FEINBERG v. INTRASTATE ESCROW CORPORATION

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

Bob FEINBERG, Plaintiff and Respondent, v. INTRASTATE ESCROW CORPORATION, Defendant and Appellant.

Civ. 25960.

Decided: October 16, 1962

Lever & Anker and Kurt R. Anker, Beverly Hills, for defendant and appellant. Henry Himmelfarb, Los Angeles, and Sidney E. Horvitz, Beverly Hills, for plaintiff and respondent.

After a trial without a jury the trial court held that defendant escrow agent breached an agreement with plaintiff whereby defendant had promised to turn over proceeds of a loan escrow to satisfy a debt owed to plaintiff by one of the parties to the escrow. Defendant appeals.

Viewed most favorably to the prevailing party the evidence showed that in June of 1956 one Patricia Kennedy (Kennedy) was indebted to plaintiff in the sum of $2,800. On June 14, 1956, she opened an escrow with defendant in connection with obtaining a loan through Klein Mortgage Company as loan broker. At about the same time plaintiff threatened to attach certain property in the hands of Kennedy which was to serve as security for the new loan in order to satisfy the debt Kennedy owed to plaintiff. Kennedy then came to plaintiff's place of business and informed an employee of plaintiff, Rubin Rifkin, that an escrow had been opened with defendant and that she would pay off the debt with the proceeds therefrom. Rifkin did not trust Kennedy and called defendant escrow company to verify opening of the escrow. Miss Winthers (Winthers), defendant's president, informed him that the escrow had been opened and asked him not to sue and attach the real property because it would cloud the title and tie up the property, and that if plaintiff would be patient she would see to it that plaintiff got his money.

Thereafter Kennedy came to plaintiff's place of business with an escrow instruction directing the escrow to pay plaintiff the sum of $2,800. This instruction was signed by Kennedy.

On several later occasions Kennedy came to plaintiff and stated she was in further financial difficulties and requested additional loans. Before advancing any additional money Rifkin telephoned defendant and informed it of Kennedy's request. A supplemental escrow instruction was prepared whereby the additional advances would be covered by the proceeds from the escrow. The first escrow, however, could not be closed due to the fact that loans funds were not available.

Thereafter, on July 24, 1956, a new escrow with a different mortgage company as loan broker was opened and all documents contained in the first escrow were transferred into it. On that occasion Rifkin personally told Winthers that they were relying on defendant's assurances and ‘not levying on anything.’ Winthers stated, ‘I'll see to it that you are protected and get your money.’ Between July 24 and August 1, 1956, plaintiff and Rifkin called the defendant three or four times to determine the status of the loan. On each occasion defendant gave assuances that the loan would be forthcoming and not to worry.

On August 1, 1956, Kennedy cancelled the second escrow and voided the instruction to pay plaintiff the amount due him. On the same day all pertinent documents were transferred from the second escrow into a third escrow with the exception of payover instructions. Plaintiff did not know and was not advised of any of these transactions.

On August 7, 1956, the same loan broker involved in the second escrow obtained a lender and the proceeds were deposited with defendant in the third escrow. On August 8, 1956, the third escrow closed and the proceeds were paid to Kennedy.

At no time between August 1 and August 8, 1956, was plaintiff informed by defendant of the fact that the escrow instruction to pay plaintiff the amount due him had been canceled. However, between those dates plaintiff or Rifkin had called the escrow company on several occasions to determine the status of the loan and on each occasion was assured the loan would be forthcoming and money paid to plaintiff. On August 8 plaintiff learned for the first time that the instructions were canceled and Kennedy had already received the funds.

Defendant's evidence was in irreconcilable conflict with plaintiff's. Winthers testified that she had telephone conversations with plaintiff or Rifkin on two or three occasions; that she had no knowledge of their loans to Kennedy until after the close of escrow; that she at no time assured plaintiff or Rifkin that she would see that money was paid to plaintiff; that she disbursed the funds in accordance with instructions from Kennedy.

On August 10, 1956, plaintiff commenced an action against Kennedy and obtained judgment. Thereafter Kennedy disappeared and has not been located.

