VOURNAS v. FIDELITY NATIONAL TITLE INSURANCE COMPANY (1999)

A successor trustee of an express trust (the trust) sued Fidelity National Title Insurance Company (Fidelity).   The complaint alleged Fidelity negligently breached its duties to the trust.   Fidelity obtained summary judgment.   The successor trustee timely filed this appeal.   We affirm the judgment.

 I

FACTS

In the mid-1980's Mr. Skouras, the trustee of the trust, sold three parcels of trust real property.   Fidelity was the escrow holder and title insurer for the sales and the trustee of deeds of trust securing purchase money notes payable to the trust that financed the sale of the properties to the buyers.

The trust provisions required Skouras to obtain consent of at least two of the trust beneficiaries before selling trust property.¹  Skouras made all three sales without the knowledge or consent of the trust beneficiaries and diverted the sales proceeds to his own use.

II

THE LAWSUIT

In 1994 the trust beneficiaries discovered Skouras's unauthorized sales of trust properties.   In October 1994 they removed Skouras as trustee and appointed a successor trustee.   The successor trustee ² filed this action against Fidelity, seeking damages based on Fidelity's alleged negligence.   Appellant alleged that Fidelity had a duty to determine whether Skouras had obtained the beneficiaries' consent to the sales, that Fidelity negligently breached that duty, that as a result of Fidelity's negligence Skouras was allowed to transfer the trust properties without the beneficiaries' consent, and that the trust was damaged in the amount of the value of the properties.

Fidelity moved for summary judgment, arguing that it owed no duty to the beneficiaries and that it was entitled to the statutory protections afforded by Probate Code 3 sections 18100 and 18101.   Appellant opposed the motion, arguing that:  (1) Fidelity owed duties of care to the trust in Fidelity's capacities as escrow holder, title insurer, and trustee under the deeds of trust and there were triable issues of fact whether Fidelity breached those duties of care;  and, (2) neither the Probate Code nor the provisions of the trust instrument immunized Fidelity from liability for its negligence.

The trial court granted Fidelity's motion for summary judgment and denied appellant's motion for a new trial.   Appellant filed this appeal.

 III

DISCUSSIONA. Standard of Review

 The purpose of summary judgment is to penetrate through the pleadings to ascertain, by means of affidavits, the presence or absence of triable issues of material fact.  (Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1107, 252 Cal.Rptr. 122, 762 P.2d 46.)   The trial judge determines whether triable issues exist by examining the affidavits and evidence, including any reasonable inferences that may be drawn from the facts.  (People v. Rath Packing Co. (1974) 44 Cal.App.3d 56, 61-64, 118 Cal.Rptr. 438.)   In examining the affidavits, those of the moving party are strictly construed and those of the opposing party liberally construed.   Any doubts as to the propriety of granting the motion are resolved in favor of the party resisting the motion.  (Stationers Corp. v. Dun & Bradstreet, Inc. (1965) 62 Cal.2d 412, 417, 42 Cal.Rptr. 449, 398 P.2d 785.)

 If the motion for summary judgment is supported by affidavits sufficient to sustain the motion, the burden shifts to the party opposing the motion to show that triable issues of material fact exist.  (Chern v. Bank of America (1976) 15 Cal.3d 866, 873, 127 Cal.Rptr. 110, 544 P.2d 1310.)   A party cannot avoid summary judgment based on mere speculation and conjecture (Pena v. W.H. Douthitt Steel & Supply Co. (1986) 179 Cal.App.3d 924, 931, 225 Cal.Rptr. 76), but instead must produce admissible evidence raising a triable issue of material fact.  (Craig Corp. v. County of Los Angeles (1975) 51 Cal.App.3d 909, 915, 124 Cal.Rptr. 621.)

 In a negligence action, the existence of a duty of care owed by a defendant to a plaintiff is a legal issue that is particularly amenable to resolution on summary judgment.  (Parsons v. Crown Disposal Co. (1997) 15 Cal.4th 456, 464-465, 63 Cal.Rptr.2d 291, 936 P.2d 70.)   A defendant in a negligence action may obtain summary judgment by demonstrating that the evidence shows it owed no duty to the plaintiff that could have been breached.  (Linden Partners v. Wilshire Linden Associates (1998) 62 Cal.App.4th 508, 516-522, 73 Cal.Rptr.2d 708.)

B. Fidelity Did Not Owe Appellant A Duty To Investigate Whether Skouras Had Obtained The Consent Of The Trust Beneficiaries To The Sales

 Appellant alleged that Fidelity as escrow holder, title insurer and deed of trust trustee assisted Skouras's sale of the trust properties and owed  a duty to appellant and to the beneficiaries of the trust to investigate and determine whether Skouras had obtained the required beneficiary consent.   However, under applicable trust principles, the trustee of the trust is vested with legal title to the trust property.   When third parties deal with the trustee in connection with trust property, section 18100 provides that:

“With respect to a third person dealing with a trustee or assisting a trustee in the conduct of a transaction, if the third person acts in good faith and for a valuable consideration and without actual knowledge that the trustee is exceeding the trustee's powers or improperly exercising them:  [¶] (a) The third person is not bound to inquire whether the trustee has power to act or is properly exercising a power and may assume without inquiry the existence of a trust power and its proper exercise. [¶] (b) The third person is fully protected in dealing with or assisting the trustee just as if the trustee has and is properly exercising the power the trustee purports to exercise.”  (Emphasis added.)

