First American Title Ins. Co., Inc. v. First Title Service Co. of the Florida Keys Inc.

• Citation: 457 So.2d 467
• Decision Date: 28 June 1984
• Docket Number: No. 63136,63136
• Parties: FIRST AMERICAN TITLE INSURANCE COMPANY, INC., Petitioner, v. FIRST TITLE SERVICE COMPANY OF THE FLORIDA KEYS INC., Respondent.
• Court: United States State Supreme Court of Florida

Page 467

457 So.2d 467

50 A.L.R.4th 301

FIRST AMERICAN TITLE INSURANCE COMPANY, INC., Petitioner, v. FIRST TITLE SERVICE COMPANY OF THE FLORIDA KEYS INC., Respondent.

No. 63136.

Supreme Court of Florida.

June 28, 1984.

Rehearing Denied Oct. 29, 1984.

Thomas R. Tatum and Allen Bosworth of Tatum & Tatum, Fort Lauderdale, for petitioner.

S. Alan Stanley of Turner, Fascell & Russo, Coral Gables, for respondent.

Peter Guarisco, Tallahassee, amicus curiae for Florida Land Title Ass'n, Inc.

BOYD, Justice.

This cause is before the Court on petition for review of a district court of appeal decision reported as First American Title Insurance Co. v. First Title Service Co., 423 So.2d 600 (Fla. 3d DCA 1982). The district court properly followed established precedent, see Hoffman v. Jones, 280 So.2d 431 (Fla.1973), in holding that an abstracter can be held liable for negligent preparation of an abstract only to a party, such as the purchaser of the abstract, in privity with the abstracter. See Sickler v. Indian River Abstract & Guaranty Co., 142 Fla. 528, 195 So. 195 (1940). The district court certified that its decision directly conflicts with Kovaleski v. Tallahassee Title Co., 363 So.2d 1156 (Fla. 1st DCA 1978). We have jurisdiction. Art. V, § 3(b)(4), Fla. Const. Although we decline to recognize an abstracter's liability in tort for negligence to any and all foreseeable injured parties, we hold that the plaintiff here stated a cause of action as a third-party beneficiary of the contract of employment of the abstracter.

First American Title Insurance Company brought this action against First Title Service Company of the Florida Keys alleging that First Title Service Company had prepared abstracts for the sellers of two lots and that First American Title Insurance Company, relying on the abstracts, had issued owners' and mortgagees' title insurance policies to the buyers of the two lots and their lender. The complaint went on to allege that the abstracts had failed to note the existence of a recorded judgment against a former owner of the lots; that the holder of the judgment had made demand on the new owners for payment of the judgment; and that First American, pursuant to the policies of title insurance it had issued, had been obliged to pay and had paid approximately $75,000 to satisfy the judgment and obtain releases. The complaint did not allege any privity of contract between the plaintiff insurer and the defendant abstracter, but did allege that at the time the defendant prepared the abstracts for the sellers of the lots the defendant knew that a person other than the person ordering the abstracts would rely on them as providing an accurate and complete summation of all recorded instruments affecting title to the lots in question.

The defendant abstracting company moved to dismiss the complaint for failure to state a cause of action upon which relief may be granted. The trial court granted the motion and the plaintiff title insurer appealed. As has already been stated, the district court of appeal relied on Sickler v. Indian River Abstract & Guaranty Co., and affirmed the dismissal.

In Sickler, this Court explained its holding as follows:

An abstracter is liable in damages for injuries resulting from wrongful or negligent errors, defects or omissions in an abstract prepared and furnished by him. It was settled in an early case, which has been followed in nearly all the decisions on this question, that his liability is not in tort, but is contractural, and must be based upon a breach of his express or implied contract with his customer or client to furnish him with a true and correct abstract. It is therefore measured by the nature, extent and terms of his undertaking or employment. See C.J.S. page 389, par. 11-(a).

The general rule is that the liability of an abstracter extends only to the person employing him, or to one who is a party of privy to the contract of employment. This rule seems to be unquestioned in cases where the abstracter had no knowledge that the abstract was intended for the information or use of another. See 1 C.J., pages 368-9, pars. 11 and 12.

The weight of authority is that an abstracter does not render himself liable to any and every person who may be injured by reason of his negligence, ignorance, or want of skill in preparing abstracts, but that such liability exists only in favor of the person employing him or those in privity with him. The negligence or unskillfulness of an abstractor does not render him liable to the alienee, devisee, or other successor in interest [to the one] employing him, or other persons with whom there is no privity of contract.

