Lawyers' Title Guaranty Fund v. Sanders

• Citation: 1977 OK 210,571 P.2d 454
• Decision Date: 08 November 1977
• Docket Number: No. 50221,50221
• Parties: LAWYERS' TITLE GUARANTY FUND, a Foreign Corporation, and the St. Paul Insurance Companies, Appellants, v. David H. SANDERS and Mary E. Sanders, husband and wife, Appellees.
• Court: Supreme Court of Oklahoma

Page 454

571 P.2d 454

LAWYERS' TITLE GUARANTY FUND, a Foreign Corporation, and the St. Paul Insurance Companies, Appellants, v. David H. SANDERS and Mary E. Sanders, husband and wife, Appellees.

No. 50221.

Supreme Court of Oklahoma.

Nov. 8, 1977.

Appeal from the District Court of Tulsa County; J. Dalton, Trial judge.

Claiming subrogation to buyer's cause of action for breach of warranty in a real estate conveyance, an attorney's malpractice insurers brought suit against the real property seller. Subrogation was based on satisfaction of the outstanding lien, causing the alleged warranty breach, through monies realized from the malpractice claim. A general demurrer to the petition was sustained and cause dismissed. Plaintiff insurers appeal. REVERSED AND REMANDED.

James M. Hinds, Edgar, Manipella & Hinds, Tulsa, for appellants.

Rucker, Tabor, McBride & Hopkins, Inc., M. Darwin Kirk, Tulsa, for appellees.

PER CURIAM:

Tulsa residents, David H. and Mary E. Sanders (sellers), appellees, sold some out of state real property. After completion of the sale, including a conveyance of the property that contained a warranty, buyers discovered there was an unsatisfied lien against the property. In his title examination and opinion, buyers' out of state attorney failed to advise, or make a requirement, as to this unsatisfied lien. In settlement of a resulting malpractice claim, the attorney's malpractice insurers, Lawyers' Title Guaranty Fund and the St. Paul Insurance Companies (insurers), appellants, furnished the monies used by the buyers to satisfy the outstanding lien.

Insurers brought suit against sellers for breach of warranty contained in the real estate conveyance caused by the unsatisfied lien, claiming subrogation to buyers' cause of action. Subrogation was based on satisfaction of the outstanding lien realized by the buyers in settlement of the buyers' malpractice claim. Trial court sustained a general demurrer to the petition and dismissed. ¹ Insurers appeal.

Sellers argue (1) insurers' subrogation is limited to claims of their own insured, the title attorney, which are non-existent against sellers; and (2) no privity, or contract, as between insurers and buyers for subrogation of buyers' claim against sellers.

There are two kinds of subrogation, (1) legal or equitable; and (2) conventional. Conventional subrogation comes from a contract or agreement, expressed or implied. Jorski Mill & Elevator Co. v. Farmers Elevator Mut. Ins. Co., 10th Cir., 404 F.2d 143, 147 (1968). ² Legal subrogation is a creature of equity, not depending upon contract, but upon the equities of the parties. It is not dependent upon assignment, privity, or strict suretyship. General Creditors of Estate of Harris v. Cornett, Okl.,416 P.2d 398, 400 (1966). This principle is a fluid concept depending upon the particular facts and circumstances based on natural justice of placing the burden of bearing a loss where it ought to be, and without the form of a rigid rule of law. Sutton v. Jondahl, Okl.App., 532 P.2d 478, 482 (1975). ³

Here, insurers do not seek conventional subrogation to the claims of their insured through their insurance contract, but legal subrogation to the claims of the buyers based on the equities of the parties. In sustaining the general demurrer, the trial court found lack of superior equity in the insurers as over the sellers. We disagree.

Sellers breached the contractual duties encompassed by the provisions of the warranty deed and for that reason buyers suffered a loss. The burden of the loss buyers sustained was shifted to insurers when it became apparent their insured breached his duty of care to the buyers. In honoring the contractual obligation to indemnify their insured, insurers are not, as to the payment of the lien obligation, mere volunteers. Their interest is real, pecuniary and obligatory. The question is, therefore, as between these parties, insurers and sellers, which in equity should bear the greater responsibility for the loss? Sellers sold the property without applying the proceeds of the sale to the outstanding lien obligation. Sellers of necessity received more net proceeds from the real estate sale than that to which they were entitled. Implicit in the foregoing is the conclusion that sellers received an unjust enrichment as a result of their breach of warranty.

Under the circumstances in this particular case, and as between the two parties here, natural justice places the burden of bearing the loss where it ought to be, on the sellers, who breached their warranty and were unjustly enriched. The trial court erred in sustaining the general demurrer and dismissing.

REVERSED AND REMANDED FOR FURTHER PROCEEDING.

HODGES, C. J., LAVENDER, V. C. J. and DAVISON, WILLIAMS, IRWIN, BERRY, BARNES and SIMMS, JJ., concur.

DOOLIN, J., dissents.

DOOLIN, Justice, dissenting:

While I agree with the majority the principle of equitable subrogation by operation of law certainly exists and is applicable to an insurer who has paid a loss; it is not applicable under the facts and circumstances here. I therefore dissent.

Buyers' attorney neglected to make a requirement regarding a second mortgage existing on the property. After the purchase, buyers paid off the second mortgage. Buyers then made a claim against the errant attorney for malpractice. The attorney's malpractice insurance carriers (insurers) paid the buyers' malpractice claim.

As the majority points out there are indeed two types of subrogation. Conventional subrogation arises from subrogation by agreement; in other words by a subrogation clause in the contract of insurance providing that the insurer will be subrogated to the rights of the insured. The equitable or legal right of subrogation, as the legal effect of payment under the policy, inures to insurer without a provision to that effect in the policy.

Conventional subrogation arises because of a contractual provision for subrogation either express or implied. Equitable subrogation does not require an expression in the contract but may be granted to an insurance company who has paid a liability of its insured. Conventional subrogation clauses merely confirm equitable rights that exist without them. ¹

All subrogation rights of an insurance company are derivative from the rights of the insured, whether they arise from a conventional subrogation clause or from equitable principles. These subrogation rights, being derivative, can rise no higher than the rights from which they are derived. ² In this case the rights are the rights of the insured attorney, not the buyers.

While the principle of equitable subrogation may certainly be applied to an insurer where no conventional subrogation exists, the majority cites no case...