Section 18100 was specifically adopted to change the prior law that placed third parties on constructive or inquiry notice of possible breaches of the trust.⁴  Section 18100 protects third parties who deal with or assist the trustee by excusing them from investigating and permitting them to assume “ ‘the existence of a trust power and its proper exercise,’ ” except where the third parties have actual knowledge of a breach of the trust.⁵  (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1114-1116, 9 Cal.Rptr.2d 732, quoting section 18100.)

 The complaint does not allege and appellant did not show that Fidelity had actual knowledge Skouras was acting in violation of the trust provisions, did  not act in good faith or acted without consideration.⁶  Because the statutory scheme exempts third parties from a duty to investigate, Fidelity breached no duty owed to appellant.⁷

C. The Duties Owed By Fidelity Do Not Supersede The Statutory Scheme

Appellant appears to argue that notwithstanding section 18100, Fidelity in each of its three capacities undertook duties it then breached.   We examine each of appellant's claims.

1. Duty Owed By Fidelity As Escrow Holder

 An escrow holder, as a dual agent of the parties to the escrow, owes duties to the parties to the escrow.   However, those duties are limited.   The primary duty owed by an escrow holder is to strictly and faithfully perform the instructions given to it by the parties to the escrow.  (2 Miller & Starr, Cal. Real Estate (2d ed.   1989) Escrows § 5:22, pp. 442-449.)   Appellant neither appended the escrow instructions involved in the trust property sales to his opposition to the motion for summary judgment, nor alleged Fidelity did not faithfully perform those escrow instructions.

 Appellant instead alleges that Fidelity, as an escrow holder, breached its fiduciary duty by not informing the parties to the escrows of the “beneficiary consent” provisions of the trust instrument.   Even assuming Fidelity owed that duty of disclosure,⁸ that duty was owed to the parties to the escrow.   The parties to the escrows were Skouras, as seller, and the respective buyers.   When an escrow holder knows the seller is relying on him for protection as to facts learned by the escrow holder, the escrow holder can be held liable to the seller if he does not disclose those facts to the seller.  (See, e.g., Spaziani v. Millar (1963) 215 Cal.App.2d 667, 681-685, 30 Cal.Rptr. 658.)   However, there is no evidence to suggest Skouras was unaware, much less that Fidelity knew Skouras was unaware, of the “fact” of Skouras's need for beneficiary consent to the sales.   Because there is no evidence supporting imposition of a duty of disclosure to the seller, appellant's negligence claim against Fidelity in its capacity as escrow holder is not well taken.⁹

2. Duty Owed By Title Insurer

 Fidelity issued lender's policies of title insurance to Skouras, individually and as trustee for the trust, insuring the priority of the purchase money deeds of trust that Skouras as trustee received from the buyers of the trust properties.   Appellant asserts that a title insurer's standard of care, as set forth in the California Land Title Association (CLTA) manual that Fidelity follows, mandates that before a title insurer may issue title insurance in connection with transactions involving a trust, the insurer must review the trust instrument and determine, among other things, whether the trustee has “[a]dequate powers ․ to sell and convey.”   Appellant contends Fidelity owed this duty to the trust, that Fidelity breached this duty by not investigating whether Skouras had obtained the requisite beneficiaries' consent, and that appellant is therefore entitled to recover from Fidelity.

 Appellant misconstrues the nature and limited scope of a title insurer's obligations.   Title insurance is a contract by which the title insurer agrees to indemnify its insured against losses caused by defects in or encumbrances on the title not excepted from coverage.  (Siegel v. Fidelity Nat. Title Ins. Co. (1996) 46 Cal.App.4th 1181, 1191, 54 Cal.Rptr.2d 84.)   An insured's claim against his title insurer is under the policy, and an  insured has no separate claim against a title insurer based on negligence or negligent misrepresentation.  (Southland Title Corp. v. Superior Court (1991) 231 Cal.App.3d 530, 537-538, 282 Cal.Rptr. 425;  Golden Security Thrift & Loan Assn. v. First American Title Ins. Co. (1997) 53 Cal.App.4th 250, 255-258, 61 Cal.Rptr.2d 442.)

