Zimmerman v. First American Title Ins. Co.

• Decision Date: 28 February 1990
• Docket Number: No. 12-88-00331-CV,12-88-00331-CV
• Citation: 790 S.W.2d 690
• Court: Texas Court of Appeals
• Parties: Mel ZIMMERMAN, Sharon Zimmerman, Jeffrey Glover and Johanna Glover, Appellants, v. FIRST AMERICAN TITLE INSURANCE COMPANY, Appellee.

Page 690

790 S.W.2d 690

Mel ZIMMERMAN, Sharon Zimmerman, Jeffrey Glover and Johanna Glover, Appellants, v. FIRST AMERICAN TITLE INSURANCE COMPANY, Appellee.

No. 12-88-00331-CV.

Court of Appeals of Texas Tyler.

Feb. 28, 1990.

Rehearing Denied June 21, 1990.

James S. Robertson, Jr., Wilson, Miller, Spivey, Sheehy & Knowles, Tyler, for appellants.

Steven M. Dowd, Lufkin, for appellee.

BILL BASS, Justice.

This is an action brought by a real estate agent against a title insurance company for the title company's breach of the Deceptive Trade Practices Act "breach of contractual and fiduciary duty," and negligence in the closing of a real estate sale. At the close of the evidence, the trial court withdrew the case from the jury and rendered judgment that appellants take nothing against First American Title Company, appellee. We reverse the trial court's judgment and remand the cause for a new trial.

Appellant Zimmerman was the real estate agent who arranged a sale of forty-eight lots on Lake Palestine from the First City Bank of Dallas, seller, to Ken Torres, buyer. The parties agreed that, in lieu of a cash commission, Zimmerman would receive one of the lots, the June 19, 1981, purchase contract reciting "[b]uyer to deed lot # 80 of Unit 1 Hide A Way Bay over to Mel & Sharon Zimmerman free and clear on date of closing."

Zimmerman referred the contract to Tyler Land and Title Company, appellee's predecessor. The land purchase contract specified a purchase price of $30,000, $500 cash as earnest money and the $29,500 balance payable in cash at closing. The Lindale State Bank loaned Torres the money, and informed the title company that the payment of Torres' note to them should be secured by a deed of trust covering the forty-eight lots, and the reservation in the deed from First City to Torres of a vendor's lien and superior title in the Lindale Bank. The title company closed the transaction and issued title policies insuring Torres' title and the interest of the mortgagee, Lindale State Bank. All forty-eight lots were conveyed by deed dated February 10, 1982, and recorded March 8, 1982, from the First City Bank of Dallas, seller, to Ken Torres, buyer. This conveyance reserved a vendor's lien and superior title to secure the payment of Torres' note to the Lindale State Bank. The note was also secured by a deed of trust covering all forty-eight lots. As part of the closing, which the appellee title company handled, Ken Torres conveyed lot 80 to Mel and Sharon Zimmerman by warranty deed dated February 16, 1982, and also recorded March 8, 1982. Therefore, the Zimmermans failed to receive lot 80 "free and clear" as required by the contract, but instead received lot 80 subject to the Lindale Bank's lien and deed of trust only just created in favor of the Lindale Bank. Torres defaulted in the payment of the note to the Lindale Bank and the bank foreclosed its lien on February 7, 1984, by a sale of all the lots, including lot 80 under the deed of trust to Larry S. Watkins, the buyer at the deed of trust sale. Watkins then executed a deed of trust to secure a loan from the American National Bank.

The Zimmermans had in the meantime contracted to sell lot 80 to the Glovers by contract for deed dated April 16, 1985. Mr. Glover is Mrs. Zimmerman's son. The Glovers built a house on the lot.

Zimmerman testified that they did not discover that there was a question about their title to lot 80 until sometime in 1985 when they failed to receive a tax statement. Zimmerman then approached the title company about the problem and was assured that the matter would be corrected. The local manager submitted the Zimmermans' claim to their claim department who apparently authorized the payment of $1,395.83 to Larry Watkins, trustee, in consideration of his execution of a quitclaim deed to the Zimmermans. Shortly thereafter the Zimmermans received the quitclaim deed and assumed that they at last had an unencumbered fee simple title to lot 80. However, the title company had failed to secure a release of American National Bank's lien given by Watkins a month after Lindale Bank's foreclosure of its lien.

Watkins in turn defaulted in the payment of his note, and American National Bank also foreclosed its lien by deed of trust sale July 14, 1986.

