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District Court of Appeal, Fifth District, California.

Anne S. AMEN, Plaintiff and Appellant, v. MERCED COUNTY TITLE COMPANY et al., Defendants and Respondents.*

Civ. 68.

Decided: April 27, 1962

T. N. Petersen, Merced, for appellant. Preston, Braucht & George, Howard C. George, Merced, for respondents.

This is an appeal from a judgment of dismissal after orders sustaining defendants' demurrers without leave to amend to plaintiff's amended complaint containing three causes of action.

Plaintiff and her husband purchased a business and certain real estate known as the Club Joaquin in 1958 by certain written escrow instructions which were executed by the sellers and the buyers in the office of the defendant title company on April 2, 1958. These instructions were typed on forms furnished by the defendant title company and directed defendant to do certain things, but the defendant itself did not sign or execute the instructions. The purchase price was $74,300, to be paid by the execution of a note and deed of trust for $54,300; $10,000 to be paid in cash; and the balance to be paid by plaintiff's assuming certain listed debts, such as real property taxes, insurance, etc.

The former owners who had conducted this business were currently obligated for the California sales tax and the Board of Equalization had already conducted an audit to determine if there were any delinquent or current raxes owed to the State by the sellers, but the plaintiff was ignorant of this fact.

On April 14, 1958, the Board of Equalization mailed to the plaintiff in care of defendant title company the customary notice advising the escrow agent and the buyers that in order for the buyers to avoid a successor's liability pursuant to the law, a tax clearance should be obtained by the purchasers or the purchasers' agent. The plaintiff did not receive a copy of this notice, nor was the plaintiff advised by the title company of this notice or of a subsequent telephone call by the Board of Equalization to the title company on this subject. The escrow closed on June 26, 1958. No tax clearance was procured.

The sales tax was not paid by the sellers and on October 31, 1959, the plaintiff received a notice of successor's liability from the State and on November 6, 1959, a lien was filed by the State for $4749.84.

Plaintiff commenced this action on July 29, 1960. Her complaint, as amended, contains three causes of action. The first complains that defendant title company and two of its employees, defendants Guest and King, breached their escrow contract. The second sets out a cause of action against the same defendants sounding in negligence. Plaintiff's former husband, an unwilling plaintiff, is named as a party defendant in the first and second causes. The third cause is against Western Title Insurance and Guaranty Company, and named defendants, as its agents, to recover damages under a policy of title insurance issued by Western.

The court below sustained a demurrer to the first and second causes of action, without leave to amend, apparently on the ground that those causes of action were barred by the two year statute of limitations. Subsequently a general demurrer addressed to the third cause of action was sustained without leave to amend. From the judgment of dismissal entered pursuant to the orders, plaintiff prosecutes this appeal.

In her opening brief, plaintiff has voluntarily abandoned her appeal from that portion of the judgment dismissing her third cause of action. We shall therefore disregard it.

The question involved in this appeal is: When does the statute of limitations start to run? The defendants rightfully claim that the statute of limitations is a bar to recovery for the reason that though the escrow instructions are obligations between the buyers and the sellers, the obligation as far as the defendant title company is concerned is an oral contract inasmuch as the title company did not sign the escrow instructions.

Subdivision 1 of section 339 of the Code of Civil Procedure reads as follows:

‘Within two years. 1. An action upon a contract, obligation or liability not founded upon an instrument of writing, * * *.’

When the parties are dissatisfied as to how the escrow has been handled, it is clear that the ‘written’ instructions between the parties to the subject of the escrow is not the contract sued upon. Such suit must be predicated upon the agreement between the parties and the title company which is purely an oral agreement and the statute of limitations governing oral contracts applies.

Defendants quote from 18 Cal.Jur.2d, Escrows, § 36, pp. 368–369, as follows:

‘Statute of Limitations.—It has been held, in effect, that despite the written nature of the escrow instructions a suit for damages against the escrow holder based on a violation of his duty to act in accordance with the instructions is not a suit based on a contract in writing, but has its basis in an implied parol agreement, and is therefore subject to the 2-year statute of limitations set forth in § 339 subdivision 1 of the Code of Civil Procedure.’

In a similar situation, the court in Shumaker v. Rippy, 138 Cal.App.2d 815, 816 292 P.2d 536, held:

‘The two-year statute of limitations, Code Civ.Proc., § 339, subd. 1, is 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. Howard v. Security Title Insurance & Guarantee Co., 20 Cal.App.2d 226, 228, 66 P.2d 1247. There is no question but that the complaint herein was filed more than two years and eight months after the alleged negligent payment of the sales price to Edith May Foster, by the escrow agent. Where an escrow agent is accused after more than two years of having carelessly delivered money or title papers to the damage of a party to the escrow, the action for such negligence is barred by the two-year statute. [Citation.] It must therefore follow that the demurrer to the second count was properly sustained and, also, that no valid cause can be stated on the ground of negligence.