Based on the above facts plaintiff filed this action against defendant on February 18, 1959. The theory of the action was fraud and equitable estoppel. The trial court found that Kennedy, defendant and plaintiff entered into a three-party agreement by the terms of which plaintiff agreed to refrain from attaching Kennedy's property; Kennedy agreed to instruct defendant to pay plaintiff from any loan obtained the sum of $4,175 and defendant agreed to accept such instruction and act upon it with knowledge that plaintiff was relying on the agreement.

The court further found that plaintiff refrained from levying attachment on Kennedy's property and lent additional sums to Kennedy, all in reliance on the agreement and escrow instructions.

In the exercise of its equity jurisdiction the court invoked and applied the principle of equitable estoppel stated in section 1962, subdivision 3, Code of Civil Procedure, and concluded that certain moneys received by defendant were received in trust for plaintiff and that defendant violated the duty incident to that trust to pay said moneys to plaintiff.

In its attack on the judgment defendant first asserts the bar of the statute of limitations (Code Civ.Proc. § 339, subd. 1) which allows two years for bringing actions not founded on a written instrument. This statute has been held applicable either to an action for breach of an escrow agreement or to an action for damages on account of negligence in the performance thereof. Shumaker v. Rippy, 138 Cal.App.2d 815, 816, 292 P.2d 536; Howard v. Security Title Ins. & Guar. Co., 20 Cal.App.2d 226, 229–230, 66 P.2d 1247.) This action was filed more than two years and six months after the alleged improper payment to Mrs. Kennedy. Where an escrow agent is sued for breaching a contract to deliver money or title papers to the damage of a party to the escrow more than two years after such breach the action is barred by the two-year statute. (Shumaker v. Pippy, supra.) It must therefore follow that the action here is barred unless some other theory will support the judgment.

Plaintiff attempts to avoid the application of the two-year statute upon two theories: (1) that the case can be categorized as an action for fraud, or an action to impose a constructive trust, in which event the three-year period (Code Civ.Proc. § 338, subd. 4) applies; (2) that defendant is deemed to have signed the escrow agreement so that, being estopped to deny the agreement, the action is founded on a written contract and the four-year period of section 337, subdivision 1, applies. Plaintiff cites no cases to sustain his conclusions.

The general rule is that the applicable period of limitation on filing a cause of action is determined by the basic nature of the right sued upon. (Jefferson v. J. E. French Co., 54 Cal.2d 717, 718, 7 Cal.Rptr. 899, 355 P.2d 643.)

In the present case, notwithstanding plaintiff's original theory, fraud as a basis for the action is expressly negated in the court's findings of fact. Indeed plaintiff in his brief does not mention fraud as a basis for upholding the decision until he reaches the statute of limitations point. It requires no citation of authority to hold that plaintiff may not change his theory of the case for each point raised by defendant. Since the trial court negated fraud in its findings of fact and the evidence is in conflict, this court cannot now invoke the three-year statute of limitations applicable to actions based on fraud.

Plaintiff also contends that application of the doctrine of equitable estoppel invokes the period applicable to fraud. No cases are cited in support of this contention and none have been uncovered. Section 1962, subdivision 3, Code of Civil Procedure, reads:

‘Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it; * * *.’

On the basis of this section the trial court concluded that defendant is estopped to deny cancellation of the payover instructions. After application of the section, recovery is predicated upon the state of facts which defendant is estopped to deny; in effect here finding the payover instructions to be in force. Plaintiff's case is then based on the fictional existence of those instructions, and the basic rights incident thereto must determine the applicable period of limitations. (Jefferson v. J. E. French Co., supra, 54 Cal.2d 717, 7 Cal.Rptr. 899, 355 P.2d 643.) Plaintiff's rights, if any, flow from the agreement, not from a rule of evidence that permits the agreement to be established.

Furthermore, imposition of a constructive trust cannot be the basis for applying the three-year statute. Constructive trusts are remedial devices whereby a court of equity, through the use of sanctions applicable to trustees, compels payment of a fund found owing because of a prior delict. The applicable period cannot be determined from the remedy of constructive trust because it is not the basic right involved in plaintiff's case. (See Jefferson v. J. E. French Co., supra, 54 Cal.2d 717, 718, 7 Cal.Rptr. 899, 355 P.2d 643.)

