Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-85-02656/USCOURTS-ca10-85-02656-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

---

PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

DAVID K. RICHARDS, ) 

) 

Plaintiff-Appellee, ) 

) 

v. ) 

) 

ATTORNEYS' TITLE GUARANTY FUND, ) 

INC., ) 

) 

Defendant-Appellant, ) 

) 

H. RAY CHRISTMAN and PLATTE VALLEY ) 

BANK, ) 

) 

Defendants. ) 

FILED 

Unitsd State1 Court of.Appeals Tenth Circuit 

FEB 1 41989 

ROBERT L. HOECKER 

Clerk 

No. 85-2656 

ON APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF COLORADO 

(D.C. No. CIV. 84-Z-1857) 

Steven J. Merker of Davis, Graham & Stubbs, Denver, Colorado, for 

Plaintiff-Appellee. 

Mark R. Davis (John A. Criswell of Branney, Hillyard & Criswell, 

Englewood, Colorado, with him on the briefs), of Wood, Ris & 

Hames, P.C., Denver, Colorado, for Defendant-Appellant. 

Before SEYMOUR, MCWILLIAMS, and BRORBY, Circuit Judges • 

. BRORBY, Circuit Judge. 

Appellate Case: 85-2656 Document: 01019598696 Date Filed: 02/14/1989 Page: 1 
. ' 

Plaintiff Richards brought 

diversity of citizenship against 

a civil action based upon 

defendant, Attorneys' Title 

Guaranty Fund, Inc. (Attorneys' Title), a title insurance company. 

28 u.s.c. § 1332 (1966). Richards sought to recover from 

Attorneys' Title $430,000 in funds that the president of 

Centennial Escrow Services, Inc. (Centennial} embezzled from 

Centennial's trust account. Richards alleged Centennial was an 

agent of Attorneys' Title and Attorneys' Title should be held 

responsible for the intentional conversion by Centennial's 

president. The jury returned a verdict against Attorneys' Title. 

Attorneys' Title appeals, alleging the district court 

improperly instructed the jury because: (1) the general liability 

instruction based on the Restatement (Second} of Agency § 261 

(1958} was not the law of Colorado; (2) the court improperly 

refused an instruction on the element of reliance: and, (3) the 

instruction defining agency did not contain the necessary element 

of control. 

We find the district court properly instructed the jury on 

the law and AFFIRM the district court's judgment against 

Attorneys' Title. 

Richards owned thirteen "7-Eleven" stores which he leased to 

the Southland Corporation. He was approached by a real estate 

agent regarding sale of the stores to Snyder. Richards negotiated 

a sale with Snyder. Richards agreed to provide title insurance. 

Richards then contacted the Attorneys' Title office in Utah and 

requested they issue title insurance on the properties. 

Attorneys' Title referred him to their Colorado office to prepare 

-2-

Appellate Case: 85-2656 Document: 01019598696 Date Filed: 02/14/1989 Page: 2 
the title insurance on the thiee properties located in Colorado. 

Richards requested that the Colorado Attorneys' Title office 

prepare the title insurance policies on the three properties, 

asked if that off ice could handle the closing on the entire 

transaction, and asked if they could hold the sale proceeds check 

until all transaction documents were properly recorded. 

Attorneys' Title agreed to perform these services. 

The closing date was postponed from December 10, 1982, to 

December 30, 1982. Richards learned the Attorneys' Title office 

manager would be out of town on December 30. An Attorneys' Title 

employee told Richards that Walter, an employee of Centennial, 

would perform the closing. At the closing, Walter refused to 

release the sales proceeds check to Richards before the 

transactions documents were recorded. The buyer, Snyder, and 

Richards' attorney, in fact agreed to reissue the sales proceeds 

check to Centennial to be held in Centennial's escrow account 

until the transaction documents were recorded. 