‘But the Howard case goes further. It was there contended that the four-year statute of limitation was applicable since the written portion of the escrow instructions was the basis of the suit. But such plea was denied with the statement that ‘this is not an action upon * * * an instrument in writing, but rather an action to recover damages for negligence of the escrow agent.’ Ibid., 20 Cal.App.2d at page 229, 66 P.2d at page 1248. If the escrow agreement is not the instrument upon which liability is founded, but merely the evidence of the act to be done by the escrow agent in the performance of the obligation assumed by him [citation], then the Howard case applies equally to the first count. It is also barred by section 339, subdivision 1, and of course no amendment can cure the defect. The purported first cause was not founded upon any writing in the escrow instructions. It should, therefore, be dismissed.'

It is the plaintiff's position that a cause of action could not accrue in this matter until she suffered damages either by payment of the lien or the recording of the lien by the State, inasmuch as she, personally, might not have paid it but could have compelled the original sellers to pay it, and therefore until she had paid off the lien she had not suffered any damages and had no cause of action on which to predicate a suit against the title company.

She argues that this is particularly true with regard to the liability of a plaintiff to a third person, and, in support of her argument, quotes from 14 Cal.Jur.2d, Damages, § 18, p. 647:

‘Ordinarily, the plaintiff is not permitted to recover compensatory damages for a liability incurred by him with respect to a third party, as a result of the defendant's wrongful act, until he satisfies the liability in question, for the existence of a mere liability is not necessarily regarded in law as the equivalent of actual damage. The mere fact that a third party has demanded payment by the plaintiff of a particular liability is not in itself sufficient to support an award of damages therefor, for that party may never attempt to force the plaintiff to satisfy his alleged obligation.’

This is not true as far as the tax lien is concerned. The taxes were owed by the sellers to the State at the day when the sale was completed as well as beforehand. The amount may not have been determined on that day, but nevertheless, it was determinable and was owed to the State even though a lien was neither filed nor recorded. (Walker v. Pacific Indemnity Co., 183 Cal.App.2d 513, 6 Cal.Rptr. 924.)

Upon failure of the plaintiff to withhold sufficient of the purchase price agreed to be paid by her to the sellers to cover the amount of tax due, or to obtain a tax clearance, she succeeded to the sellers' obligation and thus became directly liable for payment (Rev. & Tax.Code, §§ 6811, 6812). Immediately upon the closing of the escrow, without the procurement of a tax clearance or the withholding of a sufficient amount from the purchase funds, defendant's wrong was committed, plaintiff's liability attached, and she could have maintained her suit against defendant. To say that no cause of action existed at that time is contrary to law. If, then, a cause of action existed, it necessarily follows that the statute of limitations governing that cause was running its statutory course. The fact that plaintiff may have been unaware of defendant's wrong and her resulting cause of action is immaterial. As was stated in Scafidi v. Western Loan & Bldg. Co., 72 Cal.App.2d 550, 566, 165 P.2d 260, 269, ‘Our courts have repeatedly affirmed that mere ignorance, not induced by fraud, of the existence of the facts constituting a cause of action on the part of a plaintiff does not prevent the running of the statute of limitations.’ (See Neff v. New York Life Ins. Co., 30 Cal.2d 165, 171, 180 P.2d 900, 171 A.L.R. 563.)

In People v. Buckles, 57 Cal.App.2d 76, 80, 134 P.2d 8, the court stated that the socalled assessments are merely a determination by the Board of the amounts that the retailer has failed to pay and that while the law says that such assessments shall become due and payable at the time they become final, this does not mean that such taxes were not due and unpaid when the sale of the business to the buyer was consummated because they were taxes which the seller had failed to pay when the taxable sales were made.

The plaintiff also claims that the failure of the title company to forward the notice to her or to advise her of the successor's liability constituted negligence on the part of the defendant. This seems to be more a case of negligence on the part of the plaintiff in failing to have legal advice or being able to examine the escrow documents herself as to whether or not the successor's tax liability had been satisfied.

The Shumaker case, supra, 138 Cal.App.2d 815, 292 P.2d 536, applies to the second cause of action based on the theory of negligence. It is there stated, at page 816, 292 P.2d at page 537, that the two-year period applies just as well to a breach of escrow agreement as to an action for damages on account of negligence in the performance thereof.

The statute of limitations applicable to this type of tort action starts to run from the date the wrongful act is committed, rather than from the date of the damages caused thereby. (Lattin v. Gillette, 95 Cal. 317, 319, 30 P. 545; Sonbergh v. MacQuarrie, 112 Cal.App.2d 771, 774, 247 P.2d 133.)

The judgment is affirmed.

BROWN, Justice.

CONLEY, P. J., and STONE, J., concur.

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