Commonwealth Land Title Ins. Co. v. Nelson

• Decision Date: 22 September 1994
• Docket Number: No. A14-92-01204-CV,A14-92-01204-CV
• Citation: 889 S.W.2d 312
• Parties: COMMONWEALTH LAND TITLE INSURANCE COMPANY, et al., Appellants, v. Jim Larry NELSON and Sandra Nelson, Appellees. (14th Dist.). Opinion of
• Court: Texas Court of Appeals

Page 312

889 S.W.2d 312

COMMONWEALTH LAND TITLE INSURANCE COMPANY, et al., Appellants, v. Jim Larry NELSON and Sandra Nelson, Appellees.

No. A14-92-01204-CV.

Court of Appeals of Texas Houston (14th Dist.).

Opinion of Sept. 22, 1994 Withdrawn.

Substitute Opinion filed Sept. 29, 1994.

Rehearing Overruled Oct. 6, 1994.

Charles E. Fitch, Ben A. Baring, S. Bradley Todes, Gary D. Eisenstat, Houston, for appellants.

John B. Wallace, M. Karinne McCullough, Gregg S. Weinberg, Donald H. Zwernemann, Houston, for appellees.

Before J. CURTISS BROWN, C.J., and ELLIS and LEE, JJ.

OPINION

LEE, Justice.

This suit arose out of the alleged loss of a first lien position held by Jim Larry Nelson and his wife Sandra (the Nelsons) securing a note held by the Nelsons. Commonwealth Land Title Insurance Company of Houston, Inc. (Commonwealth Title) and Commonwealth Land Title Insurance Company (Commonwealth Insurance) appeal from the trial court's judgment in favor of the Nelsons. The Nelsons perfected their own appeal to complain about the partial judgment notwithstanding the verdict, the election of damages, and the partial instructed verdict. We reverse and render in favor of Commonwealth Title and Commonwealth Insurance.

The Nelsons owned five acres of land in Harris County. They built a house and a horse barn on a portion of the acreage. In 1984, they became interested in selling part of the property. Mr. Nelson was introduced to Philip Clayton (Clayton), a real estate broker, and told Clayton that he was interested in selling the front two acres of his five acre tract. Although certain members of the Nelson and Clayton families were acquainted, Mr. Nelson had never met Philip Clayton before. Clayton subsequently found a buyer for the property and made an offer to the Nelsons on behalf of the buyer. After some negotiation, the Nelsons agreed to sell the two acres to "Anthony D. Caridi, Trustee and/or assigns" for $250,000. The earnest money contract called for a $100,000 cash down payment and the execution of a note to the Nelsons for the remaining $150,000. The note was to be secured by a first lien in favor of the Nelsons on the two acres. Prior to closing, the earnest money contract was modified, pursuant to a separate document signed by the Nelsons, wherein Caridi assigned all of his rights as purchaser in the original contract to Graphic Investments Joint Venture No. 1 (Graphic). The modification document stated that Caridi originally entered the contract as trustee for Graphic. The earnest money contract provided that the deal would be closed with "Commonwealth Title Company."

Commonwealth Insurance is a title insurance company or underwriter. The Texas Insurance Code defines a "title insurance company" as "any domestic company organized under the provisions of this Act for the purpose of insuring titles to real property, any title insurance company organized under the laws of another state or foreign government meeting the requirements of this Act and holding a certificate of authority to transact business in Texas and any domestic or foreign company having a certificate of authority to insure titles to real estate within this state and which meet the requirements of this Act." TEX.INS.CODE ANN. art. 9.02(c) (Vernon 1981). Commonwealth Title is a title insurance agent authorized to issue the title policies of Commonwealth Insurance. A "title insurance agent" is defined under the Texas Insurance Code as "a person, firm, association, or corporation owning or leasing and controlling an abstract plant as defined by the Board, or as a participant in a bona fide joint abstract plant operation as defined by the Board, and authorized in writing by a title insurance company to solicit insurance and collect premiums and to issue or countersign policies in its behalf." TEX.INS.CODE ANN. art. 9.02(f) (Vernon 1981). Commonwealth Title is a wholly owned subsidiary of Commonwealth Insurance. Caridi was an escrow officer and fee attorney for Commonwealth Title. ¹ D'Anna, Caridi's nephew, was also an escrow officer for Commonwealth Title. According to Mr. Nelson, Clayton suggested that Commonwealth Insurance and Commonwealth Title be used for title insurance and the closing transaction. Mr. Nelson agreed and this was reflected in the earnest money contract.

