Wurzl v. Holloway

• Decision Date: 02 July 1996
• Docket Number: No. B086490,B086490
• Citation: 54 Cal.Rptr.2d 512,46 Cal.App.4th 1740
• Court: California Court of Appeals Court of Appeals
• Parties: , 97 Cal. Daily Op. Serv. 5028, 96 Daily Journal D.A.R. 8017 Roger WURZL, et al., Plaintiffs and Appellants, v. Fannie HOLLOWAY, et al., Defendants and Respondents.

Page 512

54 Cal.Rptr.2d 512

46 Cal.App.4th 1740, 97 Cal. Daily Op. Serv. 5028,

96 Daily Journal D.A.R. 8017

Roger WURZL, et al., Plaintiffs and Appellants, v. Fannie HOLLOWAY, et al., Defendants and Respondents.

No. B086490.

Court of Appeal, Second District, Division 4, California.

July 2, 1996.

Rehearing Denied July 22, 1996.

[46 Cal.App.4th 1745] David M. Danny, Long Beach, for Plaintiffs and Appellants.

Lim & Kim, Christopher Kim and John J. Aumer, Los Angeles, for Defendant and Respondent

Federal Deposit Insurance Corporation.

HASTINGS, Associate Justice.

This is an appeal by Roger Wurzl and Cora V. Wurzl, Trustees of the Roger E. Wurzl and Cora V. Wurzl Trust (collectively referred to as appellants), from a judgment denying quiet title to appellants and in favor of respondent Federal Deposit Insurance Corporation (FDIC). The trial court found that appellants and the FDIC were each innocent victims of fraud perpetrated by defendant Fannie Holloway and concluded that appellants' action for quiet title against the FDIC was barred by the doctrine enunciated in D'Oench, Duhme & Co. v. FDIC (1942) 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 as well as 12 United States Code section 1823, subdivision (e) (hereafter, section 1823). In addition, the court found that as between the two innocent parties, appellants had the better chance of preventing the loss as contemplated in California Civil Code section 3543. We affirm.

FACTS

The Roger E. Wurzl and Cora V. Wurzl Trust owned real property located at 1243 Vista Court, Glendale, California. On July 8, 1990, appellants, as trustees, listed the property for sale through John Telfezian of Century 21--Christopher & Associates.

Defendant Fannie Holloway (Holloway) made an offer to buy the property on July 30, and appellants made a counteroffer on August 4, 1990, which was accepted (The Wurzl-Holloway sale). The sale price was $250,000. Appellants agreed to finance $187,500 of the sale price upon receipt of a promissory note in that amount secured by a deed of trust. The remaining amount, $62,500, was to be paid in cash. The agreement also provided that Holloway would choose the escrow agent for the transaction. Appellant Roger Wurzl initially objected to this last provision and questioned his brokers about it. After his brokers advised him that this provision was not a problem, he agreed.

Holloway selected Apple Escrow, and on August 9, 1990, escrow was opened. Pursuant to the terms of escrow, appellants authorized the escrow holder to "use" appellants' grant deed conveying title to Holloway when the down payment of $62,500 and the promissory note and deed of trust representing the remaining $187,500 were deposited into escrow.

The pertinent terms of the escrow agreement signed by appellants are as follows: "BUYER will deliver to you any instruments and/or funds required from Buyer to enable you to comply with these instructions, all of which you are authorized to use and/or deliver on or before August 20, 1990, and when you are in a position to obtain a OWNERS Policy of Title Insurance from Gateway Title, provided that said policy has a liability of at least the amount of the above total consideration, (new title policy to be delivered to lien holder), covering the following described property in the County of Los Angeles, State of California."

Roger Wurzl did not believe that the escrow was going smoothly. He asked his son Tom, who earned his living buying and selling real property, to attend a meeting with the brokers to discuss the problems he perceived. Tom also felt that there were problems with the escrow, complaining about preparation of the documents. Roger became upset and advised the brokers to cancel the escrow. However, after the brokers assured Roger that Apple Escrow was a bona fide escrow company, licensed and bonded, an agreement was reached whereby the escrow documents would be sent to Tom to review prior to close of escrow. Roger agreed to allow the closing to go forward. The documents were never sent to Tom for his review.

