Moore v. Title Ins. Co. of Minnesota

• Decision Date: 31 October 1985
• Docket Number: No. 2,CA-CIV,2
• Citation: 714 P.2d 1303,148 Ariz. 408
• Parties: Michael C. MOORE and Royanna Moore, husband and wife; and Moore and Bale Partnership, Plaintiffs/Appellants, v. TITLE INSURANCE COMPANY OF MINNESOTA, a corporation, Defendant/Appellee. 5396.
• Court: Arizona Court of Appeals

Page 1303

714 P.2d 1303

148 Ariz. 408

Michael C. MOORE and Royanna Moore, husband and wife; and Moore and Bale Partnership, Plaintiffs/Appellants, v. TITLE INSURANCE COMPANY OF MINNESOTA, a corporation, Defendant/Appellee.

No. 2 CA-CIV 5396.

Court of Appeals of Arizona,

Division 2, Department A.

Oct. 31, 1985.

Review Denied March 4, 1986.

Donald E. Gabriel, Tucson, for plaintiffs/appellants.

Waterfall, Economidis, Hanshaw & Villamana, P.C. by Steven M. Cox, Tucson, for defendant/appellee.

OPINION

HOWARD, Judge.

Plaintiffs filed this action against the defendant title company alleging that the defendant was negligent in failing to discover certain liens against property plaintiffs were purchasing and further alleging that this misconduct resulted in a breach of contract. The trial court, sitting without a jury, made findings of fact which included the following:

"1. Plaintiffs did not rely on the title search, analysis or opinion of Defendant Title Insurance Company of Minnesota in closing the purchase of the property in question, and plaintiffs' alleged damages were not caused by said search, analysis or opinion.

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3. Plaintiffs' damages were caused by their own acts or omissions...."

Plaintiffs contend that the trial court's findings of facts were clearly erroneous and that liability for tort should be imposed against the title company.

The facts considered in the light most favorable to defendant are as follows. On July 10, 1979, Michael C. Moore, acting on behalf of the partnership of Moore and Bale, attended a meeting at the offices of Title Insurance Company of Minnesota (Minnesota) in Tucson. The meeting concerned the purchase by the partnership of certain apartments located in Sierra Vista, Arizona, owned by Mr. Nieman. Present at the meeting were Nieman, his real estate broker, Moore, Bale and Roy Rogers, an escrow officer of Minnesota. The purpose of the meeting was to work out the details of a deposit receipt and agreement in connection with the partnership's proposed purchase of the apartments.

The partnership was concerned about purchasing the property because Sierra Solar Systems, Inc., a corporation owned by Nieman, was in bankruptcy and there were serious delinquencies on the first deed of trust on the apartments held by Security Savings and Loan. Unless immediate cash was provided to Security Savings it was going to foreclose. Moore informed everyone at the meeting that the partnership did not want to enter into the transaction at all if there was any danger that Nieman personally would file bankruptcy or if there was any problem concerning the property that would bring it into the bankruptcy court.

A deposit receipt and agreement was typed at the Minnesota office. It provided for a purchase price of approximately $100,000. It disclosed the existence of three liens on the property: first lien to Security Savings in the approximate sum of $30,000, a second lien to S & D Cattle Company in the approximate sum of $30,000 to $40,000 and a third lien to First National Bank in the approximate sum of $30,000. The agreement also contained the following terms and conditions:

"(1) If the subject property is subject to any liens other than the three liens described on page one, buyer shall have the option to terminate this agreement and all deposits shall be returned to buyer and buyer shall not be liable to seller for any amount nor may seller enforce this agreement."

Because of the threat of foreclosure on the first lien, the parties provided in the agreement for an earnest money deposit of $5,000 and a downpayment of $3,000. The partnership also was given the right to take possession of the property prior to closing, which was to occur in December of 1979. Under the agreement the partnership was given a $6,000 note and deed of trust on Nieman's house to secure repayment of the $5,000 earnest money, which the parties agreed the escrow could immediately disperse to Security Savings in order to cure the default and prevent a foreclosure. In the event the partnership did not close the transaction, the agreement provided that the partnership would be reimbursed for any expenditures on the property not covered by rents received by the partnership. The agreement further gave the partnership the right to cancel the agreement if it could not, after 21 days, obtain financing satisfactory to them in the form of a single loan in an amount sufficient to cover the existing liens.

