Sevy v. Security Title Co. of Southern Utah

• Decision Date: 29 July 1993
• Docket Number: No. 920035-CA,920035-CA
• Citation: 857 P.2d 958
• Parties: Harold SEVY and Winona Sevy, Plaintiffs and Appellees, v. SECURITY TITLE COMPANY OF SOUTHERN UTAH, Defendant and Appellant.
• Court: Utah Court of Appeals

Page 958

857 P.2d 958

Harold SEVY and Winona Sevy, Plaintiffs and Appellees, v. SECURITY TITLE COMPANY OF SOUTHERN UTAH, Defendant and Appellant.

No. 920035-CA.

Court of Appeals of Utah.

July 29, 1993.

Bruce A. Maak and Jeffrey J. Hunt (argued), Salt Lake City, and J. Bryan Jackson, Cedar City, for defendant and appellant.

Robert F. Orton and Clark R. Nielsen (argued), Salt Lake City, for plaintiffs and appellees.

Before BILLINGS, GARFF and ORME, JJ.

BILLINGS, Presiding Judge:

Appellant, Security Title Company, appeals from a judgment determining it was negligent in closing a real estate transaction for Appellees, Harold and Winona Sevy. We reverse as we conclude the Sevys' claim is time-barred.

FACTS

On April 28, 1981, Harold and Winona Sevy sold Kyle and Cindy Stewart 12.86 acres of irrigated farm land, located in Garfield County, Utah, along with 39 shares of water stock in the Long Canal Company, which furnished irrigation water to the land. Mr. Sevy is a farmer and long time officer of the Long Canal Company. The purchase price for the land and water stock was $25,000, with a down payment of $5000 and annual installments on the unpaid balance.

The Sevys and the Stewarts requested that Russell Dalton, the office manager of Security Title Company of Southern Utah, prepare documents to protect their respective interests in the transaction. The parties told Dalton they wanted to transfer the title to the land and the water stock to the Stewarts, with the Sevys retaining a lien against the land and the water stock to secure payment of the balance of the purchase price. Security Title prepared all of the documents, ¹ recorded the warranty deed and deed of trust with assignment of rents, transferred the water stock, and issued a title insurance policy to the Stewarts. Mr. Sevy paid Security Title a $75 escrow fee and a $135 title insurance premium on the title insurance policy issued to the Stewarts.

At the closing, Dalton requested that Mr. Sevy deliver his water stock certificate representing 112 shares of the Long Canal Company to Security Title. In Dalton's presence, Mr. Sevy endorsed the certificate and appointed Security Title as agent to At the trial on July 8, 1991, the testimony was in conflict as to the delivery of the 39 share water stock certificate, undoubtedly because of the ten years which had passed since the 1981 closing. Mr. Stewart testified that Mr. Sevy gave him the closing documents and the 39 share certificate. Mrs. Stewart testified she received the certificate from her husband shortly after the closing and that he told her he received it from Mr. Sevy. However, Mr. Sevy denied delivering the certificate to the Stewarts. Dalton testified he had no recollection regarding the delivery of the certificate or anything else about the transaction. Based upon this testimony, the trial court found that Security Title delivered the 39 share certificate to the Stewarts.

transfer 39 of the 112 shares to the Stewarts on the books of the Long Canal Company. The Long Canal Company then issued a new certificate representing 39 shares of stock in the Stewarts' name, and sent the certificate to Security Title. The company also sent a separate certificate for the remaining 73 shares in Mr. Sevy's name to Security Title. Security Title sent this 73 share certificate to Mr. Sevy soon after the closing.

On August 21, 1985, the Stewarts borrowed money from the Lockhart Company, pledging the 39 shares of water stock as collateral. The Lockhart Company perfected its security interest by taking possession of the 39 share certificate and through filing a financing statement with the Utah State Division of Corporations and Commercial Code on September 3, 1985. On October 2, 1986, the Lockhart Company assigned Associates Financial Services of Utah, Inc. all of its rights against the Stewarts and delivered to Associates Financial the 39 share water stock certificate.

In 1986, the Stewarts defaulted on their payments to the Sevys and the Sevys repossessed the farm land. Thereafter, the Stewarts filed a petition in bankruptcy.

Associates Financial filed suit against the Sevys and Security Title, to establish the priority of its security interest in the 39 shares of water stock on April 15, 1987. The Sevys defended on the merits. On November 2, 1987, summary judgment was entered in favor of Associates Financial. On August 31, 1989, the Sevys repurchased the 39 shares of water stock from Associates Financial for $7250.

