FIRST AMERICAN TITLE INSURANCE COMPANY et al., Plaintiffs and Respondents, v. Linda L. CASPER, Defendant and Appellant.
This appeal is concerned with the amount of damages a title insurer must pay to a lien holder on real property whose lien was overlooked by the title company when the real property was sold.
Linda L. Casper (Casper) defendant-appellant was awarded a judgment of $50,045 in superior court for damages caused by Thomas Charles (Charles) as a result of a motorcycle accident. She recorded an Abstract of Judgment in the County Recorder's Office, Los Angeles which affected a lien on all real property owned by Charles in the county.
Charles carried no insurance but Linda was paid $15,000 on her own uninsured motorist coverage with Farmers Insurance Co. The judgment against Charles, however, remained unsatisfied and on January 29, 1975, Casper entered into a compromise agreement (also referred to as the accord and satisfaction) with Charles in which she agreed to compromise her claim for the sum of $7,500, payable $1,500 down and $150 on each month thereafter until payment in full. The agreement provided that default by Charles would reinstate the entire balance due on the judgment.
In June of 1975, Charles sold his family residence located in Los Angeles County to a Mr. and Mrs. Ross. The Rosses had purchased a policy of title insurance from First American Title Insurance Company (First American), plaintiff-respondent. This title report erroneously overlooked Casper's judgment lien and title passed to the Rosses without incident. Charles moved to Tennessee with the net proceeds from the same which amounted to $13,242.63. At the time of sale, the judgment lien in the recorder's office still reported a balance due of $50,045. The compromise agreement was not recorded but was in full force and effect on the day of sale by reason of the fact that Charles had made the $1,500 down payment and had made four monthly payments for a total of $2,100. In other words, on the date that title passed on the real property from Charles to the Rosses, Charles was not in default on the accord and satisfaction.
Charles continued the monthly payments until November 1975. In January of 1976, Casper's attorney wrote Charles that he was in default on the compromise agreement. Charles replied that he could not make payments immediately but hoped to in “the next six months.” No further payments were made and on August 30, 1976, nine months after the last payment had been made, Casper's attorney wrote to Charles declaring him in default and that Casper elected to hold him for the full balance due on the original judgment.
Almost simultaneously with the notice of default, Casper discovered the sale of Charles' property to the Rosses and she obtained a writ of execution to satisfy her judgment. First American was notified of this proposed action and through its counsel entered into negotiations with Casper's attorney to work out a solution. First American's position was that it was responsible for the equity that Charles had received from the sale of the property, namely, $16,104.63.1 First American had no knowledge of the compromise agreement discharging the total debt for $7,500. A settlement was agreed upon between Casper and First American that she would accept their offer of $16,104.63. Shortly thereafter, however, Casper rescinded the agreement on the theory that First American was liable for the entire balance due on the judgment, namely, $50,045 less $2,850 paid by Charles on the judgment. Farmers Insurance that had paid $15,000 to Casper on its uninsured motorist liability had a subrogation claim for this sum.
Casper obtained her writ of execution forcing First American to file the present action for a preliminary injunction and temporary restraining order along with a complaint seeking declaratory relief and removal of the cloud upon the title. First American then made a statutory offer of settlement for $16,500, and subsequently received a preliminary injunction restraining Casper from levying execution pending litigation. The parties were unable to reach any settlement and the matter was tried before a judge without a jury. The court ruled that First American's negligence was not the proximate cause of Charles' default and that Casper could not shift the burden of the default to a third party in an amount she had already agreed to compromise with the judgment debtor. The amount due Casper under the settlement agreement on the date of the sale was $4,650. Judgment for this sum, plus interest was rendered. The judgment also removed the lien of the Abstract of Judgment upon payment by First American.
Casper contends on appeal (1) that a breached accord and satisfaction reinstates the original obligation, and therefore, First American was not entitled to have its liability reduced to the amount of the original compromise agreement; (2) that the trial court erred in removing the judgment lien from the property upon payment by First American of the judgment in this case.