Unknown to appellants, Holloway set up a sham escrow on the same property, specifically to defraud appellants of title to the property. Holloway, with the aid of Michael Devaughn and Amy Martin, presented the falsified escrow documents to Mission Viejo National Bank (MVNB) to obtain financing for a first trust deed of $143,000 and a second trust deed of $25,000. MVNB, unaware that this was a fraudulent escrow, agreed to loan the money and did so. Checks were issued to Holloway, in another name, and On October 26, 1990, appellants filed this suit, which included a claim for quiet title against MVNB, the sixth cause of action. On February 28, 1992, the Comptroller of the Currency declared MVNB insolvent, ordered it closed, and tendered to the FDIC an appointment of receivership, which was accepted. The FDIC succeeded to all the rights, title, powers and privileges of MVNB, including those subject to appellant's claim. On November 24, 1993, the FDIC was substituted into the action in place of MVNB.

deposited into an account at a bank in San Pedro. On September 12, 1990, this second escrow closed, simultaneous with the Wurzl-Holloway escrow. MVNB received and recorded the first and second trust deeds. Appellants received their down payment, less costs and brokers' fees, but they never received the promissory note or the trust deed. MVNB had no knowledge of the first escrow for the Wurzl-Holloway transaction.

On November 29, 1993, the FDIC filed its first amended answer. In the third affirmative defense FDIC states: "The Complaint is barred by D'Oench, Duhme & Co. v. FDIC (1942) 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 and its progeny." The fourth affirmative defense alleges that the complaint is barred by section 1823. The ninth affirmative defense pled that "[p]laintiffs' cause of action is barred by the doctrine of estoppel." The tenth and eleventh affirmative defenses alleged that it was appellants' negligence which caused the damages of which appellants complained.

After a court trial, a statement of decision was issued which determined that the D'Oench doctrine followed in Walsh v. New West Federal Savings & Loan Assn. (1991) 234 Cal.App.3d 1539, 1 Cal.Rptr.2d 35, and section 1823 barred appellants' claim against FDIC. The court also rejected appellants' argument that there was no delivery of the deed from appellants to Holloway, instead, finding that delivery of the deed was procured by fraud in the inducement, citing Langley v. FDIC (1987) 484 U.S. 86, 108 S.Ct. 396, 98 L.Ed.2d 340 for the proposition that fraud in the inducement does not prevent application of the D'Oench doctrine or section 1823. The court also applied Civil Code section 3543, finding that "as between [appellants] and [MVNB], [appellants] had the better chance of preventing loss through its escrow agents." Judgment was ordered entered in favor of the FDIC.

On June 9, 1994, judgment was entered and this appeal followed.

DISCUSSION

On appeal, appellants urge that the court erred in applying the D'Oench doctrine and section 1823. They also argue that the court erred by concluding that the deed was in fact delivered to Holloway, contending that the terms of escrow were not complied with, meaning transfer of the deed to Holloway was void, not voidable as concluded by the trial court. The FDIC argues in its respondent's brief that the facts of this case do fit easily within both theories relied upon by the court and that the court properly found that the fraud involved was fraud in the inducement. In addition, the FDIC urges an additional ground for affirmance, not addressed by appellants in their opening brief; that even if we determine neither D'Oench nor section 1823 apply, the trial court found in favor of the FDIC pursuant to Civil Code section 3543, that as between two innocent victims appellants should suffer the loss.

D'Oench and 12 United States Code section 1823, subdivision (e)

The D'Oench doctrine and section 1823 are each extensively discussed and applied in Walsh v. New West Federal Savings & Loan Assn., supra, 234 Cal.App.3d 1539, 1 Cal.Rptr.2d 35, a case similar to this. The decision begins by discussing the development and application of the doctrine.

"The D'Oench Duhme doctrine, an equitable rule of estoppel, emanates from the United States Supreme Court decision in D'Oench, Duhme & Co. v. FDIC, supra, 315 U.S. 447 [62 S.Ct. 676, 86 L.Ed. 956]. In D'Oench Duhme, the Federal Deposit Insurance Corporation (FDIC) sued on a promissory note which had been assigned to it in connection with a bank failure. In defense, the obligors alleged the bank had orally agreed it would not call the note for payment. Rejecting the defense, the Supreme Court held an obligor who 'lent himself to a scheme or arrangement' that was 'likely to ... mislead' bank examiners may not assert against the FDIC any part of an agreement that might diminish the value of his written loan obligation. (Id. at p. 460 .) The Supreme Court based its ruling on a 'federal policy ... to protect [the FDIC], ... from misrepresentations made to induce or influence [its] action[s], including misstatements as to the genuineness or integrity of securities in the portfolios of banks which it insures or to which it makes loans.' (Id. at p. 459 .) Congress thereafter codified the doctrine at 12 United States Code section 1823(e)....

"Since its inception, courts have dramatically expanded the reach of the common law doctrine and its statutory counterpart. (Beighley v. Federal Deposit Ins. Corp. [5th Cir.1989] 868 F.2d at p. 784; Bowen v. Federal Deposit Ins. Corp. (5th Cir.1990) 915 F.2d 1013, 1015.) 'The doctrine has been expanded to encompass any claim against an insolvent institution that would either diminish the value of the assets held by the FSLIC or increase the liabilities of the insolvent institution.' (Castleglen, Inc. v. Commonwealth Sav. Ass'n (D.Utah 1989) 728...