Diaz v. United California Bank

• Decision Date: 27 June 1977
• Citation: 71 Cal.App.3d 161,139 Cal.Rptr. 314
• Court: California Court of Appeals Court of Appeals
• Parties: Edelso DIAZ and Luz M. Diaz, Plaintiffs and Appellants, v. UNITED CALIFORNIA BANK, a corporation, and Dorene Gordon, Defendants and Respondents. Civ. 49564.

Page 314

139 Cal.Rptr. 314

71 Cal.App.3d 161

Edelso DIAZ and Luz M. Diaz, Plaintiffs and Appellants, v. UNITED CALIFORNIA BANK, a corporation, and Dorene Gordon, Defendants and Respondents.

Civ. 49564.

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

June 27, 1977.

Frederick Barak, Hollywood, for plaintiffs and appellants.

Agnew, Miller & Carlson, Robert K. Baker, Molly Munger, Los Angeles, for defendants and respondents.

ALLPORT, Acting Presiding Justice.

Facts ¹

On November 15, 1974, Edelso Diaz executed a written agreement for the sale of his assets in the La Lechonera Restaurant to Antonio and Bertha Gil. Diaz was a recent immigrant and could not read nor write English and was ignorant of legal formalities. The agreement was prepared by a notary public and provided in part:

'--NOW THEREFORE, in consideration of the mutual covenants herein contained and other and good and sufficient considerations, the parties hereto agree as follows

A)--ASSETS BEING PURCHASED AND PRICE:

--IT IS agree between the parties hereto that the total purchase price for the assets being purchased is the sum of NINETEEN THOUSAND DOLLARS,00/100 (19,000.00), with the following terms of payments:_ _

B)--SEVEN THOUSAND DOLLARS,00/100 ($7,000.00) to be paid forthith.--(sic)

C)--ASSUMPTION OF THE BALANCE AS FOLLOWS:--FORTY (40) payments of THREE HUNDRED DOLLARS,00/100 ($300,00) each or more, being the first payment due on the 15th. day of December, 1974, and each 15th. of each month thereafter until paid in full._ _'

In furtherance of the sale an escrow was opened by Antonio Gil at the United California Bank on December 10, 1974. The escrow was handled on behalf of the bank by defendant Dorene A. Gordon and was processed on printed forms of the bank signed by Edelso and Luz H. Diaz as well as by Antonio Gil. Bertha Gil did not sign the escrow instructions or sign the note subsequently prepared by the bank in closing the escrow. In pertinent part the original escrow instructions provided for a '(n)ote for $7000 executed by Antonio Gil, in favor of Edelso Diaz and Luz M. Diaz, husband and wife, Principal payable $200.00 or more per month and continuing until paid.' On December 12, 1974, the escrow was supplemented by an additional instruction, also on a bank form, as follows: 'You are hereby instructed to reduce the principal amount of the Note for $7,000.00 being delivered through escrow by an amount of $1,900.00, representing costs of repairs paid by Antonio Gil, by endorsement on back of Note. Principal payable in installments of $200.00 or more each on the first day of each month, beginning on the first day of February, 1975 and continuing until paid.' Prior to close of escrow a letter dated February 13, 1975, was sent to the bank by attorney Jorge Fernandez Isla purporting to represent the sellers which read as follows:

'United California Bank

6510 Atlantic Avenue

Bell, California 90201

Attn: Mrs. Gordon

Re: Escrow Instructions Escrow No. 145--9357

Dear Mrs. Gordon:

Confirming our telephone conversation NOTICE is hereby given as to the following:

Our clients: Edelso and Luz M. Diaz have informed this office that the amount indicated in above referred escrow of seven thousand dollars ($7,000.00) is in error. The escrow instructions should had (sic) read 'Note for $19,000.00' and not $7,000.00.

Enclosed please find a copy of the original agreement for the sale of 'La Lechonera' Restaurant 7730 Pacific Blvd. Huntington Park, California showing the actual selling price of $19,000.00.

Since the closing of the escrow is contingent upon the issuance or transfer of an alcoholic beverage sale license, we have informed the Alcoholic Beverage Control Dep. of the error and confirming it by sending them copy of this letter together with copy of referred agreement to sale.

Very truly yours,

s/ Jorge Fernandez Isla'

Thereafter, disregarding the attorney's letter, the bank prepared the note for $7000 and closed the escrow.

In the fifth, sixth and tenth causes of action for breach of contract, negligence and breach of an implied covenant, plaintiffs Edelso and Luz M. Diaz seek compensatory and punitive damages from defendant bank and its agent Gorden. Antonio and Bertha Gil, and Santiago G. De Juan the notary, are named as defendants in eight other causes of action for fraud, breach of contract, reformation, negligence, and common count.