The Zimmermans filed their original petition against the title company on October 30, 1986, for damages resulting from the title company's negligence in failing to close the sale from First City Bank of Dallas to Ken Torres so that the Zimmermans received lot 80 "free and clear" as required by the purchase contract and for their negligent failure to secure a release from American National Bank when it assured the Zimmermans that their initial title problem would be corrected. The Zimmermans also alleged that the title company's acts constituted a breach of the Texas Deceptive Trade Practices Act.

At the close of the evidence the title company moved for directed verdict on three grounds. First, the title company argued that it owed no duty to the Zimmermans. Second, the title company contended that the evidence conclusively demonstrated that the Zimmermans had elected to accept their deed to lot 80 encumbered by the lien to the Lindale Bank and had proceeded against their grantor, Torres, and others seeking title, removal of cloud from title and reformation of the deed from First City Bank to Torres so as to vest title in themselves. In the title company's view, the Zimmermans had thus waived their right to recover from the title company. Third, the title company urged the appellants' causes of action were barred by the applicable statutes of limitation.

The trial court granted the title company's motion for directed verdict without specifying which of the grounds alleged in the defendant's motion constituted the basis of its judgment. It is therefore the appellants' burden to show that the court's directed verdict cannot be supported on any of the grounds set forth in the title company's motion for instructed verdict. McKelvy v. Barber, 381 S.W.2d 59, 62 (Tex.1964).

The standard of review applicable to an appeal from a directed verdict requires that the evidence be viewed in the light most favorable to the appellants' position, disregarding all contrary evidence and inferences therefrom. If there is any evidence on a controlling fact about which reasonable minds could differ, the trial court's judgment must be reversed and the cause remanded for a new trial. Henderson v. Travelers Ins. Co., 544 S.W.2d 649, 650 (Tex.1976).

In their first point of error the appellants urge the trial court erred in directing a verdict for the title company because the evidence shows that the title company was negligent as a matter of law, or, in the alternative, that the evidence raised an issue of fact regarding the negligence and gross negligence of the title company. The appellants contend in their second point that the facts of the case establish, or at least raise the issue of, the title company's breach of a contractual or fiduciary duty it owed the Zimmermans.

The title company maintains that its duty was only to carry out the terms of the contract for the buyer and seller; that Zimmerman was not a party to the agreement, but merely a real estate agent to whom it owed no duty.

We believe the title company's contention that it owed no duty to the Zimmermans is insupportable. Zimmerman was a signatory of the contract and the possessor of enforceable legal rights under it. Zimmerman had customarily done business with the title company. He brought the contract to the title company, not merely to procure title insurance for the buyer, but also that it might handle the closing in conformity with the instructions in the contract. The title company accepted the contract and assumed the responsibility to close the transaction in accordance with those instructions. The title company ordered the preparation of the necessary documents for closing and paid them from the closing proceeds. It circulated the documents with instructions for their execution, and had them recorded. It prepared the closing statements and made disbursements, including the recording and delivery of the deed to the Zimmermans for lot 80. The title company was paid a closing fee.

A title company may be liable for its negligence in closing a real estate transaction. Dixon v. Shirley, 558 S.W.2d 112 (Tex.Civ.App.--Corpus Christi 1977, writ ref'd n.r.e.); Chilton v. Pioneer National Title Insurance Co., 554 S.W.2d 246 (Tex.Civ.App.--Waco 1977, writ ref'd n.r.e.). The title insurance agent may not intentionally or recklessly deceive the parties to a real estate transaction. Stone v. Lawyers Title Insurance Corp., 537 S.W.2d 55 (Tex.Civ.App.--Corpus Christi 1976), aff'd in part and rev'd in part, 554 S.W.2d 183 (Tex.1977). An escrow agent is in a fiduciary relationship with the contracting parties. Chilton, 554 S.W.2d at 249. Among the obligations of the fiduciary are (1) the duty of the loyalty, (2) the duty to make a full disclosure, and (3) the duty to exercise a high degree of care to conserve the money and pay it only to those persons entitled to receive it.

In the instant case, the title company twice undertook the obligation of transferring to the Zimmermans the title to lot 80 free and clear of liens, first during the original closing, and subsequently when the error was discovered. In each instance, the title company having accepted that undertaking owed the Zimmermans the duty to use care and skill to see that it was done correctly. Id.; Montgomery Ward & Co. v. Scharrenbeck, 204 S.W.2d 508 (Tex.1947).

The buyer, seller and Zimmerman agreed that instead of a cash commission from the seller's proceeds, Zimmerman would take as his commission one of the lots received by the buyer "free and clear of liens." The title company disregarded these instructions of the contracting parties and without disclosure to anyone created a lien on...