Prior to signing the deposit receipt and agreement, Rogers told Moore that Minnesota had made a title search and there were no problems. Indeed, the record discloses that a preliminary title report was made searching the title up to July 10, 1979. It discloses no liens other than the realty mortgage owed to Security Savings, and the deeds of trust securing loans owed to S & D Cattle Company and First National Bank of Arizona.

The partners signed the agreement and took possession of the apartments. Although there were 14 apartments in existence at the time, only one of them was in shape to be rented and it was the duty of Bale to see to it that the remaining units were brought into a rentable condition. During their discussions with Nieman prior to signing the deposit receipt and agreement, Nieman represented to the partnership that the amount of money due and owing on the mortgage to S & D Cattle Company was closer to $30,000 with a discount and that the lienholder was cooperative. In fact, after taking possession, the partners discovered that the amount of the lien was claimed to be closer to $40,000 and that the S & D Cattle Company was not cooperative. It was also discovered that some of the fixtures and equipment in the apartments did not work and that there was cement in part of the sewer system. Bale commenced to repair the apartments and succeeded in getting six of them rented. Eventually the amount of rents came close to giving the partners a positive cash flow.

The partnership tried to get financing in order to pay off the second and third liens and eventually got First National Bank of Arizona to agree to lend them $60,000. Since this was approximately $10,000 less than the amount of the second and third liens, the sum was insufficient. As long as S & D Cattle Company claimed that it was owed $40,000, more money was needed. The partnership did, prior to the closing, institute a lawsuit against S & D Cattle Company to attempt to clear up the amount which was due and owing to it.

On December 13, 1979, the partners closed the deal in anticipation of persuading S & D Cattle Company to accept a lesser amount. At the time of the closing they did not have any financing.

Prior to the closing, Minnesota had prepared an amended preliminary title report which was given to the escrow officer. The only liens shown on this amended report were the liens that were previously known. Neither partner saw either of the preliminary title reports prior to closing the sale. The closing statement, which both partners saw, showed only the existence of the three liens previously mentioned and the closing statement showed that the partners were taking the property subject to these liens. Moore asked Rogers at the time about the three liens, and Rogers told him that he would let him know the balance due on each. Upon closing, the partnership released the $6,000 note which was given as security for the $45,000 earnest money and voided it. They also released Nieman's home in Sierra Vista, which was being held as security.

After the closing, Bale continued to work on improving the property. In April 1980, Bale moved to Kansas City. In November 1980, he made up a sales packet for the property showing a sale price of $155,000. He tried to sell the property to a prospect who, after checking into the deal, told Bale that the deal was not as represented since there were other outstanding liens on the property. About one month earlier, Moore was discussing financing with Lou Wallace of the First National Bank. Wallace told him that the bank would be happy to lend him money to pay off the first three liens, but asked Moore who was going to pay off the additional liens that his research showed existed on the property. This was the first time that Moore had any notice that there were additional liens.

Minnesota had failed to list the following liens of record on the property against Sierra Solar Systems, Inc.: Arizona Department of Economic Security, $329.36, recorded November 6, 1978; Arizona Department of Economic Security, $604.93, recorded November 29, 1978; United States Internal Revenue Service, $9,141.45, recorded January 15, 1979; Arizona Department of Economic Security, $214.82, recorded February 22, 1979, and United States Internal Revenue Service, $2,925.29, recorded March 13, 1979. Although a deed transferring the property from Sierra Solar Systems, Inc. to Nieman, individually, was executed and recorded on December 29, 1978, this deed was subsequently re-recorded by the title company on December 13, 1979 because of a defective acknowledgment. Both personally and through his attorney, Moore communicated with...