Colonial Sav. and Loan Ass'n v. Redwood Empire Title Co.

• Decision Date: 30 July 1965
• Citation: 236 Cal.App.2d 186,46 Cal.Rptr. 16
• Court: California Court of Appeals Court of Appeals
• Parties: COLONIAL SAVINGS AND LOAN ASSOCIATION, a California corporation, Plaintiff and Appellant, v. REDWOOD EMPIRE TITLE COMPANY, a corporation, and City Title Insurance Company, a corporation, Defendants and Respondents. Civ. 22259.

Page 16

46 Cal.Rptr. 16

236 Cal.App.2d 186

COLONIAL SAVINGS AND LOAN ASSOCIATION, a California corporation, Plaintiff and Appellant, v. REDWOOD EMPIRE TITLE COMPANY, a corporation, and City Title Insurance Company, a corporation, Defendants and Respondents.

Civ. 22259.

District Court of Appeal, First District, Division 1, California.

July 30, 1965.

E. C. Mahoney, C. Richard Lange, San Francisco, for appellant.

Anderson, McDonald & Belden, Santa Rosa, for respondents.

SIMS, Justice.

Appellant savings and loan association has appealed from that portion of a judgment against respondent title insurance companies which denied it recovery for sums representing the amounts of certain street improvement liens against properties on which appellant granted loans through escrows for which respondents were concededly responsible. ¹

On October 24, 1960, under its application number 15824 respondent Redwood Empire Title Company, as an affiliate of respondent City Title Insurance Company ² issued its preliminary report covering nine lots in the Rohnert Park Subdivision to Edmor Construction Company. This report reflects that the title to the lots as then vested was 'SUBJECT TO: 1st: 1960-61 Sonoma County Taxes [the amounts of the first and second installment of taxes and the assessment number is set forth for each of the nine lots]. 2nd: The herein described property lies within the boundaries of Rohnert Park Special Assessment District and is subject to all assessments and obligations thereof. ' There follows '3rd' which covers setbacks and easements, '4th' which covers a declaration of restrictions, and '5th' which refers to an existing encumbrance.

On the same date the title company issued to the same addressee a similar preliminary report under number 15825 which covered two other lots. It reflected not only current taxes, but also that 1959-1960 Sonoma County Taxes were delinquent and the total amount necessary to redeem for each of the lots. The language in regard to the assessment district omitted the words 'and obligations' and added '(These assessments are collected with the County Taxes).' Each of Items 3rd, 4th and 5th, although different in its express terms, referred to a matter similar to that in the respective number of the other report.

On November 17, 1960 under number P-20007, the title company issued a preliminary report to appellant covering another lot in the same general subdivision. This report is similar in tenor with the foregoing and contains language which is identical with that in number 15825 in regard to the assessment district.

The final report involved was issued May 31, 1961 to Empire Mortgage under number P-20458 and covers one lot 'Subject To: 1st:' 1959-1960 and 1960-1961 Sonoma County Taxes setting forth the amounts thereof; '2nd:' reference to the assessment district in the same language as in numbers 15825 and P-20007, with the addition in the parenthetical clause of the words 'and are not yet payable.'

On November 23, 1960 appellant gave the title company a letter of instructions concerning the eleven lots referred to in reports 15824 and 15825. Insofar as is material here this letter recites as follows: 'Please have the loan documents properly signed, dated, acknowledged and recorded, upon issuance of your final A.T.A. title policies showing record title of real properties described in the preliminary reports under the above numbered escrows vested in Edmor Construction Co., Inc., a California corporation, and insuring the deeds of trust as a first lien on the properties described therein, subject only to exceptions No. 2, 3 and 4 of above numbered escrows. First installment of taxes for 1960-61 must be paid. * * *

'Recordation is to be delayed until you have received evidence that an approved bond has been issued guaranteeing the performance and payment for paying, sewers and installations as are required and necessary for the development of the tract.'

At the time of this transaction there were liens for improvement bonds against the first nine lots of $2,012.04 each, and against the last two lots of $391.31 each.

On December 9, 1960 appellant gave the title company instructions covering the lot which was the subject of report P-20007. This letter requested issuance of a title policy in substantially the same words as set forth above in the letter of November 23rd. There was no reference, however, to the guarantee bond. At the time of this transaction there was a lien on this lot for improvement bonds of $391.31.

On June 16, 1961 similar instructions were given in respect of the property which was the subject of report P-50458. This property was likewise subject to a $391.31 lien for improvement bonds.

In each case the transaction was closed after receipt of the instructions and title insurance was issued by respondents which insured appellant 'against loss or damage * * * by reason of * * * assessments for street improvements under construction or completed at the date hereof which now have gained or hereafter may gain priority over the lien upon said land of said mortgage or Deed of Trust, other than defects, liens, encumbrances and any other matters set forth as Exceptions 2, 3, and 4 in the aforementioned title insurance policies.'