The Sevys filed the lawsuit from which this appeal arises against Security Title on December 27, 1989. They alleged Security Title was negligent in not protecting their security interest in the water stock. Security Title moved for summary judgment on the ground that the Sevys' claim was barred under the applicable statute of limitations. The trial court denied the motion.

On September 26, 1991, after a bench trial, the court found Security Title was negligent. The trial court determined the custom and practice in the title industry, in a sale involving water stock in an irrigation company where a seller wishes to retain a security interest, required an escrow agent to either: (1) delay transferring the stock on the books of the corporation until the final payment on the purchase price is made to the seller, (2) make the transfer on the books of the corporation and hold the new certificate in escrow until the final payment is made, (3) transfer the stock on the books of the corporation and deliver the new certificate to the seller with instructions that the seller retain possession of the certificate until final payment is made, or (4) advise the seller to seek legal counsel. The trial court determined that Security Title breached its duty to the Sevys by failing to take any one of these steps.

Furthermore, the court awarded the Sevys attorney fees and costs incurred in defending the Associates Financial action and the amount spent by the Sevys in repurchasing the water stock from Associates Financial. In addition, the court found Security Title's defense of this action was without merit and was not asserted in good faith and thus awarded attorney fees. As an alternative ground for the award of attorney fees in this case, the court also found Security Title's representation to the Sevys that it was qualified to prepare the documents and orchestrate the transaction On appeal, Security Title argues: (1) The Sevys' claim is time-barred under the statute of limitations; (2) The trial court's finding that Security Title delivered the stock certificate to the Stewarts was clearly erroneous; (3) The trial court erred in awarding the Sevys damages when there was no foreclosure completed on the property secured under the deed of trust; (4) The trial court erred by awarding as damages the attorney fees and costs the Sevys incurred in the action filed against them by Associates Financial; and (5) The trial court erred in awarding the Sevys attorney fees and costs incurred in this action. Additionally, Security Title seeks its costs incurred below and on this appeal. We do not reach many of the issues raised on appeal because we conclude the Sevys' action against Security Title is time-barred.

was deceptive under the Utah Consumer Protection Act.

STATUTE OF LIMITATIONS

Security Title argues the trial court erred as a matter of law in concluding the Sevys' claim was not barred by Utah Code Ann. § 78-12-25(3) (1992), the four year negligence statute of limitations. The Sevys respond that the trial court correctly applied the discovery rule to toll the statute of limitations. ²

The Utah Supreme Court has explained that statutes of limitations " 'are designed to promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared.' " Myers v. McDonald, 635 P.2d 84, 86 (Utah 1981) (quoting Order of Railroad Telegraphers v. Railway Express Agency, Inc., 321 U.S. 342, 348-49, 64 S.Ct. 582, 586, 88 L.Ed. 788 (1944)). In furtherance of that policy, the general rule is "a cause of action accrues and the relevant statute of limitations begins to run 'upon the happening of the last event necessary to complete the cause of action ... [and] mere ignorance of the existence of a cause of action does not prevent the running of the statute of limitations.' " Warren v. Provo City Corp., 838 P.2d 1125, 1128-29 (Utah 1992) (quoting Myers, 635 P.2d at 86); see also O'Neal v. Division of Family Services, 821 P.2d 1139, 1143 (Utah 1991).

Under the general rule, the statute of limitations ran on the Sevys' claim several years before this action was filed. However, the trial court concluded the discovery rule saved the Sevys' claim.

Whether the discovery rule applies to toll the statute of limitations is a question of law, thus we "show no deference to the trial court's ruling on appeal, but we review it for correctness." Klinger v. Kightly, 791 P.2d 868, 870 (Utah 1990).

The Utah Supreme Court has identified

three circumstances where the discovery rule applies: (1) in situations where the discovery rule is mandated by statute; (2) in situations where a plaintiff does not become aware of the cause of action because of the defendant's concealment or misleading conduct; and (3) in situations where the case presents exceptional circumstances and the application of the general rule would be irrational or unjust, regardless of any showing that the defendant has prevented the discovery of the cause of action.

Warren, 838 P.2d at 1129 (footnotes omitted); accord Klinger, 791 P.2d at 872; Myers, 635 P.2d at 86.

There is no Utah statute mandating application of the discovery rule in a negligence action against a title company. Furthermore, the Sevys have not asserted, nor did the trial court find, that Security Title misled the Sevys regarding their cause of action against Security Title. Thus, it is the...