Jeanese, Inc. v. Surety Title & Guaranty Co.

• Decision Date: 21 December 1959
• Docket Number: No. 18467,18467
• Citation: 176 Cal.App.2d 449,1 Cal.Rptr. 752,90 A.L.R.2d 495
• Court: California Court of Appeals Court of Appeals
• Parties: , 90 A.L.R.2d 495 JEANESE, INC., Plaintiff and Appellant, v. SURETY TITLE & GUARANTY COMPANY, William H. Gray, Jr., Pacific Coast Title Insurance Company, Defendants and Respondents.

Page 752

1 Cal.Rptr. 752

176 Cal.App.2d 449, 90 A.L.R.2d 495

JEANESE, INC., Plaintiff and Appellant, v. SURETY TITLE & GUARANTY COMPANY, William H. Gray, Jr., Pacific Coast Title Insurance Company, Defendants and Respondents.

No. 18467.

District Court of Appeal, First District, Division 1, California.

Dec. 21, 1959.

Hearing Denied Feb. 17, 1960.

W. A. Lahanier, Darwin Bryan, San Francisco, for appellant.

Timothy A. O'Connor, San Jose, for respondents.

BRAY, Presiding Justice.

Plaintiff appeals from a judgment in favor of defendants in an action (1) for damages based on a negligent reconveyance of real property and (2) on an account stated and breach of contract of settlement.

Question Presented.

Was defendant Surety Title Company's unauthorized reconveyance the proximate cause of any loss to plaintiff? Record.

Builders Associates, Inc., executed a note to Crist and Jones, subsequently assigned to plaintiff, for $18,000, secured by a second deed of trust on the real property being thereby purchased. Defendant Surety Title was named trustee. Each parcel of the property was to be released upon payment of $3,600. In September, 1956, only two parcels remained unreleased, lots 131 and 132. Plaintiff instructed Surety Title to reconvey lot 131. Admittedly Surety Title also reconveyed lot 132 without authorization. Thereafter the holder of the first deed of trust on lot 132 published notice of default and of trustee's sale set for January 21, 1957. At least by January 19 plaintiff had learned of the impending foreclosure sale. At that time one Bisbee agreed in writing with plaintiff that Bisbee would bid in lot 132 at the sale for a sum not less than the total due under the first and plaintiff's deeds of trust in consideration of plaintiff giving Bisbee 90 days to pay plaintiff the amount due it under its second deed of trust. Bisbee apparently was unable to find a record of plaintiff's deed of trust, and obtained a postponement for one day of the sale under the first deed of trust. On the day of the sale Bisbee notified plaintiff's attorney that he could find 'no recording of the Second,' plaintiff's deed of trust. On that day, although present at the sale, Bisbee did not bid. Plaintiff, relying on its agreement with Bisbee, did not appear at the sale.

Late in February plaintiff's president and its attorney first learned of the unauthorized reconveyance of lot 132. They then called upon the president of Surety Title who admitted that the reconveyance was erroneous and asked for time to obtain payment from the trustor, Builders Associates.

On March 8 plaintiff wrote Surety, attention of its president, calling attention to the unauthorized reconveyance and demanding payment of the principal and interest then due on its deed of trust. The president phoned plaintiff asking for more time. Plaintiff asked him to write a letter admitting liability and asking for the time. Thereupon the president wrote plaintiff stating 'it appears that there is no question with regard to our liability. As I mentioned to you on the phone the other day, I would appreciate it if you would give us approximately 10 days in order to protect our position in the matter since we are unquestionably liable.' Plaintiff again phoned the president asking 'what he was going to do about it.' The president asked for further time and was told 'as long as he had admitted liability, why, we would go along and help him any way we could to recover from Builders Associates.' Later Surety wrote plaintiff a letter denying any liability. Plaintiff has never received the $3,600 due on the note.

The court found that although Surety Title made a mistake in reconveying lot 132, such mistake was not the proximate cause of plaintiff's loss, if any, but that the proximate cause was Bisbee's failure to bid as agreed with plaintiff. The court also found that there was no account stated or other contract of settlement.

Proximate Cause.

Section 580b, Code of Civil Procedure, provides in part that no deficiency judgment shall lie in any event after any sale, under a deed of trust or mortgage, given to secure payment of the balance of the purchase price of real property.

If the plaintiff had lent to Builders Associates the sum of $3,600, taking in return a promissory note secured by a second deed of trust on lot 132, the transaction not being a purchase money transaction, the plaintiff would have had two legally recognized rights: (1) a debt due from Builders Associates evidenced by the promissory note, and (2) an interest in lot 132, presumably worth $3,600, securing the payment of the debt. In a purchase money transaction, however, the plaintiff does not have the first right, but only the second, namely: a $3,600 interest in lot 132. If in the first case the title company, having ostensible authority to do so, improperly releases the deed of trust, the first right, the debt, remains and the plaintiff is damaged only to the extent that he is unable to collect; in the second instance, since there is no debt, the title company has conveyed away the only interest that the plaintiff has. For that breach of its duty, it should be liable to the plaintiff for the full amount of plaintiff's loss, namely, the $3,600 interest that the title company has conveyed away. The only defense that should be open to the title company would be to show that plaintiff had in fact suffered no loss, or less than $3,600 loss, by showing that the plaintiff's interest in lot 132 was in fact worth less than $3,600, or of no value, and the burden should be on the title company to show that such was the fact.

'[T]he general rule is that where a note or other money securities have been converted, 'their owner is, prima facie, entitled to recover their face value with interest.' (4 Sutherland on Damages, 4th Ed., sec. 1132.)' Revert v. Hessee, 184 Cal. 295, 303, 193 P. 943, 947.

We think that by analogy the same rule should apply in the peculiar circumstances of this case, although what the title company did was not technically a 'conversion.'

It is no answer to say that plaintiff could have had its interest in lot 132 restored by an action in equity, or could have protected itself by bidding at the sale under the first trust deed. Whatever it might have to bid over the amount of the first trust deed would go to the legal owner, unless the plaintiff, in a law suit, could establish its right to the money.

If A entrusts B with a chattel, and B sells it to C without authority, it is no answer, in a suit by A against B, for B to say that A could have recovered it, in another law suit, from C. Why should the rule be different in this case?

Surety Title attempted to meet its...