The closing date was set for April 11, 1985. Prior to the closing, the Nelsons took the note and the earnest money contract to their attorney, John Buvens, and asked him to look over the documents. Buvens noticed that the note was not dated and called D'Anna at Commonwealth Title to apprise him. D'Anna stated that the note would be dated at the closing. Apparently Buvens did not find fault with any other provisions in the note or the contract. On April 11, 1985, the Nelsons went to the Houston office of Commonwealth Title for the closing. They met with a woman and signed some papers. The woman told them that not all of the closing documents were ready and that they would have to be signed later. The Nelsons left the office but later that same day received a call from Clayton's secretary. She said that the other closing documents were ready to be signed. The Nelsons met with her at their bank and signed the remaining papers. At no time during the closing did the Nelsons have any contact or conversations with Caridi or D'Anna.

After the closing, but on the same day, Graphic sold the property to Allied Southern Equities (Allied). The sale from Graphic to Allied was financed by a loan from First Bank & Trust, Tomball (First Bank). In connection with the sale from the Nelsons to Graphic and Graphic to Allied, several documents were forged, including a subordination agreement purporting to subordinate the Nelsons' first lien to the lien taken by First Bank. In addition to the subordination agreement, Caridi testified that the original earnest money contract, wherein the Nelsons were to sell the two acres to "Anthony D. Caridi, Trustee," was a forgery. He stated that he did not sign the contract and that in fact, Clayton admitted to the forgery and wanted Caridi to ratify it. Caridi refused. This explains the modification agreement, i.e., the change in the name of the buyer from Caridi to Graphic. The subordination agreement and a deed retaining a vendor's lien were not signed by the Nelsons; rather, their signatures were forged. The subordination agreement was filed of record by Commonwealth Title without the Nelsons' knowledge. The evidence showed that the forged document was drafted by Caridi's office at D'Anna's request. Commonwealth Title claimed that copies of all of the documents were sent to the Nelsons after the closing. The Nelsons claim that they did not receive the documents and did not learn about the forgeries until 1988.

The Nelsons received the required annual installments due on the note in April, 1986 and April, 1987. In July or August of 1987, the Nelsons learned that First Bank had foreclosed on the property under its "first lien" when Allied, the second purchaser, defaulted on its loan commitment. The property had been foreclosed on by First Bank in 1986.

In July, 1988, after the Nelsons failed to receive the third installment on the note, they contacted Morris Hamm, an attorney. Hamm collected all of the relevant documents from the real property records. At that time, the Nelsons learned about the forged documents. Sometime prior to the Nelsons' discovery, First Bank failed and was taken over by the FDIC. On July 6, 1988, the FDIC, in its capacity as liquidator of First Bank, sold the Nelsons' two acres to Oscar and Suzanne Bonner (the Bonners). To finance the purchase, the Bonners executed a note to Home Savings of America, F.A. for $51,000.

On November 29, 1988, Hamm sent a written demand and claim on behalf of the Nelsons to Commonwealth Insurance. The letter stated:

... the services provided by your company and its agents as independent escrow and closing agents were represented to be of one kind or quality when they were of another in that an instrument was forged with my clients' signatures and recorded through your agents in a manner that constituted a fraud on my clients depriving them of their rightful lien position and eventually causing the loss of the security for their note due from the purchasers of the property.

Approximately two weeks later, Commonwealth Insurance responded to Hamm through a letter from Robert M. Galperin, an attorney for Commonwealth Insurance. In the letter, Galperin advised the Nelsons that after a "lengthy" investigation, both Commonwealth Insurance and Commonwealth Title agreed that the subordination agreement was a forgery. The letter further advised that because the document was forged, "... the insureds presently possess a lien against the subject property which is and always has been superior to the lien in favor of First Bank & Trust identified in the Subordination Agreement." The letter also stated that First Bank's foreclosure and the subsequent sale by the FDIC to the Bonners was ineffective to disturb the Nelsons' superior lien. The letter concluded by stating that the Nelsons had not suffered any compensable loss under their title insurance policy because they still had their first lien and could seek foreclosure.

The Nelsons declined to foreclose and filed suit against Commonwealth Insurance, Commonwealth Title, Caridi, D'Anna, Clayton, Buvens, the Bonners, and Home Savings. In their second amended petition, they requested that the court reform the deed to reserve a vendor's lien and superior title in them and allow foreclosure. Alternatively, they claimed that the deed should be rescinded because it was procured through fraud. The Nelsons also alleged numerous causes of action against the various defendants: negligence, violations of the Texas Deceptive Trade Practices--Consumer Protection Act (DTPA) and the Texas Insurance Code, fraud, breach of contract, breach of fiduciary duty, fraud in a real...