GROSWIRD v. Title Insurance and Trust Company, Defendant, Cross-Complainant, and Appellant.

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Court of Appeal, First District, Division 3, California.

Alexander GROSWIRD et al., Plaintiffs and Respondents, v. HAYNE INVESTMENTS, INC., et al., Defendants, Cross-Defendants, and Appellants; Title Insurance and Trust Company, Defendant, Cross-Complainant, and Appellant.

Civ. 50321.

Decided: July 07, 1982

Robert W. Speed, San Jose, for defendants, cross-defendants, and appellants Hayne Investments, Inc. and P. J. Thurston. Edward S. Rusky, Concord, Peter L. Townsend, Garrison, Townsend, Hall, Orser & Park, San Francisco, for defendant cross-complainant and appellant Title Ins. & Trust Co. Ropers, Majeski, Kohn, Bentley, Wagner & Kane, Michael J. Brady, Mark G. Bonino, Katherine S. Clark, Redwood City, for plaintiffs and respondents.

Plaintiffs Alexander and Beverly Groswird commenced an action for rescission and damages, negligence, and breach of escrow agreements against Hayne Investments, Inc. (Hayne), P. J. Thurston, and Title Insurance and Trust Company (Title), among other defendants. Title cross-complained against Hayne and Thurston for indemnity. After a court trial, judgment in the amount of $132,685.50 was entered in favor of plaintiffs; judgment was entered in favor of Title on its cross-complaint. Title, Hayne, and Thurston all appeal.

This litigation arose out of a sale of approximately 200 acres of land from Hayne to plaintiffs. Defendant Thurston advised plaintiffs that the property was zoned to permit one residential unit per 20 acres; plaintiffs verified that information with county officials. Escrow opened in July 1977. On or about September 1, 1977, Hayne and Thurston received notice that the county was proceeding with steps to rezone the property as a timber preserve zone, which would reduce the number of potential building sites. Defendants Hayne and Thurston withheld this information from plaintiffs. Had plaintiffs been informed of the potential rezoning, the sale would not have been completed. Escrow closed on January 4, 1978; on or about January 18, plaintiffs learned of the zoning change. The diminution in the market value of the property as rezoned was $100,000.

During the negotiations, defendant Hayne was a suspended corporation, for failure to pay its franchise taxes. In addition, Hayne did not have a board of directors as of May 1, 1977, and no resolution authorizing Thurston to act for the corporation was ever adopted during these negotiations. Defendant Title negligently failed to make an inquiry concerning Hayne's corporate status, and negligently closed escrow without a valid corporate resolution.

The trial court concluded that Thurston and Hayne were guilty of fraud, which proximately caused the damages sustained, and that Title was guilty of negligence, which was also a proximate cause of the damages. The court also found that by reason of Thurston's and Hayne's fraud, plaintiffs were required to sue Title, and that by reason of Title's negligence, plaintiffs were required to sue Thurston and Hayne. Plaintiffs were awarded compensatory damages of $100,000, plus attorneys' fees of over $26,000 and expert fees of over $6,000. On the cross-complaint, the court concluded that Title was entitled to indemnification by Thurston and Hayne for any amounts required to be paid by Title to plaintiffs, and awarded Title attorneys' fees from Thurston and Hayne.

Defendant Title Insurance and Trust Company

Defendant Title does not contest the court's findings that its conduct was negligent; rather, it urges that its negligence was not a proximate cause of plaintiffs' injury. Title argues that the evidence is insufficient to establish that its conduct was a cause in fact of plaintiffs' damages; in the alternative, it argues that Hayne's and Thurston's conduct and plaintiffs' own negligence were superseding causes. Plaintiffs urge that the determination of proximate cause was a question of fact for the trial court, and that the evidence supports the trial court's finding that Title's conduct was a concurring substantial cause of plaintiffs' damages.

In this case the harm to plaintiffs was the $100,000 diminution in market value of the property as rezoned. The trial court found that Title's negligence was a proximate cause of that damage, based on the following sequence of events, which it found would have occurred had Title not been negligent: “a. Had (Title) made proper inquiry as to the status of (Hayne), it would have learned of the suspension, would have notified the plaintiffs, and the plaintiffs would have had the opportunity to rescind the transaction at that point and recover from the escrow the funds deposited therein (approximately $200,000.00).

