Edmonson v. Popchoi

• Decision Date: 04 August 2011
• Docket Number: No. 84695–2.,84695–2.
• Citation: 172 Wash.2d 272,256 P.3d 1223
• Parties: J.E. EDMONSON and Naomi I. Edmonson, husband and wife, Plaintiffs, v. Ivan G. POPCHOI and Varvara M. Popchoi, husband and wife, Respondents, National City Mortgage, Inc., an Ohio corporation; National City Bank, an Ohio corporation; and Fidelity National Title Company of Washington, Inc., a Washington corporation, Defendants, Csaba Kiss, a single person, Petitioner.
• Court: Washington Supreme Court

172 Wash.2d 272

256 P.3d 1223

J.E. EDMONSON and Naomi I. Edmonson, husband and wife, Plaintiffs,

v. Ivan G. POPCHOI and Varvara M. Popchoi, husband and wife, Respondents,National City Mortgage, Inc., an Ohio corporation; National City Bank, an Ohio corporation; and Fidelity National Title Company of Washington, Inc., a Washington corporation, Defendants,Csaba Kiss, a single person, Petitioner.

No. 84695–2.

Supreme Court of Washington, En Banc.

Argued May 24, 2011.

Decided Aug. 4, 2011.

Matthew F. Davis, Attorney at Law, Seattle, WA, for Petitioner.

John Warren Hathaway, Law Offices of John W. Hathaway PLLC, Seattle, WA, for Respondents.

OWENS, J.

¶ 1 This case involves a property dispute that arose after the sale of a plot of residential land pursuant to a statutory warranty deed. Specifically, this case presents the question of whether a grantor's duty to defend against another's claim to title is satisfied by that grantor's independent decision to settle the claim, whatever its merits, and pay the grantee damages for the breach of warranty. We hold that the duty to defend requires that a grantor defend in good faith and that the duty was breached in this case. We also hold that the grantee in this case did not waive the warranties of the statutory warranty deed by failing to disclose an encroachment.

FACTS

¶ 2 On May 4, 2006, pursuant to a statutory warranty deed, Csaba Kiss sold a parcel of residential property to Ivan and Varvara Popchoi for $ 575,000. The Popchois bought the property with the intent of tearing down the existing house and building another to sell. Ilene and Jim Edmonson own the neighboring property to the south of the lot that the Popchois purchased.

¶ 3 Before closing, the Popchois commissioned a survey of Kiss's land, which revealed that a cyclone fence was set north of the actual southern property boundary, within the lot. The Popchois' survey showed that the fence was between several inches and more than one foot north of the property line in different places. The surveyor placed stakes at the corners of the actual property line. The fence had been built by a prior owner of the Kiss lot, not by the Edmonsons, and it did not extend across the full length of the property. Kiss testified that he was not aware that the survey revealed a discrepancy between the property line and the location of the fence because the survey was neither recorded nor made known to him by the Popchois. The sale nonetheless proceeded.

¶ 4 Shortly after the sale, on August 6, 2006, the Edmonsons sent a letter to the Popchois, notifying the Popchois of their adverse possession claim to the property south of the fence. The Popchois in turn forwarded this information to Kiss by letter, dated August 31, 2006, and demanded that he quickly resolve the dispute. In that letter, the Popchois communicated that they were about to pour the foundation for the new house and that the adverse possession claim would force a delay, as well as make questionable their ability to develop the property in the way that they had intended.

¶ 5 After unsuccessful attempts to negotiate a resolution, the Edmonsons filed a complaint to quiet title in King County Superior Court on March 7, 2007, asserting that they acquired title to part of the Popchoi lot by adverse possession. On March 20, 2007, counsel for the Popchois submitted a "tender of defense" to Kiss as "the seller of the property and grantor of the statutory warranty deed." Clerk's Papers (CP) at 162; Trial Ex. 6. Kiss conditionally accepted by a letter from his lawyer dated April 27, 2007, stating in relevant part:

Mr. Kiss conditionally accepts the tender of the right to defend the adverse possession action. This acceptance is conditional only on your confirmation that the tender was made in accordance with RCW 64.04.030 and cases interpreting it. I point this out because your letter referred to the tender of "the defense" to the action rather than a "right to defend" it. A tender of the defense alone could be interpreted as retaining the right to control the defense, whereas a tender of the right to defend includes the right to compromise or settle the claim.

Trial Ex. 7; see CP at 162. Kiss testified that it was his understanding that "the Edmonson[s'] claim was going to be agreed to" and he would "pay damages to Popchoi" because "that would be less expensive than defending the lawsuit." Tr. (Jan. 8, 2009) at 25–26.

