Manley v. Ticor Title Ins. Co. of California

• Decision Date: 21 December 1989
• Docket Number: CA-CIV,No. 1,1
• Citation: 798 P.2d 1327,165 Ariz. 318
• Parties: Henry E. MANLEY and Donna L. Manley, and Arthur Johnson, Plaintiffs-Appellants, v. TICOR TITLE INSURANCE COMPANY OF CALIFORNIA, a California corporation, Defendant-Appellee. 9459.
• Court: Arizona Court of Appeals

Page 1327

798 P.2d 1327

165 Ariz. 318

Henry E. MANLEY and Donna L. Manley, and Arthur Johnson, Plaintiffs-Appellants, v.TICOR TITLE INSURANCE COMPANY OF CALIFORNIA, a California corporation, Defendant-Appellee.

No. 1 CA-CIV 9459.

Court of Appeals of Arizona Division 1, Department C.

Dec. 21, 1989.

Reconsideration Denied As Modified on Grant of Clarification June 8, 1990.

Review Granted Nov. 6, 1990.

[165 Ariz. 319] Jennings, Strouss & Salmon by Jefferson L. Lankford, Timothy W. Barton, Michael R. Palumbo and Carol A. Cluff, Phoenix, for plaintiffs-appellants.

Streich, Lang, Weeks & Cardon, P.A. by Don P. Martin, Robert E. Miles, E. Jeffrey Walsh and Marcia Horn Yavitz, Phoenix, for defendant-appellee.

OPINION

GRANT, Chief Judge.

This is an appeal from summary judgment and dismissal in favor of the defendant title company on a nine-count complaint alleging tortious conduct and breach of various contractual and fiduciary duties in connection with defendant's actions as an escrow agent and title insurer.

FACTS

In 1983, Henry and Donna Manley listed their bar-restaurant and house, located on six acres of land in Glendale, with real-estate agents Steve Willbanks and George Stika.Stika put together a deal in which the Manleys would sell their property to Pyramid I, a joint venture allegedly comprised of four people: Mark Masias, Domenico Spano, Dennis Noss, and Frank Clemente(Pyramid).

The written sales contract provided that Pyramid would purchase the property for $500,000.Pyramid would pay the Manleys a down payment of $125,000; the $375,000 balance would be paid over five years and would be evidenced by a promissory note secured by a deed of trust.Among other provisions, the contract stated that escrow would include both a partial subordination clause drawn up by the buyers' attorney and a letter of intent as to "amount & use" and that the sellers were aware that "buyers intend to construct dinner house & apts."

The parties employed Ticor Title Insurance Company of California (Ticor) as their escrow agent.Ticor's escrow officer, Joyce Yancy, prepared the escrow instructions, which were reviewed and signed by the parties.After they opened the escrow, the buyers prepared a letter--as required by the sales contract--outlining their intent to refurbish the bar and make other changes to the property, such as constructing a liquor store.The letter further stated:

Since we are syndicating this project with friends and associates, subordination will be minimal (Approx. $200,000).

In approximately one year or more, after improving the property and the success of our dinner house and liquor store, we intend to pay off the first mortgage.We will then begin to construct fifteen units to be used as apartments or offices; if they are as successful as expected, we will continue to construct as needed.

After paying off mortgage, property should be appraised close to one million dollars, subordination needed at that time will be approx. $350,000 of which most of the cost will be from investors.

The Manleys accepted this letter.

Pyramid supplied Ticor with a form subordination agreement that was only partly completed because information regarding their loan and deed of trust was not yet known.This subordination agreement stated that the loan amount would be $177,200.

Yancy submitted copies of the incomplete subordination agreement to the Manleys and to Arthur N. Johnson, a lawyer who was to become an assignee of a twenty-five percent interest in the Manley deed of trust.The Manleys and Johnson signed the form agreements, by which they agreed to subordinate their deed of trust securing the $375,000 promissory note to another deed of trust that the buyers were in the process of obtaining.This deed of trust became known as the Tower deed of trust because the buyer obtained the $177,200 loan from Tower Acceptance and Service Corporation.

The effect of the subordination agreements was that the total of the two outstanding loans (the Tower loan and the Manley loan) was $552,000, secured by property being sold for only $500,000.

After Ticor received information regarding the buyers' note and the Tower deed of trust, Yancy filled in the blanks in the subordination agreements.This information included the date, interest rate, and terms of payment.

Knowing that the Tower loan would overencumber the Manley property, and knowing of Ticor's internal policy against employees handling such potentially fraudulent transactions, Yancy consulted with Lee Vrooman, Ticor's senior advisory escrow officer, about the situation.Yancy told Vrooman that the Manley escrow involved a commercial transaction in which the sellers were represented by legal counsel.Vrooman advised her that Ticor's policy against handling overencumbered property was inapplicable and that she could proceed with the escrow.