1. We have no quarrel with the general statement of the law on accord and satisfaction as stated by Casper in her opening and closing briefs on appeal. It is true that a breached accord and satisfaction does reinstate the original obligation, and if there are any exceptions to this rule, they are not pertinent here because the agreement provided that Casper could reinstate the full balance upon default by Charles. But all of the law and cases cited by Casper apply to factual situations quite different from the unique problem facing us here. Casper has not cited nor have we found any law, decisional or otherwise, dealing with a factual situation that is even close to the case before us. The truth of the matter is that on the date of the sale when the deed to the property was recorded and the funds were released to Charles, he was not in default under the settlement agreement. We must consider the consequences of First American's negligence on the date the sale of the real property was consummated and Charles received the money. Title insurance is a contract to indemnify against loss through defects in the title or against liens or encumbrances that may affect the title at the time when the policy is issued. (Hawkins v. Oakland Title Ins. & Guar. Co., 165 Cal.App.2d 116, 126, 331 P.2d 742.) The title policy became effective when title passed to the Rosses. Had First American's title policy or title report mentioned the lien, without doubt, the sale would have been cancelled by the Rosses or Charles would have authorized payment from escrow the $4,650, and the accord and satisfaction would be fully executed.
Casper argues, however, that First American's negligence was the proximate cause of Charles' default because their failure to report the lien permitted the escrow to pay all of the sums remaining to Charles thereby destroying his incentive to abide by the agreement. But this argument is based on speculation and remoteness. A title company is responsible only for damages proximately caused by its negligence in failing to disclose the defect in the original report. (Viotti v. Giomi, 230 Cal.App.2d 730, 740, 41 Cal.Rptr. 345.) If damages claimed are too remote the abstractor is not liable. (Pendleton v. Cline, 85 Cal. 142, 143, 24 P. 659.) A title insurer may be held liable on the theory of negligently searching a title in the same manner as an abstractor. (Hawkins v. Oakland, supra, 165 Cal.App.2d at pp. 125–126, 331 P.2d 742.) The trial court was quite right in concluding that there was no proximate cause between First American's negligence in omitting the judgment lien from its policy and the subsequent default of Charles. Here, there is no evidence that Charles' receipt of all of the monies remaining in the escrow was the cause for his breach of the accord and satisfaction. To the contrary he made four monthly payments after he received the monies and he also notified Casper's attorney that he intended to continue the payments after he first received his notice of default.
Casper's attempt to hold First American for the entire balance due further points out the fallacy of her proximate cause argument. If Charles had not sold the property, under Casper's theory he probably would have continued payments under the settlement agreement and her total recovery would be $7,500. If he did later default the most Casper could have acquired under a foreclosure of her lien would have been the equity remaining in the real property at that time. This amount would have been substantially less than the balance due on the judgment. It could have exceeded $16,000 but not by much. Casper's attempt to shift the entire liability to a third party defies logic and equity. The trial court recognized this at the end of the trial when it said: “The question is whether you can shift the liability of Mr. Charles on to someone who made a mistake. ․ ․ ․ [T]here is an element of serendipity ․ ․ ․ involved in what happened here. Not even going to law school, I think anyone looking at this as a matter of barnyard justice would say, ‘Wait a minute. How do you shift this entire obligation to a third party plus interest and the rest of it? ’ ”
2. Casper's other argument, as we read it, is that the trial court erred in removing the lien from the property until she had received the full balance owing her. If the court was correct, and we have concluded that it was, removing the lien was essential if the judgment was to have any meaning at all. If the lien remained the foreclosure sale already started would be activated. The Rosses, would either lose the property or protect it by buying it at the sale. Their damages would be easily ascertainable and recoverable from First American under their title policy. The end result would require First American to pay substantially more than $4,650 if the lien remained. Casper argues that there is a strong public policy in this state that favors the satisfaction of judgments and that the trial court's judgment and our affirmation would be egregious error. Again, Casper has overlooked the unique characteristics of this case. The rule announced here will not deal a death blow to the public policy favoring the satisfaction of judgments. Casper seems to be under the misapprehension that the judgment here and the removal of the lien is a full satisfaction of the judgment, thus relieving Charles from any further obligation. The judgment does not so hold. It merely releases the lien on this subject property. She still has her legal rights to collect the full balance of the judgment caused by Charles' breach of the settlement agreement.
The judgment is affirmed.
1. The difference between this figure and the $13,242.63 received by Charles is the real estate commission paid to the broker.
HASTINGS, Associate Justice.
STEPHENS, Acting P. J., and ASHBY, J., concur.