“b. Plaintiffs would have had an opportunity to contact their counsel for the purpose of making further inquiry into the status of (Hayne), which would have let (sic ) to the discovery of Hayne's suspension and would have prevented the closing of the escrow and disbursal of plaintiffs' money to a suspended corporation; and

“c. (Title's) closing of the escrow and payment of funds to a suspended corporation whose agent depleted the funds prevented plaintiffs from exercising their right to void the transaction under Revenue and Taxation Code Section 23304, and to obtain restitution of the funds.” (Emphasis added.)

Proximate or legal cause is generally a question of fact. (Hoyem v. Manhattan Beach City Sch. Dist. (1978) 22 Cal.3d 508, 520, 150 Cal.Rptr. 1, 585 P.2d 851.) Nevertheless, where the facts are undisputed and only one conclusion may be drawn therefrom, the question becomes one of law (Kane v. Hartford Accident & Indemnity Co. (1979) 98 Cal.App.3d 350, 359, 159 Cal.Rptr. 446), and the court must determine the legal consequences of those facts (Banville v. Schmidt (1974) 37 Cal.App.3d 92, 106, 112 Cal.Rptr. 126).

The first element of proximate cause is “cause in fact.” (Garton v. Title Ins. & Trust Co. (1980) 106 Cal.App.3d 365, 382, 165 Cal.Rptr. 449.) It is necessary to show that the defendant's negligence contributed in some way to the plaintiff's injury, so that “but for” the defendant's negligence, the injury would not have been sustained. (Capell Associates, Inc. v. Central Valley Security Co. (1968) 260 Cal.App.2d 773, 779-780, 67 Cal.Rptr. 463; 4 Witkin, Summary of Cal. Law (8th ed. 1974) Torts, s 622, p. 2903.) If the harm would have occurred anyway, whether the defendant was negligent or not, then his or her negligence was not a cause in fact and cannot be the legal or proximate cause of that harm. (Capell Associates, supra, at pp. 779-780, 67 Cal.Rptr. 463.)

Plaintiff Alexander Groswird testified that had he learned of the potential rezoning, the sale would not have been completed. In contrast, had he been informed of the corporate suspension or the flawed resolution, he would have halted escrow proceedings, consulted with his attorney, and not continued with the transaction until his attorney advised him that the problem had been cured. If the problem couldn't be resolved, the deal wouldn't have closed. Groswird's attorney, Walsh, testified that he would have advised plaintiff “not to close until we could get to the bottom of the factual transaction, find out who the parties we are dealing with are and find that the transaction was a proper transaction in all respects.” However, neither Groswird nor Walsh ever testified that disclosure by Title would have resulted in rescission, and there was uncontradicted testimony that either problem could and would have been readily corrected.1 Groswird also testified that he and his family moved into a house on the property prior to the close of escrow and commenced extensive remodeling; that evidence supports the inference that he would not have rescinded merely because of curable defects in the transaction.

In short, we find no evidence that plaintiffs would have rescinded had they learned of Hayne's suspension and Thurston's apparent lack of authority, and at oral argument plaintiffs did not urge that disclosure of those defects would have triggered rescission. Instead, plaintiffs focused on the evidence that they discovered the impending rezoning about 14 days after the close of escrow. Stressing that this court must take into account all inferences from the evidence which the trial court might reasonably have made in support of its findings (Jacoby v. Feldman (1978) 81 Cal.App.3d 432, 442, 146 Cal.Rptr. 334), plaintiffs urged that a reasonable inference from the evidence is that had Title disclosed the defects, escrow would at least have been interrupted long enough for the rezoning to have come to plaintiffs' attention; once they learned of the rezoning, they would then have rescinded the transaction.

At most, that evidence and that inference would establish that Title's negligence was a cause in fact of plaintiffs' damages. We have concluded, however, that even if Title's negligence was a cause in fact of plaintiffs' damages, Thurston's and Hayne's fraud was a superseding cause of that harm, relieving Title from liability.

