Mickam v. Joseph Louis Palace Trust, 92-77324.

• Decision Date: 01 March 1994
• Docket Number: No. 92-77324.,92-77324.
• Citation: 849 F. Supp. 516
• Parties: Mauricio MICKAM, et al., Plaintiffs, v. JOSEPH LOUIS PALACE TRUST, et al., Defendants.
• Court: U.S. District Court — Western District of Michigan

849 F. Supp. 516

Mauricio MICKAM, et al., Plaintiffs, v. JOSEPH LOUIS PALACE TRUST, et al., Defendants.

No. 92-77324.

United States District Court, E.D. Michigan, S.D.

December 8, 1993.

Order Granting in Part and Denying in Part Reconsideration January 4, 1994.

Opinion Denying Reconsideration March 1, 1994.

COPYRIGHT MATERIAL OMITTED

Michael D. Finn, Farmington Hills, MI, for plaintiffs.

Paul Valentino, Bloomfield Hills, MI, for Joseph L. Palace Trust, Victoria and Paul Palace.

Andrew Munro, Troy, MI, for Philip Seaver Title Co.

Marci McIvor, Detroit, MI, for Mich. Dept. of Treasury.

John Lindquist, Washington, DC, for U.S.

OPINION AND ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT AND GRANTING PHILIP SEAVER TITLE COMPANY'S MOTION FOR SUMMARY JUDGMENT

EDMUNDS, District Judge.

Plaintiffs, Mauricio and Kathleen Mickam and their company, U-Wash of Pontiac, Inc.,¹ brought suit against Defendants, alleging that they have been damaged as a result of their purchase of property encumbered by outstanding federal and state tax liens. Defendants include: Joseph Louis Palace Trust; Victoria Palace and Paul Palace, Cotrustees of the Trust; Philip R. Seaver Title Company; the United States; and the State of Michigan. Plaintiffs and Seaver Title have filed motions for summary judgment.

I. Facts

Joseph Louis Palace created the Joseph Louis Palace Trust, a revocable trust, in May of 1984. Joseph Palace was the grantor and trustee, and Victoria Palace and Paul Palace were appointed as successor trustees. After Joseph Palace's death in 1989, Victoria Palace and Paul Palace became cotrustees of the Trust.

In 1989, Paul Palace obtained a title insurance commitment from Seaver Title, for insurance covering the property that is the subject of this lawsuit. Seaver Title, as agent of Security Union Title Insurance Company, issued a commitment dated September 25, 1989, showing the property owners as Mahlon Benson, Jr. and Edward McNamara and indicating that the party to be insured was Paul Palace. This 1989 commitment listed as exceptions unspecified federal and state tax liens that had been filed against "Paul F. Palace/Paul F. Palace Jr./Joseph Louis Palace." No title policy was ever issued pursuant to this commitment.

Then, in 1990, U-Wash became interested in acquiring the real estate. U-Wash obtained its own title insurance commitment from Seaver Title. Seaver title issued a commitment dated October 30, 1990, showing the property owners as Mahlon Benson and Joseph L. Palace Trust. The commitment indicated that the party to be insured was U-Wash Pontiac, Inc., and it did not list any federal or state tax liens as exceptions to title.

In 1991, U-Wash purchased the Trust property via a land contract. The land contract, dated February 1, 1991, provided that upon payment in full, the Cotrustees acting on behalf of the Trust would provide a warranty deed to U-Wash. There were no exceptions to title made for any state or federal tax liens. As part of the land contract transaction, the Cotrustees executed a warranty deed to U-Wash. The deed was dated February 1, 1991, and was placed in escrow. The Cotrustees' deed to U-Wash was never delivered out of escrow nor was it ever recorded, because subsequently U-Wash assigned its interest in the land contract to the Mickams.

Pursuant to the second commitment and as part of the land contract transaction, Seaver Title, as agent for Security Union, issued a title policy to U-Wash dated February 4, 1991. The title policy did not list as exceptions any federal or state tax liens on the property.

In October of 1991, the Trust was found to be invalid in a state court condemnation action regarding a portion of the Trust property. There, the federal and state governments claimed that the condemnation proceeds should be paid to them in satisfaction of their liens against the Trust property. The Trust argued that condemnation proceeds should be paid to it because the tax liens had been filed against Joseph Palace, not against the Trust.

The state court held an evidentiary hearing and found that the Trust was not a valid trust for the purpose of avoiding Joseph L. Palace's tax liabilities. City of Pontiac v. Estate of Joseph H. Palace No. 89-374045 (Oakland County Cir.Ct. Oct. 1, 1991). There was no evidence of trust documents or registration of the Trust. The court further found that even if some sort of trust existed, the transfer of the property to the Trust was a fraudulent conveyance.

