Costanzo v. Stewart Title and Trust of Phoenix

• Decision Date: 25 March 1975
• Docket Number: CA-CIV,No. 1,1
• Citation: 533 P.2d 73,23 Ariz.App. 313
• Parties: Samuel X. COSTANZO and Jennie Costanzo, husband and wife, Appellants, v. STEWART TITLE & TRUST OF PHOENIX, an Arizona Corporation, Appellee. 2335.
• Court: Arizona Court of Appeals

Page 73

533 P.2d 73

23 Ariz.App. 313

Samuel X. COSTANZO and Jennie Costanzo, husband and wife, Appellants, v. STEWART TITLE & TRUST OF PHOENIX, an Arizona Corporation, Appellee.

No. 1 CA-CIV 2335.

Court of Appeals of Arizona, Division 1, Department C.

March 25, 1975.

Rehearing Denied April 30, 1975.

Review Denied June 10, 1975.

Samuel L. Costanzo, Phoenix, for appellants

Behrens, Maclean & Jacques by William F. Behrens and John K. Graham, Phoenix, for appellee.

OPINION

FROEB, Acting Presiding Judge.

This case was commenced as a suit on a note and an action to foreclose a realty mortgage upon a townhouse complex. Home Savings and Loan Association (Home) was the lender and plaintiff in the action. Samuel X. Costanzo (Costanzo) was the borrower-builder and one of the defendants. Other defendants included material suppliers and contractors who were involved in the construction of the complex and thereby claimed liens for work and materials. Another defendant was Stewart Title and Trust of Phoenix (Stewart). Stewart had also loaned money to Costanzo to purchase the real property involved in the project and had acted as escrow agent for the disbursement of construction funds under a builders control agreement. Typical of its kind, the builders control agreement called for timely disbursement of construction funds to contractors, materialmen and suppliers during construction.

Costanzo answered the foreclosure action filed by Home and denied the allegations in the complaint. At the same time, he attributed his difficulties to Stewart for mishandling its duties under the builders control agreement and took the position that Stewart was responsible for the stoppage of construction, the loss of his property, his expenses and his lost profits. As a consequence, he decided to assert this claim against Stewart in the pending action. However, by the time Costanzo filed his answer to the complaint, Home had released Stewart from the litigation and the latter was dismissed as a defendant. Since Stewart was no longer a party, Costanzo filed a motion for leave to file a third-party complaint against Stewart, pursuant to Rule 14(a), Rules of Civil Procedure, 16 A.R.S. ¹ The motion was granted and Stewart appeared by filing its answer denying the claim. Thereafter, on August 10, 1967, Home recovered summary judgment on its claims against Costanzo in the amount of $186,391.45, plus taxes and costs, together with a judgment of foreclosure of the real property securing the loan. This left only the claims alleged by Costanzo against Stewart in the third-party complaint which were thereafter tried in February, 1972, to the court without a jury.

The trial court entered judgment in favor of Costanzo against Stewart in the sum of $1,075.60, plus costs, but denied all further relief sought on the ground that the remaining claims for damages were not properly the subject of a third-party complaint, and hence not justiciable. Nevertheless, the trial court entered findings of fact and conclusions of law which established Stewart's liability to Costanzo for loss of reasonable anticipated profit of $60,000 and out-of-pocket expenses to satisfy contractors and materialmen in the amount of $4,478.29. No judgment for these additional sums totaling $65,553.89 was entered however, for the reason already mentioned, namely, the impropriety of asserting them by way of third-party complaint instead of by a separate action.

Thus, the main issue in this case on appeal is whether the merits of all of Costanzo's claims against Stewart were properly presented and tried under the third-party complaint. We have determined that under the circumstances they were and therefore vacate the judgment of the trial court.

The third-party complaint set forth two counts. In the first count, Costanzo sought judgment against Stewart for the full amount of any judgment against him recovered by Home. He also prayed for $300,000 in additional damages. The theory on this count was breach of the builders control agreement. The second count sought the same recovery and, in addition, alleged a claim for punitive damages. The theory of the second count was in tort for intentional interference with contractual relations between Costanzo and the contractors and suppliers on the townhouse project.

It should be noted that the substance and merits of each of Costanzo's claims against Stewart were fully tried by each side with testimony from many witnesses and an extensive array of exhibits. Since the original action between Home and Costanzo had previously been concluded by summary judgment, this constituted the entire trial.

It should also be noted that the only instance where the procedural issue was raised was by an allegation in Stewart's answer that the third-party complaint should be dismissed for failure to state a claim. The motion was never ruled on by the court and not otherwise separately made or urged at any time thereafter.

It is also notable that there was no attempt by Stewart to place the procedural issue squarely before the court for ruling at any time over the six-year period from the filing of the third-party complaint to the time of the trial. During this period, both parties conducted extensive discovery. There were procedural means available to Stewart by which this issue could have been presented. Although Stewart did present a motion for summary judgment prior to trial, it went to the substance of Costanzo's claims not their procedural regularity and was denied. Following the trial, Stewart moved to vacate Costanzo's judgment for $1,075.60, but for reasons other than that it was an improper third-party claim. While we are unable to say that Stewart abandoned its contention concerning the propriety of the pleadings, its absence in the record is conspicuous. We do not, however, reach our conclusion to reverse the judgment on this basis, since we find that the pleadings were sufficient to allow all of Costanzo's claims to be tried and decided by the court.

As we see from the evidence, construction funds borrowed by Costanzo from Home to finance the project were transferred by Home to Stewart to be held in escrow for disbursement pursuant to the builders control agreement. This account, representing the funds transferred by Home to the credit of Costanzo, was introduced into evidence and explained by representatives of Stewart. The trial court found that there remained in the account standing to the credit of Costanzo the sum of $1,075.60. It is also apparent from the evidence that this sum represents part of that which was originally borrowed by Costanzo from Home and thus is included in the total amount of the judgment recovered by Home against Costanzo. In view of this, we see that, at least to the extent of this sum, the third-party complaint stated a procedurally correct claimover against Steward under Rule 14(a), Rules of Civil Procedure. ² Costanzo was entitled to recover the balance of the account held by Stewart only by reason of the fact that the satisfaction against Costanzo of the judgment recovered by...