releases of liability by which they acknowledged the lenders had not been notified and they should contact an attorney to discuss possible legal consequences. Sometime near the close of escrow, Hagdohl learned that California Plan would be handling the funding of a third deed of trust.

At California Plan, Williamson asked Bisordi and Joy Neesmith, the manager of California Plan's escrow department, to call the title company and make sure escrow would not close until the down payment was made in escrow. On August 25, 1982, Neesmith called Hagdohl in order to determine whether First American had all the necessary documentation to close escrow, to determine when escrow would be closing, and in what capacity Dixon would be taking title. Hagdohl made a note of the conversation showing they discussed the loan amount would be $37,600 and the down payment would be $60,000. Hagdohl recalled not being specifically asked in the $60,000 was in escrow at that time. Neesmith, however, was sure she asked whether the amount was deposited in escrow and that Hagdohl answered either it was or it was expected before escrow closed. California Plan would not have released the funds to the borrower if the $60,000 had not been paid.

California Plan then prepared the final documents, including lender's escrow instructions to First American Title dated August 25, and a check. The written instructions described when the escrow holder was authorized to record the third deed of trust and disburse the loan. They did not mention a down payment of any amount in escrow, nor did they request a copy of the buyer's and seller's instructions. They did condition the close of escrow on fire insurance protecting the lender and did ask First American to forward copies of beneficiary statements of the first and second mortgage holders at the close of escrow. The beneficiary statement indicates whether the lender consents to an assumption as well as describing the amount due monthly and other information about the terms of the security. California Plan did not specifically require receipt of beneficiary statements prior to the close of escrow, relying on a business custom that a title company would advise a lender if a prior lender would not consent to an assumption. California Plan also prepared a deed of trust and a promissory note for $37,600, which Bisordi had Dixon sign on August 26.

Probably on August 30, and after the Neesmith phone call, Hagdohl was informed by Smith that the down payment was going to be made outside of escrow. First American Title drew up the buyer's and seller's escrow instructions to reflect a payment of $58,241.94 outside of escrow, which were signed on August 31 by the buyer and seller. California Plan was not advised the payment was made outside of escrow.

The lender's escrow instructions were received by Hagdohl on August 31, the day before escrow closed on September 1. Hagdohl informed Smith he would have to provide the beneficiary statements and evidence of fire insurance to California Plan. She did not advise California Plan she could not honor their request. Hagdohl did send a letter to California Plan dated September 2, transmitting the beneficiary statements, which showed the first deed of trust holder, Glendale Federal, would not allow assumption without express consent. First American Title disbursed the $37,600 as follows: $14,379.92 to Paul and Deborah Colagiovanni; $5,891.03 to Harold Smith; $7,128.97 to California Plan; $35 to the City of San Jose; $8,179.43 to Transamerica Title (to close out a related transaction); and the rest to First American for escrow fees of $336, title transfer fees of $74, title insurance fee of $742.50, Santa Clara County recording and transfer tax of $833.15.

Upon the borrower's default in repayment, the Claussens advanced money from their Pension Plan and personal accounts to bring the prior loans current. Ultimately, on June 10, 1985, California Plan foreclosed on the property on behalf of the Claussens with the Claussens acquiring the property for $43,487.51.

III Findings of Trial Court

The trial court determined in written findings that California Plan was an agent of plaintiff Claussen and was not negligent in relying on the appraisal by Vincent or in any other respect in its conduct as a mortgage loan broker in this transaction. Dixon and Smith actively misrepresented Dixon's intent to purchase the...