¶ 6 There is no evidence in the record that Kiss or his attorneys investigated the merits of the Edmonsons' adverse possession claim or assisted in the representation of the Popchois against the Edmonsons. "The time records of Mr. Popchoi[']s attorney, John Hathaway, show that he defended the adverse possession claim." CP at 164 (citing Trial Ex. 19). Through a third party complaint by the Popchois, Kiss was joined as a third party defendant to the Edmonsons' claim.

¶ 7 On July 18, 2008, King County Superior Court granted the Edmonsons' motion for summary judgment, finding that their "use of the disputed property was open, notorious[,] hostile & exclusive for the requisite 10 years." CP at 130–31. The superior court transferred title to 165 square feet of land along the southern property line of the Popchois' lot to the Edmonsons. Besides the loss of land, the diminishment of the Popchoi title caused the Popchois to be nonconforming with certain land use regulations of the city of Bellevue. The Popchois' total lot size was reduced from 8,630 square feet to 8,465 square feet, which is less than the 8,500 square feet required for residential lots in Bellevue's "R–4" zone, the zoning designation of the Popchoi lot. Additionally, the Popchois built their house five feet from where they believed the property line to be; since the Edmonsons prevailed, the Popchoi house is now three feet from the actual property line, which is nonconforming with Bellevue's land use ordinances that require a minimum five-foot setback.

¶ 8 On February 5, 2009, King County Superior Court granted the Popchois some relief in their third party claim against Kiss. Specifically, the trial court ordered that Kiss pay the damages of his breach of warranty, the amount the Popchois paid for the 165 square feet of land to which they lost title, including the enhancement of the value of that property and interest. The trial court did not award the Popchois damages for construction delay or for diminution in the land value based on how the change of the lot size caused nonconformance with applicable land use regulations. Those rulings are not now disputed. What is disputed is the trial court's order that Kiss pay the Popchois $ 30,281.90, the total amount of legal fees and costs that the Popchois incurred to defend against the adverse possession claim. The trial court based this judgment on its legal conclusion that Kiss did not have the right to condition acceptance of the tender of defense on his ability to settle the claim, without any investigation of its merits, and simply pay damages for breach in the amount of the value of the diminished title.

¶ 9 Kiss appealed, and the Court of Appeals affirmed the trial court. Edmonson v. Popchoi, 155 Wash.App. 376, 390, 228 P.3d 780 (2010). We accepted review. Edmonson v. Popchoi, 170 Wash.2d 1001, 243 P.3d 551 (2010).

ISSUES

¶ 10 1. Can the grantor of a statutory warranty deed satisfy the duty to defend against another's claim to title by settling the claim, regardless of its merits, and paying damages to the grantee for breach of warranty?

¶ 11 2. Does a grantee waive a breach of warranty claim by failing to notify the grantor of an encroachment?

ANALYSIS

A. Standard of Review

¶ 12 Questions and conclusions of law are reviewed de novo. Sunnyside Valley Irrigation Dist. v. Dickie, 149 Wash.2d 873, 880, 73 P.3d 369 (2003). "Statutory interpretation is a question of law." Lake v. Woodcreek Homeowners Ass'n, 169 Wash.2d 516, 526, 243 P.3d 1283 (2010).

B. Warranty To Defend

¶ 13 Statutory warranty deeds are governed by RCW 64.04.030 and include a covenant to defend against another's claim to title. In relevant part, the statute states that

[the grantor] warrants to the grantee, his heirs and assigns, the quiet and peaceable possession of such premises, and will defend the title thereto against all persons who may lawfully claim the same.

RCW 64.04.030 (emphasis added). The covenant to defend is "obligatory upon any grantor ... as fully and with like effect as if written at full length in such deed." Id. "Where covenants under the warranty deed are breached, an injured grantee is entitled to recover both damages for lost property or diminution in property value and attorney's fees incurred in defending title." Mastro v. Kumakichi Corp., 90 Wash.App. 157, 163, 951 P.2d 817 (1998) (citation omitted).

Kiss sold the Popchois a plot of residential real estate pursuant to a statutory warranty deed.

¶ 14 There is little Washington case law interpreting the covenant to defend in the statutory warranty deed. The leading cases on point involve questions of the sufficient notice or tender of defense to the grantor necessary to make the grantor liable for attorney fees incurred by the grantee in the course of defending title to the property. See Mellor v. Chamberlin, 100 Wash.2d 643, 648–49, 673 P.2d 610 (1983) ; Mastro, 90 Wash.App. at 164–66. The central question in this case is whether the duty to defend is satisfied by a settlement to the grantee for the breach of warranty, conceding a third party's claim to title and payment of damages for the value of the portion by which the title is diminished. Neither Mastro nor Mellor addresses the scope of the grantor's duty to defend.

¶ 15 Based on a plain reading of the statute and the implied duty of good faith, we hold that the warranty to defend means that, upon proper tender, a grantor is obligated to defend in good faith and is liable for a breach of that duty. The plain meaning of "defend" means something more than complete concession...