Upon discovery of the existence of the liens for the improvement bonds appellant made demand on the title company for their payment, and commenced the instant suit when its demand met with refusal. The action is not upon the title insurance policies but to recover damages for an alleged failure of respondents to carry out the escrow instructions.

Appellant relies on the principles recently set forth in Spaziani v. Millar (1963) 215 Cal.App.2d 667, 30 Cal.Rptr. 658, as follows: 'An escrow holder is the agent of all the parties to the escrow at all times prior to performance of the conditions of the escrow (Shreeves v. Pearson, 194 Cal. 699, 707, 230 P. 448; Todd v. Vestermark, 145 Cal.App.2d 374, 377, 302 P.2d 347); bears a fiduciary relationship to each of them (Amen v. Merced County Title Co., 58 Cal.2d 528, 534, 25 Cal.Rptr. 65, 375 P.2d 33); and owes an obligation to each measured by an application of the ordinary principles of agency. (Rianda v. San Benito Title Guarantee Co., 35 Cal.2d 170, 173, 217 P.2d 25.)

'It is the duty of an escrow holder to comply strictly with the instructions of his principal (Amen v. Merced County Title Co., supra, 58 Cal.2d 528, 125 Cal.Rptr. 65, 375 P.2d 33; Rianda v. San Benito Title Guarantee Co., supra, 35 Cal.2d 170, 173, 217 P.2d 25; Karras v. Title Insurance & Guaranty Co., 118 Cal.App.2d 659, 665, 258 P.2d 866), and if he disposes of the property of his principal in violation of these instructions, or otherwise breaches that duty, he will be responsible for any loss occasioned thereby. (Amen v. Merced County Title Co., supra, 58 Cal.2d 528, 25 Cal.Rptr. 65, 375 P.2d 33; Rianda v. San Benito Title Guarantee Co., supra, 35 Cal.2d 170, 173, 217 P.2d 25; Jones v. Title Guaranty, etc., Co., 178 Cal. 375, 380, 173 P. 586.) Likewise, it is the duty of an escrow holder to exercise ordinary skill and diligence in his employment (Amen v. Merced County Title Co., supra, 58 Cal.2d 528, 25 Cal.Rptr. 65, 375 P.2d 33; Rianda v. San Benito Title Guarantee Co., supra, 35 Cal.2d 170, 173, 217 P.2d 25), and if he acts negligently he is responsible for any loss occasioned thereby, subject to the rules ordinarily applicable in the premises. (Amen v. Merced County Title Co., supra, 58 Cal.2d 528 25 Cal.Rptr. 65, 375 P.2d 33; Rianda v. San Benito Title Guarantee Co., supra, 35 Cal.2d 170, 173, 217 P.2d 25; Karras v. Title Insurance & Guaranty Co., supra, 118 Cal.App.2d 659, 665, 258 P.2d 866.)' (215 Cal.App.2d at pp. 682-683, 30 Cal.Rptr. at pp. 666, 667.)

An examination of the cases referred to above, and others ³ applying the same principles, fails to produce a factual situation similar to that involved in this case. Appellant relies on the language in each of the instructions which request insurance 'insuring the deed[s] of trust as a first lien on the properties described therein.' In each of the instruments, however, the foregoing language is followed by and qualified by phrases reading, 'subject [only] to exceptions No. 2, 3 and 4 of above numbered escrow[s].' In each case exception '2' refers back to the language subjecting the property to all assessments of the Rohnert Park Special Assessment District. There can be no question that in connection with interests in real estate the words 'subject to' denote an exception to whatever interest is described by the language preceding that phrase. (See Smith v. Star Petroleum Co. (1930) 103 Cal.App. 130, 133, 283 P. 960; Cockerill v. Tobin (1922) 59 Cal.App. 112, 114, 209 P. 1022; Brichetto v. Raney (1926) 76 Cal.App. 232, 247, 245 P. 235; Commercial Bank of Madera v. Redfield (1898) 122 Cal. 405, 408, 55 P. 160, 772; Mains v. City Title Insurance Co. (1949) 34 Cal.2d 580, 584-585, 212 P.2d 873.) Generally the phrase is synonymous with 'subordinate to.' (Cockerill v. Tobin, supra; Shay v. Roth (1923) 64 Cal.App. 314, 318, 221 P. 967 and Coffey v. Superior Court (1905) 147 Cal. 525, 535, 82 P. 75.) 'The meaning usually attributed to such words as 'subject to' is that a promise that is so limited is a conditional promise, one that is different from that for which the offeror bargained. (Corbin on Contracts, Vol. 1, p. 186, § 61; Humes v. Walker, 116 Cal.App. 599, 601 .)

'A contract is to be interpreted 'so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.' Civ.Code, § 1641; Code Civ.Proc. § 1858. 'A contract shall be so construed as to give force and effect, not only to every clause, but to every word in it, so that no clause or word may become redundant'. Cole v. Low, 81 Cal.App. 633 637, 254 P. 676, 678. Where a contract is partly written and partly printed, the written parts control the printed...