A demurrer was sustained without leave to amend as to the causes directed against the bank and its agent and, as to them the action was dismissed. Plaintiffs appeal from the judgment (order of dismissal in favor of these defendants. The appeal lies. (Code Civ.Proc., §§ 581d, 904.1.) In Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d 566, 569, 108 Cal.Rptr. 480, 510 P.2d 1032; the Supreme Court entertained an appeal from such an order defining same as a 'judgment of dismissal.'

Discussion

The gravamen of all three causes of action against the defendant bank lies in the claim that the escrow was improperly closed after the bank received the attorney's letter notifying it of a claim of error with respect to the consideration for the sale as recited in the escrow instructions.

It is elemental that the duty of an escrow holder is to comply strictly with the instructions of its principal and to exercise reasonable skill and ordinary diligence with respect to the employment. If the escrow holder fails to follow his instructions or acts negligently, he may be liable for any loss occasioned thereby. (Wade v. Lake County Title Co., 6 Cal.App.3d 824, 828, 86 Cal.Rptr. 182.)

It is also elemental that, where the written escrow instructions amount to an agreement made by two principals with their joint agent and signed by both, neither can unilaterally change the instructions. (Wade v. Lake County Title Co., supra, 6 Cal.App.3d 824, 828, 86 Cal.Rptr. 182; Womble v. Wilbur, 3 Cal.App. 535, 547, 86 P. 916.) We therefore agree with defendant bank that the escrow holder had no duty contractual or otherwise in the instant case to defer to plaintiffs' unilateral notice as to the sale price and modify the escrow instructions in accordance therewith.

The question however, remains as to the effect, if any, to be accorded the attorney's letter. While ineffective as a unilateral attempt to modify the instructions, it clearly placed the escrow holder on notice of a possible error in the instructions with respect to a material matter involving the escrow itself. The agreement of sale provided for a sale price of $19,000.00 and failed to expressly call for a note of any kind. The escrow instructions as amended called for a note of $7000 reduced by endorsement to $5100 payable in installments of $200 or more per month. The Isla letter not only advises of the total sale price as reflected in the agreement of sale but specifically points out that the note should be for that amount ($19,000.00) rather than for $7000.00. Under these circumstances it would appear that, even though it might not be a breach of the escrow agreement for the bank to proceed to close the escrow in accordance with the amended instructions, the failure of defendant bank to heed the notice of a possible error in the escrow instructions and to blindly close in the face thereof might be found to be a failure to exercise reasonable skill and ordinary diligence in the conduct of the escrow, and thus support recovery on a tort theory.

In Spaziani v. Millar, 215 Cal.App.2d 667, 30 Cal.Rptr. 658, an action was brought against the buyer of real property for fraud and the escrow holder on theories of breach of contractual duty and negligence. The trial court granted a nonsuit as to the escrow holder. The pertinent facts were set out in the opinion as follows at pages 681--682, 30 Cal.Rptr. at page 666:

'As heretofore noted, the escrow instructions as prepared by the escrow holder provided that title to the subject property was to be transferred to Ben Millar subject to a 'First Deed of Trust to file: Construction loan to come,' and to a second deed of trust securing payment of the $20,000 purchase price balance. This instruction, as written, is indefinite and uncertain. (See e.g., Kessler v. Sapp, 169 Cal.App.2d 818, 823, 338 P.2d 34; Roven v. Miller, 168 Cal.App.2d 391, 398, 335 P.2d 1035.) The first deed of trust is without identification either as to parties, amount, or terms of payment. Without obtaining any additional instructions, or any amendment to those theretofore given, the escrow holder proceeded to close the escrow; caused title to the plaintiff's property to be transferred to Ben Millar; and caused the plaintiff's second trust deed to be subject to a first deed of trust in favor of the loan company for $11,000. Thus, there is squarely presented for consideration the question whether the escrow holder, in proceeding to close the escrow without further instructions, breached its duty toward the plaintiff or failed to exercise ordinary care and skill in the premises.

In addition, there is evidence from which the court could have concluded that the escrow holder had notice that the loan to be secured by the first deed of trust was to be a construction loan; expressed its belief to Ben Millar that this loan was to be for construction purposes; had written the loan company about its loan and referred thereto as a construction loan; was asked by a representative of that company whether the instructions provided for a construction loan and told him that the construction loan was to be on the rear portion of the property sold rather than upon the portion covered by the first deed of trust; learned that the loan covered by the first deed of trust was not to be used for construction purposes; and failed to communicate this information to the plaintiff. Thus, the evidence presents the further question whether the escrow holder, in failing to advise the plaintiff respecting its knowledge concerning the nature of the loan being made to the buyer...