Parker v. Title and Trust Company

• Decision Date: 04 May 1956
• Docket Number: No. 14201.,14201.
• Citation: 233 F.2d 505
• Parties: Chet L. PARKER and Lois M. Parker, Appellants, v. TITLE AND TRUST COMPANY, a corporation; Paul Winans, Ethel Winans, Ross M. Winans, Audubon Winans and Linnaeous Winans, Appellees. Walter STEGMANN, Appellant, v. TITLE AND TRUST COMPANY, a corporation; Paul Winans, Ethel Winans, Ross M. Winans, Audubon Winans and Linnaeous Winans, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

233 F.2d 505 (1956)

Chet L. PARKER and Lois M. Parker, Appellants, v. TITLE AND TRUST COMPANY, a corporation; Paul Winans, Ethel Winans, Ross M. Winans, Audubon Winans and Linnaeous Winans, Appellees.

Walter STEGMANN, Appellant, v. TITLE AND TRUST COMPANY, a corporation; Paul Winans, Ethel Winans, Ross M. Winans, Audubon Winans and Linnaeous Winans, Appellees.

No. 14201.

United States Court of Appeals Ninth Circuit.

May 4, 1956.

Cake, Jaureguy & Hardy, Nicholas Jaureguy, Portland, Or., for appellants Parker.

Phillips, Coughlin, Buell & Phillips, James K. Buell, Hart, Spencer, McCulloch, Rockwood & Davies, Manley B. Strayer, Cleveland C. Cory, Portland, Or., for appellee Title & Trust Co.

Krause, Evans & Lindsay, Dennis Lindsay, Portland, Or., for appellees Winans.

Before DENMAN, Chief Judge, and BONE and POPE, Circuit Judges.

POPE, Circuit Judge.

The above named Title and Trust Company, an Oregon corporation, brought this action against the appellants Parker and Stegmann, citizens of the State of Washington, seeking, among other things, the cancellation of certain policies of title insurance issued by the company, based upon allegations that the Parkers had obtained the policies through fraudulent concealment of certain facts alleged to have been material to the risk assumed in the policies. In general the claim was that when the Parkers obtained the policies insuring the title to the lands described therein, they had knowledge that the title to one of the two parcels described was not good since ownership thereof was in the United States; and that the policies were procured through fraudulent concealment of that fact and of their knowledge thereof. The appellees Winans, brought in as third party defendants on complaint of the company, also recovered a money judgment against Parker and Stegmann upon their cross-complaint. The Parkers and Stegmann have appealed.

The trial court found that in the summer of 1951 Stegmann negotiated with third party defendant Paul Winans for the purchase of lots 1 and 2 in a certain section 16 in Hood River County, Oregon. Stegmann was carrying on those negotiations as agent for the defendants Parker who were his undisclosed principals. Paul Winans was acting for himself and other members of the Winans family. Although the Winans' predecessor in interest had received a deed for lot 2 from the State of Oregon, which the State had executed on the assumption that it had acquired title to that portion of section 16 as school lands, and although these predecessors in interest had conveyed lot 2 to the Winans, yet at the time of the negotiations mentioned, title to lot 2 remained in the United States, since prior to its survey ¹ it had been withdrawn as a portion of the Mount Hood National Forest. Although the State had many years previously selected other lands in lieu of lot 2 and had offered to return to Winans the consideration previously paid for lot 2, yet that lot as well as lot 1 was carried on the tax rolls of Hood River County, and taxes thereon were levied and paid by Winans through the year 1951. Hence information that lot 2 was owned by the United States was not available from any records within Hood River County during the year 1951.

However, the Winans knew where title to lot 2 lay. They had initiated efforts to obtain congressional legislation which would pass title to them, but in 1943 they had obtained from another title company a policy of insurance on these two lots. At that time the government's claim of ownership to lot 2 resulted in Winans filing a claim for loss with that title company on account of the unmarketability of the title and this claim was settled by payment of a substantial sum by the title company. Winans made a full disclosure to Stegmann of all these circumstances.

Thus, as these negotiations proceeded and eventuated in a conveyance from Winans, Stegmann knew not only about the state of the title but about the unfortunate experience of the former title company in having first insured the title to lot 2 and then having to pay a loss because of this same defect. Stegmann proceeded to take an option from Winans in his own name for which he paid $1000 and which called for conveyance of Winans' interest in both Lot 1 and Lot 2 for a total consideration of $100,000. In company with Parker he visited a Forest Service Ranger's office where full information was given both men as to the defective title to Lot 2.