In light of all the evidence (and lack of evidence) the Court concludes that the transfer of property was a fraudulent conveyance. As such, the conveyance did not extinguish the tax liens and does not preclude Defendants U.S. and State of Michigan from collecting condemnation proceeds.

Id.

Subsequently, in May of 1992, the Cotrustees executed and delivered a warranty deed to Mauricio and Kathleen Mickam, as assignees of U-Wash. This deed was recorded, and again, no title exceptions were made for tax liens.

In August of 1992, the Mickams applied for a mortgage on the property. The lender refused to lend them money after conducting a title search and discovering that federal and state tax liens had been filed against the property.² As a result, Plaintiffs filed a complaint alleging the following:

1. Breach of contract against the Trust and the Cotrustees

2. Negligent misrepresentation and breach of insurance contract against Seaver Title³

3. Quiet title against the United States requesting that the federal tax liens be discharged

4. Quiet title against the State of Michigan requesting that the state tax liens be discharged

5. Fraud and misrepresentation against the Trust and the Cotrustees

Plaintiffs filed a motion for summary judgment on all of their claims.

As a result of this lawsuit, the Trust and the Cotrustees filed a cross complaint against Seaver Title alleging breach of insurance contract, breach of warranty, and indemnity. Seaver Title has filed a motion for summary judgment on the complaint and on the cross complaint.

II. Analysis

A. Plaintiffs' claims against the Trust and the Cotrustees

Plaintiffs contend that the Trust and the Cotrustees are liable for breach of contract and fraud because they warranted that the property was free of encumbrances when they transferred the property to U-Wash by land contract and then to the Mickams by warranty deed. In an action for breach of contract for sale of land, Plaintiffs can recover the price paid for the land plus interest. Dubay v. Kelly, 137 Mich. 345, 100 N.W. 677 (1904). In an action for fraud, Plaintiffs can recover the actual value of the interest in the land which was lost. Id. That is, Michigan courts have approved of the "English Rule" which provides that a buyer may recover benefit of the bargain damages from a seller who sold realty in bad faith by concealing known title defects. Such damages are the difference in value between the contract price and the value of the property as encumbered. Soloman v. Western Hills Development Co., 110 Mich.App. 257, 312 N.W.2d 428, 433 (1981).

The Trust and the Cotrustees contend that they are not liable to Plaintiffs because they believed that the property was unencumbered, in reliance on the title commitment. The issue of bad faith is a fact question relevant to Plaintiffs' fraud claim, and thus summary judgment is denied on the fraud claim against the Trust. However, bad faith is not an element to a breach of contract action. As the Trust and the Cotrustees did not assert any other defenses to Plaintiffs' breach of contract claim, summary judgment is hereby granted to Plaintiffs on their breach of contract claim.

B. Claims against Seaver Title

1. Breach of Insurance Contract

Plaintiffs claim that Seaver Title is liable to them under the insurance policy. This claim is meritless, because Seaver Title is not the insurer under the policy; Seaver Title merely acted as an agent for Security Union. While an agent is liable for his own torts, an agent is not liable for the contracts it makes on behalf of a disclosed principle. Hall v. Encyclopedia Britannica, Inc., 325 Mich. 35, 37 N.W.2d 702 (1949); Huizenga v. Withey Sheppard Assoc., 15 Mich.App. 628, 167 N.W.2d 120 (1969).⁴

Accordingly, Seaver's motion for summary judgment on Plaintiffs' claim for breach of contract is granted and Plaintiffs' cross motion on this claim is denied.

2. Negligent Misrepresentation

U-Wash, the Mickams, the Trust and the Cotrustees contend that Seaver Title negligently performed the title search and should be liable to them for money damages in the amount of the difference between the price and the value of the encumbered land.

a. Seaver's Liability to U-Wash

Michigan law recognizes the tort of negligent misrepresentation. In Williams v. Polgar, 391 Mich. 6, 215 N.W.2d 149 (1974), the Michigan Supreme Court discussed the tort in the context of misrepresentations allegedly made by a title abstracter. The tort of negligent misrepresentation is a hybrid claim encompassing elements of negligence⁵ and misrepresentation.⁶ While no Michigan court has expressly outlined the elements of a negligent misrepresentation claim, the elements can be summarized as follows:

1. the defendant made a material misrepresentation;

2. the representation was false;

3. the defendant was negligent in making the misrepresentation, i.e., the defendant breached a business or professional duty of care to provide accurate information to those who employ him;

5. the plaintiff suffered damages as a result.

See Williams, 391 Mich. 6, 215 N.W.2d 149. The Williams court held that an abstracter who negligently performs a title search is liable to a foreseeable class of potentially injured persons. Id. However, no Michigan court has held that a title insurer or agent has a professional duty of care to those who employ them, outside of their contractual obligations.

Courts in other jurisdictions are split on...