Walter took the sales proceeds check for $430,000 to 

Centennial's office and prepared a deposit slip to the escrow 

account. She then left the check and deposit slip for 

Centennial's president, Marshall, to deposit. Marshall deposited 

the check in Centennial's trust account at Platte Valley Bank on 

January 3, 1983. On January 5, 1983, Marshall asked the bank to 

release the $430,000 to him in cash, which the bank was unable to 

do because its cash on hand did not amount to $430,000. Marshall 

then instructed the bank to wire transfer the $430,000 to United 

-3-

Appellate Case: 85-2656 Document: 01019598696 Date Filed: 02/14/1989 Page: 3 
Bank of Denver where Marshall received .the money in cash and left 

the state. 

Richards contacted Walter at Centennial and requested 

transfer of the sales proceeds because all the transaction 

documents had been properly recorded. Walter then learned that 

Centennial's president had taken the proceeds and she informed 

Richards. 

Richards brought this diversity suit to recover the $430,000 

against Attorneys' Title and Platte Valley Bank. 28 u.s.c. § 1332 

(1966). The jury returned a verdict against both defendants. 

Each defendant has appealed. Our opinion on Platte Valley Bank's 

appeal is reported at Richards v. Platte Valley Bank, F.2d 

(10th Cir. 1988) (No. 85-2665 filed February 14, 1989). In 

diversity cases, the federal court must apply the law of the forum 

state, in this case, Colorado. Erie R.R. Co. v. Tompkins, 304 

U.S. 64 (1938); Brady v. Hopper, 751 F.2d 329 (10th Cir. 1984). 

I. 

Attorneys' Title asserts the trial court improperly 

instructed the jury on the theory of liability based upon § 261 of 

the Restatement (Second) of Agency (1958) because this section is 

not the law of Colorado. We have been unable to find, and neither 

party has cited us to a Colorado case which has discussed § 261. 

Our task is to predict whether the Colorado Supreme Court would 

apply this provision in a case l~ke the one presented to this 

court. Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569, 1574 (10th 

Cir. 1984). 

-4-

Appellate Case: 85-2656 Document: 01019598696 Date Filed: 02/14/1989 Page: 4 
The district court instructed the jury on the liabi~ity of 

Attorneys' Title stating: 

In order for the plaintiff, David K. Richards, to 

recover from the Defendant Attorneys' Title Guaranty 

Fund .on his claim that Attorneys' Title Guaranty Fund is 

responsible for the theft of the escrow proceeds by 

Duane Marshall, you must find -- you must· find all of 

the following have been proved by a preponderance of the 

evidence. · 

(1) In connection with the sale 

stores and the escrow of the funds, 

Services, Inc., was an agent of 

Guaranty Fund; 

of the 13 ?~Eleven 

Centennial Escrow 

Attorneys' Title 

(2) Attorneys' Title Guaranty Fund put Centennial 

Escrow Services in a position that permitted its 

president, Duane Marshall, to commit the theft of the 

$430,000; 

(3) At the time of the theft, Centennial Escrow 

Services was apparently acting within its authority as 

an agent of Attorneys' Title. 

If you find any of these propositions has not been 

proved by a preponderance of the evidence, then your 

verdict must be for the defendant. On the other hand, 

if you find that all of these propositions have been 

proved by a preponderance of the evidence, then your 

verdict must be for the plaintiff. 

This instruction is based on the Restatement (Second) of Agency 

§ 261. This section states: 

A principal who puts a servant or other ·agent in a 

position which enables the agent, while apparently 

acting within his authority, to commit a fraud upon 

third persons is subject to liability to such third 

persons for the fraud. 

Attorneys' Title objected to this instruction as being an 

inappropriate theory of law. 

On appeal, Attorneys' Title asserts § 261 is not the law of 

Colorado because this section improperly imposes liability upon a 

principal solely upon an agent's intentional misrepresentation not 

authorized or consented to by the principql. Attorneys' Title 

-5-

Appellate Case: 85-2656 Document: 01019598696 Date Filed: 02/14/1989 Page: 5 
contends this instruction is contrary to the holdings in Schuette 

v. Winternitz, 498 P.2d 1183 (Colo. App. 1972) (not selected for 

official publication); and Erisman v. McCarty, 77 Colo. 289, 236 

P. 777 (1925). We do not find this argument persuasive. 

The general rule that a principal is liable for the torts of 

his agent is not grounded on agency principles, but rather the 

maxim of "respondeat superior." Simpson v. Townsley, 283 F.2d 

743, 746 (10th Cir. 1960) (applying Kansas law); Dyer v. Johnson, 

757 P.2d 178, 181 (Colo. App. 1988). Liability is determined by. 

considering, from a factual standpoint, whether the tortious act 

was done while the employee, whether an agent or servant, was 

acting within the scope of employment. Id. at 180; Crosswaith v. 