Where, subsequent to the defendant's negligent act, an independent intervening force actively operates to produce the injury, the chain of causation may be broken. If the intervening force is a “superseding cause,” the defendant is not liable. (4 Witkin, Summary of Cal. Law, Torts, supra, s 628, at p. 2910, and cases cited therein.) An actor whose negligence is a substantial factor in causing an injury is not relieved of liability because of the intervening act of a third person if such act was reasonably foreseeable at the time of his negligent conduct. (Vesely v. Sager (1971) 5 Cal.3d 153, 163, 95 Cal.Rptr. 623, 486 P.2d 151.) “If the likelihood that a third person may act in a particular manner is the hazard or one of the hazards which makes the actor negligent, such an act whether innocent, negligent, intentionally tortious, or criminal does not prevent the actor from being liable for harm caused thereby.” (Rest.2d Torts, s 449, p. 482, cited with approval in Vesely, supra, 5 Cal.3d at p. 164, 95 Cal.Rptr. 623, 486 P.2d 151.) Whether an intervening act is a superseding cause is usually a question of fact. (Hoyem v. Manhattan Beach City Sch. Dist., supra, 22 Cal.3d at p. 521, 150 Cal.Rptr. 1, 585 P.2d 851.) Nevertheless, on undisputed facts, the question is one of law. (Schrimscher v. Bryson (1976) 58 Cal.App.3d 660, 664, 130 Cal.Rptr. 125; see Kane v. Hartford Accident & Indemnity Co., supra, 98 Cal.App.3d at pp. 360-362, 159 Cal.Rptr. 446; see also Garton v. Title Ins. & Trust Co., supra, 106 Cal.App.3d at p. 380, 165 Cal.Rptr. 449.)

In Schrimscher v. Bryson, supra, 58 Cal.App.3d 660, 130 Cal.Rptr. 125, a highway patrol officer stopped to investigate an accident caused by the negligence of an intoxicated driver. Another car, driven by another drunk driver, veered off the freeway and injured the officer. The officer brought an action against the first driver, arguing that his negligence caused the officer to be in the precarious situation in the first place. The court affirmed summary judgment for the defendant driver, concluding that as a matter of law: (1) the criminal conduct of the second driver was not a natural or ordinary consequence of the situation created by the first driver; and (2) the foreseeability or the likelihood of that conduct was not one of the factors contributing to the negligent character of the first driver's conduct. (Id., at pp. 664-665, 130 Cal.Rptr. 125.)

Comment a to the Restatement Second of Torts section 449 is helpful in assessing whether Hayne's and Thurston's fraud was reasonably foreseeable by Title and whether the likelihood of that fraud was the hazard which made Title's conduct negligent. Comment a states, in part: “... the mere possibility or even likelihood that there may be such misconduct is not in all cases sufficient to characterize the actor's conduct as negligence. It is only where the actor is under a duty to the other, because of some relation between them, to protect him against such misconduct, or where the actor has undertaken the obligation of doing so, or his conduct has created or increased the risk of harm through the misconduct, that he becomes negligent.” (Rest.2d Torts, supra, s 449, com. a, pp. 482-483, emphasis added.) Prosser characterizes the intervening cause question as one not of causation but of the extent of the actor's obligation: whether the actor's responsibility extends to interventions which are “foreign to the risk he has created.” (Prosser, Law of Torts (4th ed. 1971) s 44, p. 283.)

Here Title was under no duty to protect the buyers against misrepresentations by the seller as to the zoning of the property. The hazards to plaintiffs which made Title's omissions negligent were the complications which might result from consummating a transaction with an entity which had no power to act, and the risk that the sale and its terms had not been actually authorized by the owner of the property. The likelihood that the seller had intentionally misrepresented or withheld information about pertinent zoning was simply not the hazard that made the title company's failure to investigate the status of the corporation negligent. (See, generally, Hosack, Cal. Title Insurance Practice (Cont.Ed.Bar 1980) s 3.1 et seq., p. 34 et seq.; 2 Bowman, Ogden's Revised Cal. Real Property Law (Cont.Ed.Bar 1975) s 31.12, pp. 1574-1575; Contini v. Western Title Ins. Co. (1974) 40 Cal.App.3d 536, 543, 115 Cal.Rptr. 257.) Accordingly, we conclude as a matter of law that Thurston's and Hayne's fraud was a superseding cause of plaintiffs' injury. Garton v. Title Ins. & Trust Co., supra, 106 Cal.App.3d 365, 165 Cal.Rptr. 449, relied on by plaintiffs, is inapposite. Garton holds only that plaintiffs/buyers' allegations as to a title company's negligence were sufficient to withstand a demurrer; it does not compel the conclusion that Title's negligence was the proximate cause of plaintiffs' damages in this case. Judgment against Title must be reversed. In light of this conclusion, we need not separately address Title's contention that it should not have been ordered to pay plaintiffs' attorneys' fees.

Defendants Hayne and Thurston

Hayne and Thurston contend that they had no obligation to disclose the proposed rezoning to plaintiffs. They argue that the transaction was an arms-length transaction and that the proposed rezoning was a matter of public record readily discoverable by plaintiffs. Their contention is without merit.