Before escrow closed, Yancy found out from Pyramid's California lender that Pyramid intended to use the Tower loan proceeds for their down payment on the Manley property.Ticor prepared an escrow settlement statement reflecting this usage and directing that the remaining loan proceeds be paid to Pyramid.

Yancy told Stika, the real estate agent, that Pyramid planned to use part of the Tower loan for the downpayment.She did not, however, directly tell this to the Manleys or to Johnson.According to the Manleys, she had told them earlier that the Tower loan proceeds would be used solely for construction.Whether Stika relayed the contrary information to the Manleys is disputed.

The escrow closed on December 5, 1983.Ticor received $148,000 of the $177,000 Tower loan to which the Manleys had agreed to subordinate.Yancy disbursed the funds according to the settlement sheet, including paying the $120,000 balance of the down payment owed to the Manleys, and $26,000 to the buyers.She then recorded the Tower deed of trust, the Manley deed of trust, and the subordination agreement, in that order.Ticor also issued a title insurance policy insuring the Manley deed of trust in the second lien position.

Following the close of escrow, the Manleys assigned a twenty-five percent interest in the beneficial interest of their deed of trust to Johnson.

Pyramid paid its monthly payments to the Manleys for eight months before defaulting on the September 1984 payment.Although the Manleys directed Ticor, as trustee, to notice a trustee's sale foreclosing on their deed of trust, the Manleys postponed the sale on numerous occasions.

Meanwhile, Dennis B. Noss, one of the alleged joint venturers in Pyramid, claimed that his signature on the Manley deed of trust was forged.By letter dated February 22, 1985, the Manleys requested that Ticor investigate the forgery and pay the full amount of the indebtedness if Noss' signature was forged.

Noss' legal counsel, however, informed the Manleys that Noss would claim no interest in the property.Ticor did not investigate the forgery but advised the Manleys that it would stand behind the Manleys' insured lien position and would take appropriate action to protect them if Noss attacked its validity.By letter dated March 18, 1985, Ticor informed the Manleys that it would not pay the indebtedness secured by the Manley deed of trust because the Manleys had neither been damaged nor had an adverse claim to their deed of trust been asserted.Ticor confirmed that it would protect the Manleys' insured second lien position under the policy if Noss ever asserted an adverse claim.

On March 19, 1985, the Manleys, fearing that Noss might assert an adverse claim, requested that Ticor establish the validity of their deed of trust.Ticor responded that it would request a quitclaim deed from Noss.Noss subsequently quitclaimed his interest in the property on October 7, 1985.

PROCEDURAL HISTORY

The Manleys and Johnson filed this action against Ticor on April 3, 1985, to recover damages caused by Ticor's alleged improper conduct as escrow agent and title insurer.The complaint, amended on July 10, 1985, alleged nine counts: two counts of breach of the escrow contract; two counts of breach of fiduciary duty; bad faith breach of the escrow contract; breach of the title insurance contract; bad faith breach of the title insurance contract; negligent breach of the escrow obligation; and emotional distress.

On May 14, 1985, Ticor filed a motion to dismiss for failure to state a claim on Counts IV through VIII of plaintiffs' complaint as they apply to the Manleys, and to dismiss all Counts as to plaintiff Johnson.On July 16, 1985, the trial court granted Ticor's motion to dismiss with respect to Counts IV, VII, and VIII, and all counts as to plaintiff Johnson, but denied defendant's motion with respect to Counts V and VI.Ticor filed a motion for partial summary judgment on Counts V and VI on December 31, 1985; the trial court granted this motion on April 8, 1986.

On May 14, 1986, Ticor filed a motion for summary judgment on Counts I, II and IX.The court granted this motion with respect to Count IX on June 19, 1986, and with respect to Counts I and II on June 25, 1986.On July 30, 1986, plaintiffs filed a motion for reconsideration of the court's order granting summary judgment on Counts I and II.On September 4, 1986, Ticor filed a motion for summary judgment on the remaining count, Count III, which the court denied on October 3, 1986.Ticor filed a motion for reconsideration of the court's denial of summary judgment on Count III on November 19, 1986.On December 5, 1986, the court denied plaintiffs' motion for reconsideration of the order granting summary judgment on Counts I and II, and granted Ticor's motion for reconsideration on Count III, ordering summary judgment in favor of Ticor on that count.

Final judgment was entered in favor of Ticor on all counts and was amended on August 11, 1987 to dispose of all claims raised by both plaintiffs Manley and plaintiff Johnson.The Manleys and Johnson appeal from that...