Thomason, 95 Colo. 240, 35 P.2d 849 (1934). The principal's 

knowledge of the agent's tort is not a necessary element of 

liability. See Stockwell v. United States, 80 U.S. 531, 546 

(1871). 

In Gilmore v. Constitution Life Ins. Co., 502 F.2d 1344 (10th 

Cir. 1974), this court construed Colorado law and held a principal 

liable for the fraudulent acts of its agent who was acting within 

the scope of his apparent au~hority. The court distinguished the 

holding in Schuette, which denied a principal's liability without 

proof of consent or knowledge of the agent's misrepresentations, 

because that case did not discuss the agent's apparent authority 

to perpetrate the alleged fraud. Likewise Erisman is 

distinguishable. The Colorado Court of Appeals has also 

recognized this exception for an agent's false representations 

made with apparent authority. See Dyer, 757 P.2d at 180. 

-6-

Appellate Case: 85-2656 Document: 01019598696 Date Filed: 02/14/1989 Page: 6 
After hearing each party's arguments, the district judge 

concluded the instruction based on § 261 was the correct law. 

This instruction based on § 261 is consistent with the legal 

principle recogniz~d by the courts of Colorado that, when one of 

two innocent persons must suffer from the acts of a third, he must 

suffer who put it in the power of the wrongdoer to inflict the 

injury. Bemel Assocs., Inc. v. Brown, 164 Colo. 414, 435 P.2d 

407, 411 (1968) (Sutton, J., dissenting), citing Burck v. Hubbard, 

104 Colo. 83, 88 P.2d 955, 957-58 (1939); see also Gordon v. 

Pettingill, 105 Colo. 214, 96 P.2d 416, 418 (1939). This court 

has applied § 261 to principal-agent liability cases arising in 

Colorado. See Thomas v. Colorado Trust Deed Funds, Inc., 366 F.2d 

140, 143 (10th Cir. 1966); L.J. Dreiling Motor Co. v. Peugeot 

Motors, 605 F.Supp. 597, 610-11 (D. Colo. 1985), aff'd, 850 F.2d 

1373 (10th Cir. 1988). We agree with the district judge's 

instruction based on § 261. We believe the Colorado Supreme Court 

would apply § 261 if placed in the position of the district court 

in this case. 

Attorneys' Title next contends if § 261 is an accurate 

statement of the law of Colorado, the district court improperly· 

substituted ''theft" for "fraud" as one of the elements df pro6f. 

Attorneys' Title asserts § 261 was not intended to make a 

principal liable for every theft committed by a non-employee 

agent. Attorneys' Title argues that liability attaches to the 

principal only by the agent's misrepresentation or fraud and not 

simply by the agent's theft. 

-7~ 

Appellate Case: 85-2656 Document: 01019598696 Date Filed: 02/14/1989 Page: 7 
. We have not been referred to, nor do we find, any cases where 

"theft" has been substituted for "fraud" in an instruction based 

on § 261. However, there are several cases in which § 261 has 

been applied to thefts. See, Stone & Webster Eng'g Corp. v. 

Hamilton Nat'l Bank, 199 F.2d 127, 132 (6th Cir. 1952) (business 

liable for employee's theft from bank, where business placed 

employee in position to commit theft); First Nat'l Bank v. United 

States, 653 F.Supp. 1312, 1320 (N.'D. Ill. 1987) (bank is liable to 

third party because its choice of agent exposed third party to 

loss); Lucas v. Liggett & Myers Tobacco Co., 50 Haw. 477, 442 P.2d 

460, 463 (1968) (§ 261 applied to theft of cigarettes); Draemel 

v. Rufenacht, Bromagen & Hertz, Inc., 223 Neb. 645, 392 N.W.2d 759 

(1986) (§ 261 applied to conversion by agent of commodities firm); 

but see Lou-Con, Inc. v. Gulf Bldg. Servs., Inc., 287 So.2d 192 

(La. App. 1973) (while § 261 may impose liability on a principal 

for an agent's theft, it will not impose liability for arson which 

is not reasonably foreseeable by the principal); O'Malley v. 