142 Fla. at 532-33, 195 So. at 197-98 (bracketed language added for clarity; citations following quoted matter omitted).

Petitioner argues that the proper test for liability is not the existence of a contractual relationship between the parties but rather the foreseeability of the plaintiff's reliance on the defendant's abstract. The cause of action, petitioner maintains, is not based on breach of contract but on negligence. Petitioner cites numerous cases illustrating the transition from the privity doctrine to the theory of liability in tort to foreseeably injured persons. All of these cases involved bodily harm or injury caused by negligently designed or produced manufactured products or negligently prepared or packaged food products. See, e.g., West v. Caterpillar Tractor Co., 336 So.2d 80 (Fla.1976); Tampa Drug Co. v. Wait, 103 So.2d 603 (Fla.1958); Matthews v. Lawnlite Co., 88 So.2d 299 (Fla.1956); Blanton v. Cudahy Packing Co., 154 Fla. 872, 19 So.2d 313 (Fla.1944). Petitioner points out that even with regard to actions for monetary losses only, this Court has seen fit to dispense with the privity requirement in cases of defective products. See, e.g., Manheim v. Ford Motor Co., 201 So.2d 440 (Fla.1967); Hoskins v. Jackson Grain Co., 63 So.2d 514 (Fla.1953).

Petitioner argues that the products liability concept (whether based on a theory of failure of due care to foreseeable users or breach of implied warranty) has been held applicable to the rendition of professional services in a decision that petitioner says impliedly overruled Sickler. It is true that in A.R. Moyer, Inc. v. Graham, 285 So.2d 397 (Fla.1973), this Court discussed products liability theory in holding an architect liable for negligence causing financial loss to a contractor with whom the architect had no direct contractual relationship. Our opinion in that case said:

Privity is a theoretical device of the common law that recognizes limitation of liability commensurate with compensation for contractual acceptance of risk. The sharpness of its contours blurs when brought into contact with modern concepts of tort liability. MacPherson v. Buick Motor Co., 217 N.Y. 382, 111 N.E. 1050 (1916), is heralded not so much for its decision on the facts as for its precedential value: a case relaxing privity's strictures. In Matthews v. Lawnlite Co., supra, the Court recognized MacPherson as humane and accepted its principle as being "more in line with reason and justice."

285 So.2d at 399. There the architect had supervisory responsibility for a construction project; the architect was negligent in the preparation and presentation of plans, designs, and specifications; the negligence of the architect caused financial loss to the contractor; there was no direct privity between them. The Court's opinion discussed the decline of the privity doctrine in products liability cases and concluded as follows:

From the foregoing, we are satisfied that the principle is established that a third party general contractor, who may foreseeably be injured or sustained an economic loss proximately caused by the negligent performance of a contractual duty of an architect, has a cause of action against the alleged negligent architect, notwithstanding absence of privity.

285 So.2d at 402.

Petitioner relies on numerous cases from other jurisdictions as illustrating the wisdom of recognizing an abstracter's liability for injury to any foreseeably relying parties, the most notable of which is Williams v. Polgar, 391 Mich. 6, 215 N.W.2d 149 (1974). There an abstract prepared in 1926 had failed to note the existence of a deed executed in that year. Several continuations of the abstract were made thereafter, and as extended the abstract was exhibited by the seller and relied upon by the buyer in a conveyance that occurred in 1959. Subsequently the ownership interest the abstracter had failed to discover in 1926 was asserted and the 1959 purchaser suffered financial losses because of it. So, in 1971, the purchaser brought an action for damages against the successor in interest to the firm that had prepared the 1926 abstract and subsequent continuations. Pointing out that Michigan law already recognized that an abstracter is liable for negligence causing damages to a third party whom the abstractor knows is relying on the abstract, the Supreme Court of Michigan framed the issue thus: "The question boils down to whether there should be liability for foreseeable as well as known reliance." 391 Mich. at 9, 215 N.W.2d at 150. The court embraced the foreseeability theory and held that there was liability in tort. In holding that the defense of privity was no bar to the action, the court reasoned as follows:

The early common-law rule restricting liability to those in contractual privity with an abstracter was based on a system where abstracts would only be used by real estate owners. 1 Fitch, Abstracts and Titles to Real Property, § 9, p. 9; and see § 3. As time went on the actual usage of abstracts and the class of people relying on them expanded. This historical change in circumstance and the corresponding change in law is noted in numerous cases of which the following two quotations will serve as examples. The first, Brown v. Sims, 22 Ind.App. 317, 325; 53 N.E. 779; 72 Am.St.Rep. 308...