Fraud may consist in the misrepresentation or concealment of material facts, and may be inferred from the circumstances and conditions of the parties. “Concealment may constitute actionable fraud where seller knows of facts which materially affect the desirability of property and which he knows are unknown to the buyer. (Citations.) One who learns that his statements, even if thought to be true when made, have become false through a change in circumstances, has the duty before his statements are acted upon to disclose the new conditions to the party relying on his original representations. (Citations.)” (Koch v. Williams (1961) 193 Cal.App.2d 537, 541, 14 Cal.Rptr. 429.)

Among its findings, the trial court found that Thurston advised plaintiffs as to the existing zoning of the property, and plaintiffs verified that zoning with the Santa Cruz County Planning Department. The court found that inquiry to be reasonable and sufficient. The court also found that defendants deliberately withheld disclosure of the potential rezoning from plaintiffs and that had plaintiffs known of the potential rezoning, the option agreement and sale would not have been completed. These findings support the court's conclusions that defendants committed fraud. Defendants' arguments are in essence an attack on the trial court's findings, but the evidence is ample to support them.

Defendants Hayne and Thurston also contend the trial court erred in ordering them to pay attorneys' fees to plaintiffs on the ground that their fraud required plaintiffs to sue Title. We agree. In the absence of an express agreement or statute, each party to a lawsuit is responsible for its own attorneys' fees. (Code Civ.Proc., s 1021.) In Prentice v. North Amer. Title Guar. Corp. (1963) 59 Cal.2d 618, 30 Cal.Rptr. 821, 381 P.2d 645, the court recognized an exception to that rule, and stated broadly, “A person who through the tort of another has been required to act in the protection of his interests by bringing or defending an action against a third person is entitled to recover ... attorney's fees .... (Citations.)” (Id., at p. 620, 30 Cal.Rptr. 821, 381 P.2d 645.) The Prentice exception has been limited to cases involving “ ‘exceptional circumstances' ” (Davis v. Air Technical Industries, Inc. (1978) 22 Cal.3d 1, 7, 148 Cal.Rptr. 419, 582 P.2d 1010); this is not such a case. Plaintiffs were not compelled to litigate against Title because of the wrongdoing of Hayne and Thurston; their fraud did not make it necessary for plaintiffs to bring an action against Title for negligence to protect their interests. (See Austero v. Washington National Ins. Co., 132 Cal.App.3d 408, 182 Cal.Rptr. 919; cf. Glendale Fed. Sav. & Loan Assn. v. Marina View Heights Dev. Co. (1977) 66 Cal.App.3d 101, 149-150, 135 Cal.Rptr. 802.)

Furthermore, that portion of the judgment on the cross-complaint awarding Title attorneys' fees from Hayne and Thurston must also be reversed. Title was not required through Hayne's and Thurston's fraud to protect its interest by defending against plaintiffs' action; Title's own negligence compelled its participation in this litigation. (See Code Civ.Proc., s 1021.6.) We find no authority supporting an award of attorneys' fees to a defendant who has prevailed on a claim for implied indemnity, but who has incurred attorneys' fees solely in defense of his own alleged wrongdoing. (See Davis v. Air Technical Industries, Inc., supra, 22 Cal.3d at p. 5, 148 Cal.Rptr. 419, 582 P.2d 1010.) Nor can the award be sustained on the basis of the Prentice exception; that exception was never meant to entitle exonerated defendants in commonplace multiparty tort actions to recover their attorneys' fees from unrelated codefendants who were held liable. (Id., at p. 7, fn. 9, 148 Cal.Rptr. 419, 582 P.2d 1010.)

Judgment against defendant Title Insurance and Trust Company is reversed. That portion of the judgment against Hayne and Thurston awarding attorneys' fees to plaintiffs is reversed; that portion of the judgment on the cross-complaint awarding attorneys' fees to Title Insurance and Trust Company is reversed. In all other respects, the judgment is affirmed. Defendant Title shall recover its costs on appeal from plaintiffs. Plaintiffs shall recover their costs on appeal from defendants Thurston and Hayne.

FOOTNOTES

1.  By the time of trial Hayne had been reinstated as a California corporation, and an elected board of directors had ratified the sale to plaintiffs.

SCOTT, Associate Justice.

WHITE, P. J., and BARRY-DEAL, J., concur.