Putnam Safe Deposit Vaults Inc., 17 Mass. App. Ct. 332, 458 N.E.2d 

752 (1983) (claim based on § 261 against principal for agent's 

conversion of gold coins dismissed for failure to prove agent 

acted within apparent authority). Section 261 has also been 

applied as a basis to impose liability on a principal for an 

agent's offensive bodily contact. Bowman v. Home Life Ins. Co., 

~43 F.2d 331, 334 (3d Cir. 1957). 

Attorneys' Title cites in support of its proposition that an 

employer will not be liable for the thefts of its employees, Roth 

v. First Nat'l State Bank, 169 N.J. Super. 280, 404 A.2d 1182 

-8-

Appellate Case: 85-2656 Document: 01019598696 Date Filed: 02/14/1989 Page: 8 
(1979). In Roth, a customer brought suit against a bank to 

recover money he lost in a robber~ because a bank teller disclo~ed 

the customer's banking practices to a third. party. Roth is not 

persuasive because the basis for the principal's liability was not 

§ 261, but rather vicarious liability based upon respondeat 

superior. The court found no liability because the e~ployee's 

tortious acts were outside the scope of her employment. In this 

case the jury was instructed and found Centennial "was apparently 

acting within its authority as an agent of Attorney's Title" at 

the time of the theft. 

The trial judge is given substantial latitude in tailoring 

the instructions so long as they fairly and adequately cover the 

issues presented. United States v. Pack, 773 F.2d 261, 267 (10th 

Cir. 1985); United States v. James, 576 F.2d 223, 226 (9th Cir. 

1978). A party has no vested interest in any particular form of 

instructions. The language of the instructions is for the court 

to determine. United States v. Garcia-Rodriguez, 558 F.2d 956, 

965 (9th Cir. 1977), cert. denied, 434 U.S. 1050 (1978); see also 

Tucker v. United States, 151 U.S. 164, 170 (1894). Challenges 

which merely pertain to the trial judge's language ~r formulation 

of the charge are reversible only for· an abuse of discretion. 

James, 576 F.2d at 227, citing United States v. Park, 421 U.S. 

658, 673-76 (1975). The principal's liability under § 261 is not 

based on the nature of the agent's act, i • e • I whether it is a 

misrepresentation or a theft, but rather is based upon the 

principal placing the agent in the position to interact with the 

third party who is harmed. The agent is acting in the place of 

-9-

Appellate Case: 85-2656 Document: 01019598696 Date Filed: 02/14/1989 Page: 9 
the principal. The district court's substitution of "theft" for 

"fraud" in the instruction based on § 261 was not an abuse of 

discretion. 

Attorneys' Title next asserts the trial court erred in 

failing to direct the verdict because Richards failed to prove 

Attorneys' Title placed Centennial in a position to harm Richards. 

Attorneys' Title contends Centennial was given possession of the 

down payment by ~he agre~ment of Richards and the property 

purchaser, Snyder, and not by any ~ction of Attorneys' Title. 

The applicable standard of review in passing on the propriety 

of a motion for directed verdict is the same as that used by the 

trial court. Swearngin v. Sears Roebuck & Co., 376 F.2d 637, 639 

(10th Cir. 1967). We must conduct a de novo review of the 

evidence and the reasonable inferences therefrom in the light most 

favorable to the party opposing the motion. A scintilla of 

evidence is not sufficient to justify submitting a case to the 

jury, id., but a verdict may not be directed unless the evidence 

points all one way and is susceptible of no reasonable inferences 

that would sustain the position of the party against whom the 

motion is made. Ewers v. Board of County Comm' rs, 802 F.2d 1242, 

1247 (10th Cir. 1986), cert. denied, 108 s.ct. 704 (1988). 