Thus, as found by the trial court, plaintiff's action is founded upon the three-party agreement whereby plaintiff became a party to the escrow. Plaintiff contends that this agreement was in writing so that section 337, subdivision 1, Code of Civil Procedure, providing a four-year limitation on actions founded on a written instrument, applies. In support of this contention they state: ‘The trial court's reasoning was that there was written evidence of the agreement in three documents entitled ‘Amendment to Escrow Instructions' which were signed by Kennedy and prepared by the defendant. That by this agreement the plaintiff was made a party to the escrow as if the entire agreement had been spelled out in separate writing and signed by the three parties, and an agreement which defendant is deemed to have signed. Therefore, defendant being estopped to deny the agreement and deemed to have signed it, the applicable Limitation of Action Statute would be Code of Civil Procedure, Section 337.’

Defendant did not in fact sign anything, nor is it argued that there is any other writing in connection with the escrow other than instruments relating to the loan, to which plaintiff was not a principal party, and the instructions signed only by Mrs. Kennedy. All communications between plaintiff and defendant were oral.

In Howard v. Security Title Ins. & Guar. Co., supra, 20 Cal.App.2d 226, 228, 66 P.2d 1247, 1248 with respect to section 337, subdivision 1, Code of Civil Procedure, the court quoted Chipman v. Morrill, 20 Cal. 130, where it was said: “The question is whether the present action is, in the meaning of the statute ‘founded upon an instrument of writing.’ Our conclusion is, that it is not thus founded; that the statute by the language in question refers to contracts, obligations, or liabilities resting in, or growing out of written instruments, not remotely or ultimately, but immediately; that is, to such contracts, obligations, or liabilities as arise from instruments of writing executed by the parties who are sought to be charged in favor of those who seek to enforce the contracts, obligations, or liabilities. The construction would be the same if the word ‘founded’ were omitted, and the statute read ‘upon any contract, obligation, or liability upon an instrument of writing.”’

Applying the rules thus announced to the instant case, the conclusion follows that it is not an action upon a contract, obligation or liability upon an instrument in writing; rather it is upon the agreement formed by the oral communications between plaintiff and defendant's president, Winthers.

Notwithstanding this conclusion, and the rules asserted in the Shumaker (Shumaker v. Rippy, supra, 138 Cal.App.2d 815, 292 P.2d 536) and Howard (Howard v. Security Title Ins. & Guar. Co., supra, 20 Cal.App.2d 226, 66 P.2d 1247) cases, plaintiff concludes, and the trial court so found, that defendant is deemed to have signed the escrow instructions and the action is thereby based on a written instrument.

Plaintiff and the court in its Notice of Decision rely on Minton v. Mitchell, 89 Cal.App. 361, 370, 265 P. 271, 275 where it is said: ‘A party who accepts the benefits of a contract is bound thereby, even if he has not signed it.’ In the Minton case one of two assignors of a land sale contract sought to avoid making proper restitution under a written rescission of the assignment. The rescinding agreement was signed only by the other assignor. The court held that since the nonsigning party had signed the original assignment and participated in subsequent efforts to dispose of the same property, that party was bound as well by the agreement to rescind, and was required to make restitution of benefits received. The party so bound was a direct beneficiary of and immediate party to the contract in question.

Here, the contract involved in the escrow was primarily between Mrs. Kennedy and the lender, neither of whom are parties to the present action. Plaintiff, at best, was an incidental third party beneficiary of the escrow transaction, wherein by virtue of Kennedy's unilateral declaration he was to receive the proceeds in satisfaction of his debt. Defendant was a mere stakeholder and received a fee for its services. Such a fee is not a benefit within the meaning of Minton v. Mitchell, supra, which contemplates ‘benefit’ as a quid pro quo passing between the immediate parties to the contract. The contention that an escrow holder's fee is such a ‘benefit’ cannot be sustained. Therefore, defendant cannot be deemed to have signed the contract.

We conclude that it was only under the oral agreement between plaintiff and defendant that plaintiff could sue to enforce the escrow agreement against defendant. Thus the two-year statute of limitations applies and the action in this case is barred.

Accordingly, the judgment is reversed.

BURKE, Presiding Justice.

JEFFERSON and FORD,* JJ., concur.