Tipton County Abstract Co., Inc. v. Heritage Federal Sav. and Loan Ass'n

• Decision Date: 19 February 1981
• Docket Number: No. 2-680A178,2-680A178
• Citation: 416 N.E.2d 850
• Parties: TIPTON COUNTY ABSTRACT COMPANY, INC., Appellant (Defendant below), v. HERITAGE FEDERAL SAVINGS AND LOAN ASSOCIATION, Formerly Elwood Federal Savings and Loan Association, Appellee (Plaintiff below).
• Court: Indiana Appellate Court

Page 850

416 N.E.2d 850

TIPTON COUNTY ABSTRACT COMPANY, INC., Appellant (Defendant below), v. HERITAGE FEDERAL SAVINGS AND LOAN ASSOCIATION, Formerly

Elwood Federal Savings and Loan Association,

Appellee (Plaintiff below).

No. 2-680A178.

Court of Appeals of Indiana, Fourth District.

Feb. 19, 1981.

Edward S. Mahoney and Jerry L. Angel, Lacey, O'Mahoney, Mahoney, Angel & Jessup, Kokomo, for appellant.

Richard L. Fairchild, Stewart, Irwin, Gilliom, Fuller & Meyer, Indianapolis, Wayne O. Wimmer, Elwood, Tom R. White, Christian, Waltz, White, Klotz & Free, Noblesville, for appellee.

CHIPMAN, Judge.

Tipton County Abstract Company, Inc. (TCAC) appeals from a judgment holding it liable to Heritage Federal Savings & Loan (Heritage) for failing to inform Heritage of an outstanding mortgage in a continuation of an abstract prepared by TCAC.

Two issues have been preserved ¹ for appeal.

I. Whether there is sufficient evidence to support the judgment.

II. Whether the trial court erred by limiting TCAC's cross-examination of a witness.

On March 2, 1973 Heritage took a mortgage loan application from Kenneth M. and Jane Ann Bourff for a parcel of land located in DeHority's City Land Company's Addition. In the loan application the Bourffs revealed a $25,000 secured loan to Farmers Loan and Trust Company of Tipton (Farmers).

The abstract of the property was sent to TCAC to be continued from May 17, 1971 to March 12, 1973. TCAC found no liens except a previous mortgage of Heritage's and certified that, "We have carefully examined the Deed and Mortgage Records of said county, and that the foregoing continuation contains all of the conveyances and unsatisfied encumbrances effecting the title of said real estate described in the caption thereof."

The property was appraised by Heritage at $93,000. The Bourffs received a $70,000 mortgage on the property from Heritage.

On December 18, 1974 the Bourffs filed a bankruptcy petition. Farmers filed suit to foreclose a mortgage they had on the property, dated and recorded on February 18, 1972, and made Heritage a party defendant. That mortgage was not shown on TCAC's continuation of the abstract of the property. A decree of foreclosure was entered listing Farmers as first mortgagee and Heritage as second. Heritage purchased the property at Sheriff's sale on August 21, 1975 for $37,814.17 and sold it on March 25, 1976 for $63,000.

Heritage filed suit against TCAC alleging they were damaged by their failure to include Farmers' mortgage in the abstract. The trial court found TCAC was in breach of their contract by failing to list Farmers' mortgage and found the resultant damages to be $73,999.44.

I. SUFFICIENCY OF EVIDENCE

TCAC contends Heritage had, at a minimum, constructive knowledge of Farmers' prior mortgage. Bourffs' loan application contained a reference to a $25,000 loan from Farmers secured by an unspecified second mortgage. TCAC contends Heritage should have made further inquiry into the matter. Thus they conclude Heritage had sufficient information to lead them to the discovery of the mortgage. Heritage contends they had no knowledge, constructive or actual, of Farmers' prior mortgage.

Clearly TCAC would be liable for damages caused by their breach of contract by supplying erroneous information in the abstract continuation. As stated in Mayhew v. Deister, (1969) 144 Ind.App. 111, 244 N.E.2d 448, 452 "The few relevant cases in Indiana demonstrate that the abstracter is liable to his employer for damages proximately caused by his failure to fulfil his duty, i. e., to use ordinary care and diligence in preparing the abstract. Batty v. Fout, 54 Ind. 482 (1876); Brown v. Simms, 22 Ind.App. 317, 53 N.E. 779 (1899); Williams v. Hanly, 16 Ind.App. 464, 45 N.E. 622 (1896); Ohmart v. Citizens, etc. Trust Co., 82 Ind.App. 219, 145 N.E. 577 (1924). This duty is contractual.