Here, appellant made no claim on the title policy issued by Fidelity insuring the priority of the purchase money deeds of trust.   Instead, he argues that Fidelity can be liable based on separate duties allegedly owed by a title insurance company.   Appellant cites Seeley v. Seymour (1987) 190 Cal.App.3d 844, 237 Cal.Rptr. 282 to support his argument that Fidelity, as a title insurance company, owed the trust and beneficiaries separate tort duties as third parties without regard to the contractual arrangements between appellant and Fidelity.   In Seeley, a title insurance company (Safeco) delivered to the county recorder for recordation a non-recordable document, which was then recorded.   The owner of the real property (Seeley) then sued Safeco for damages allegedly caused by Safeco's negligent recording of a non-recordable document that clouded title to Seeley's property and impeded a subsequent sale of the property.   The Seeley court concluded “[i]t is now clear that a defendant can be liable for economic harm inflicted upon a third party with whom he has no direct dealing” and held, under the J'Aire six-part test, that Safeco owed a duty of care to Seeley.   The court concluded the recorded document was intended to affect Seeley;  the document foreseeably would impair his ability to sell the property;  and the injury was clear and closely related to recordation of the document.  (Id. at pp. 860-861, 237 Cal.Rptr. 282.)   Finally, although Safeco's negligent action was not morally repugnant, the enterprise of a title insurance company has taken on something of a public character, so public policy favored imposition of liability.  (Id. at p. 862, 237 Cal.Rptr. 282.)

Here, Fidelity's failure to follow the CLTA manual was not intended to affect the trust.¹⁰  Moreover, section 18100 specifically permits parties assisting a trustee to assume “the existence of a trust power and its proper exercise,” suggesting a legislative determination that it is not reasonably foreseeable that the absence of an investigation will facilitate fraud by a fiduciary.   Most importantly, Seeley did not involve title insurance or an escrow to which the plaintiff was a party, the injury suffered by the trust was caused not by Fidelity's action but by Skouras's action, and the injury is neither clearly nor closely related to Fidelity's lack of investigation.

 The legislature has eliminated any duty to investigate, and we decline to undercut that legislative determination by a judicial rule that imposes on Fidelity a duty to police the activities of Skouras merely because Fidelity sold a lender's title insurance policy to Skouras.  (Cf. Ott v. Alfa-Laval Agri, Inc. (1995) 31 Cal.App.4th 1439, 1455-1456, 37 Cal.Rptr.2d 790 [declining to extend duty of care under J'Aire where “intent to affect” and “reasonable foreseeability of injury” absent.] )

3. Duty Owed By Trustee On Deed Of Trust

 Appellant finally argues Fidelity, in its capacity as trustee under the deed of trust securing Skouras's purchase money note to the trust, breached fiduciary obligations owing to the trust.¹¹  Appellant alleges Fidelity was obligated to confirm that Skouras had repaid the note before reconveying the deed of trust, and that Fidelity breached that obligation because it reconveyed the deed of trust even though the note allegedly was not paid.

 The trustee of a deed of trust is not a true trustee, and owes no fiduciary obligations;  he merely acts as a common agent for the trustor and the beneficiary of the deed of trust.  (Hatch v. Collins (1990) 225 Cal.App.3d 1104, 1111-1112, 275 Cal.Rptr. 476.)   His only duties are:  (1) upon default to undertake the steps necessary to foreclose the deed of trust;  or (2) upon satisfaction of the secured debt to reconvey the deed of trust.   (Ibid.)  When the beneficiary of a deed of trust informs the trustee that the note has been paid and instructs the trustee to reconvey the deed of trust, the trustee (absent special circumstances not present here-see Civ.Code, § 2941, subd. (c)) is obligated to record the reconveyance within 21 days of its receipt of the pertinent documents.  (Civ.Code, § 2941, subd. (b)(1)(A).)  Failure to comply with that obligation can subject a trustee to damages (Civ.Code, § 2941, subd. (d)) or criminal liability.  (Civ.Code, § 2941.5.)

It is undisputed that the named beneficiary of the deed of trust in question was Skouras as trustee of the trust.   It is also conceded that Skouras remained as trustee until 1994 and was still the beneficiary of the deed of trust in 1988 when he informed Fidelity the note had been repaid and instructed Fidelity to reconvey the deed of trust.   Appellant's sole argument is that Fidelity had a duty to confirm that the note had been repaid before it reconveyed the deed of trust.   However, appellant cites no authority to support that contention, and the law is to the contrary.  (See, e.g., Fleisher v. Continental Auxiliary Co. (1963) 215 Cal.App.2d 136, 138-140, 30 Cal.Rptr. 137 [when beneficiary instructs trustee to reconvey, trustee has no duty to investigate status of underlying debt before reconveying].)

IV

CONCLUSION

Because appellant did not show that Fidelity had actual knowledge of Skouras's unauthorized actions, or that it did not act in good faith without consideration, and applicable principles impose on Fidelity no duty of care that it breached, we conclude summary judgment was proper.

V

DISPOSITION

The judgment is affirmed.   Fidelity is entitled to costs on appeal.

McDONALD, J.

WORK, Acting P.J., and McINTYRE, J., concur.