Parker then applied to the plaintiff for a title report and received such report showing good title to be in the Winans. Stegmann then made a second payment on the option which amounted to an election to purchase. He executed a purported assignment of this option to Parker. It recited a consideration of $25,000. Upon Parker's presentation to the plaintiff company of evidence of the option agreement and of this assignment, it issued to the Parkers a purchaser's policy of title insurance in the amount of $125,000 and agreed to replace this with an owner's policy in the same amount, when purchase was completed. The payment of the option price was completed and deed from Winans to Chet L. Parker delivered and recorded. Plaintiff then learned from a Forest Service representative that the United States claimed title to lot 2. Confronted with this, Parker falsely assured plaintiff he knew nothing of it. Relying on that assurance the Company issued its owner's title policy as it had agreed to do. Thereafter, still falsely claiming that Winans had not divulged to them any defect in the title, and falsely claiming also they had paid $125,000 for the property, the Parkers proceeded to present a claim of loss to the Company. The Company then filed this action asking cancellation of their policy.

The Judgment for Title & Trust Company

The Parkers challenge the findings of the trial court that they had knowledge both individually and through their agent Stegmann of the defect in the title to lot 2 at the time they applied for and procured the title policy. With respect to this contention, it need only be said that the trial court's findings upon this point are supported by sufficient evidence.² While the Parkers and Stegmann denied possession of this knowledge, the trial court did not believe them and of course it is no part of our function to review their credibility.

The principal contention of the Parkers is that if, as the court found, they had knowledge of the defect as to the title when they purchased the policy from the plaintiff company, they were under no obligation whatever to make any statement or disclosure with respect thereto. The argument is that it was part of the business of the company to examine and insure titles; that the Parkers had no fiduciary or other duty toward the company such as would require disclosure of information to it and hence that no grounds have been established which would warrant a decree cancelling the policy. Appellants assert that the rule of law here applicable is that which was stated in Frederick v. Sherman, 89 Or. 187, 173 P. 575, where the court approved language quoted from Bigelow on Fraud to the effect that as a general rule silence alone is not unlawful in transactions between persons dealing at arm's length no matter how great an advantage may be gained thereby. In the language of the quoted extract: "But, speaking of pure silence, the general rule stated is very strong. It governs even though the silence was meditated, and with knowledge that the opposite party was laboring under mistake or ignorance." So the Parkers argue, since no affirmative representations were made by them to the Title Company, there was no actionable fraud present. They say that the very purpose of going to the Title Company was to learn from an expert whether the title was clear.

We think that there are several reasons why the rule of Frederick v. Sherman, supra, is not controlling here. In the first place, the Title Company clearly acted under a mistake of fact and in ignorance of the very material lack of title to lot 2. This was a case of unilateral mistake, but the mistake was known to the Parkers who were fully aware that it concerned a matter so vital that the policy would not have been issued were it not for the mistake. The Supreme Court of Oregon has held that under such circumstances a contract is subject to cancellation in equity.

In the case of Rushlite Auto. Sprinkler Co. v. City of Portland, 189 Or. 194, 219 P.2d 732, 753, the Oregon court exhaustively discussed the question of the right of a party to cancellation of a contract executed under his own mistake, but which was known to the other party. Said the court in dealing with an acceptance of an offer where the offeror made a material mistake in making it: "But if the offeree knew of the mistake, and if it was basic, or if the circumstances were such that he, as a reasonable man, should have inferred that a basic mistake was made, a meeting of the minds does not occur." In arriving at its conclusion that such is the law of the State of Oregon, the court not only reviewed many decisions from other States, but quoted from Williston on Contracts, and from the Restatement of the Law of Contracts and Restitution. From § 12 of the latter Restatement, the court quoted the following Reporter's Note: "`Where one party knows or has reason to know that the other party has made a basic mistake (see Comment c) restitution is granted.'"³ This court had occasion to allude to the same rule in United States v. Jones, 9 Cir., 176 F.2d 278, 285.

The court found that the company's failure to discover this defect of title was negligence on its part. Appellant argues that this negligence prevents the company from claiming relief by way of cancellation here. We are of the opinion that the law does not sustain that contention. § 59 of the Restatement of the Law of Restitution recites: "A person who has conferred a benefit upon another by mistake is not precluded from...