'It is well settled that the liability of an abstracter of titles is based on contract; and that one who undertakes to furnish such abstracts is liable for a failure to use ordinary care in so doing. His contract is that he will exercise such care.' Crawford Lumber Co. v. Abstract Guaranty Co., 253 Iowa 705, 113 N.W.2d 703, 704 (1962).

Although Indiana courts have not so directly ruled, this general duty and liability should be supplemented with the proposition that the employer must be damaged by his acting on reliance that the abstract is true and complete."

The abstracter, however, could not be liable for damages caused by factors other than his breach. ² It is axiomatic that a breaching party is only liable for losses caused by his breach, see J. Calamari & J. Perillo, The Law of Contracts § 205 (1970). Such damages include those caused by the plaintiff's reliance on the abstracter's breach. As stated in 1 Am.Jur.2d, Abstracts of Title § 19 (1962):

"The abstracter is not liable for losses incurred otherwise than in reliance on the abstract. However, the person employing the abstracter has the right to rely upon the truth and accuracy of the abstract as regards essential facts of record, unless it is plainly apparent from the certificate that there was a mistake. He does not, by so relying upon the work of the abstracter, defeat recovery for negligence. (fn. 17 .... 'The defendant, having assumed to search and report upon the title, the very purpose of obtaining its services would be undone if the plaintiff could not rely upon the truth and accuracy of its report as regards essential facts of record, unless perhaps the terms of the certificate made it plainly apparent that there was a mistake.' Brideport Airport v. Title Guaranty & T. Co., 111 Conn. 537, 150 A. 509, 71 A.L.R. 345)"

In Indiana, in fact, it is not clear that even actual knowledge of an abstracter's breach negates recovery if the plaintiff relied on the abstracter's error. It is clear, though, such question (whether the plaintiff relied upon an abstracter's work to its detriment) is one of fact.

"The Supreme Court of Iowa in the Crawford Lumber Co. case, supra, so held ... and stated at page 705 of 113 N.W.2d that it was:

'A question for the determination of the trier of the facts whether the knowledge, or actual notice, (of abstracter's omission of an unsatisfied judgment) of the plaintiff was sufficient to support a holding that he had no right to rely upon the defendant's mistake.'

See also, Randall v. Paine-Nichols Abstract Co., 205 Okl. 430, 238 P.2d 319, 28 A.L.R.2d 887 (1951). These cases indicate further that knowledge of a defect does not always and in every case automatically negate reliance upon the abstract. In the Crawford Lumber Co. case, supra, the court found that there was sufficient substantial evidence to support the finding that the plaintiffs had actual knowledge of the unsatisfied judgment and of the abstracter's omission of it, but stated further that there was therefore a jury question as to whether the plaintiff relied on the abstract to his detriment."

Mayhew v. Deister (1969) 144 Ind.App. 111, 244 N.E.2d 448 at 452.

Heritage's knowledge, actual or constructive, of the prior mortgage is irrelevant if they in fact relied on TCAC's representation that it did not exist. Thus, the gist of TCAC's issue must be whether there is sufficient evidence to support the trial court's finding ³ that Heritage relied on TCAC's error in granting Bourffs the mortgage.

During direct examination of Curtis Mayfield, Vice-President of Heritage, the following exchange occurred:

"Q Did the Plaintiff association here depend on the abstract furnished by the Defendant corporation here in making this loan?

A I didn't hear the first part of your question.

Q Did the association depend on the abstract?

A We did.

(objection, overruled)

Q And what was the custom and the practice in the association regarding having abstracts?

A To have it continued to see if there are any other liens or encumbrances on the subject property other than our own and if it's clear then we proceed with the loan.

Q Was it practice to rely entirely on the abstract?

A Yes sir.

Q And did you rely entirely on the abstract in making this loan?

A Yes sir."

During direct examination of Patricia Huntsinger, supervisor of...