Attorneys' Title's argument fails to consider the following 

evidence presented by Richards. Richards contacted Attorneys' 

Title and requested they issue title policies on the three 

Colorado properties, perform the closing on this transaction, and 

hold the proceeds until all documents we~~ recorded. Attorneys' 

Title agreed. On the day of the closing an employee of Attorneys' 

-10-

Appellate Case: 85-2656 Document: 01019598696 Date Filed: 02/14/1989 Page: 10 
Title told Richards that Walter, an employee of Centennial, would 

perform the clo.sing. Closing services general.ly include holding 

the proceeds of the sale until all the documents are recorded. 

There is sufficient evidence in the record to sup~ort a conclusion 

by the jury that Centennial was acting as Attorneys' Title's agent 

in per.forming the closing and that Centen.nial 's authority included 

holding the proceeds. The authority to hold the proceeds included 

authority to accept a check made payable to Centennial for 

placement in its escrow account, and later to disburse the fee to 

the real estate agent and the net proceeds to the property seller. 

We conclude the district court did not err in denying Attorneys' 

Title's motion for directed verdict. 

II. 

The next issue Attorneys' Title raises is the district 

court's refusal of its tendered instruction on the issue of 

reliance. Attorneys' Title offered tendered instruction No. 151 

1 Attorneys' Title tendered instruction No. 15 states: 

In order for the Plaintiff, David K. Richards, to 

recover from the Defendant, Attorneys' Title Guaranty 

Fund, Inc., on his claim that Attorneys' Title Guaranty 

Fund is responsible for the theft of the escrow proceeds 

by Duane Marshall, you must. find all of the following 

have been proved by a· preponderance of the evidence: 

1. Centennial Escrow was the agent for Attorneys' 

Title. 

2. At the time of the theft, Duane Marshall was 

an employee of Centennial Escrow Services, Inc. 

3. In stealing the funds, Mr. Marshall was acting 

in the course and scope of his employment for Centennial 

Escrow Services, Inc. 

4. Attorneys' 

Centennial Escrow in 

Title Guaranty 

a ·position which 

-11-

Fund 

enabled 

placed 

Duane 

Appellate Case: 85-2656 Document: 01019598696 Date Filed: 02/14/1989 Page: 11 
which outlines the elements of liabi~ity of Attorneys' Title under 

§ 261. It is substantially the same as the instruction given by 

the district bourt. Supra, op~ at 5. ~endered instruction No. 15 

contains the added element that: "Dave Richards relied upon the 

fact Centennial Escrow was acting within its apparent authority 

for Attorneys' Title." .Attorneys' Title asserts the failure of 

the district court to give tendered instruction No. 15 removed the 

is.sue of reliance from the jury's consideration. 

The admission or exclusion of a jury instruction is within 

the discretion of the trial court. United States v. Zang, 703 

F.2d 1186, 1196 (10th Cir. 1982), cert. denied, 464 U.S. 828 

(1983). The sufficiency of the instructions is not determined by 

giving or not giving particular instructions, but rather by 

viewing the instructions as a whole. United States v. Beitscher, 

467 F.2d 269, 273 (10th Cir. 1972). Generally, the court 

Marshall to steal the funds. 

5. At the time of the theft Centennial Escrow was 

apparently acting within its authority as agent of 

Attorneys' Title. 

6. Dave Richards relied upon the fact Centennial 

Escrow was acting within its apparent authority for 

Attorneys' Title. 

If you find that any one of these propositions has 

not been proved by a preponderance of the evidence, then 

your verdict must be for the Defendant, Attorneys' Title 

Guaranty Fund, Inc. 

On the other hand, if you find that all of these 

propositions have been proved by a preponderance of the 

evidence, then your verdict must be for the Plaintiff, 

unless you should also find that Duane Marshall was al~o 

the agent for David Richards in holding the . escrow 

funds, in which event your verdict must be for the 

Defendant. 

-12-

Appellate Case: 85-2656 Document: 01019598696 Date Filed: 02/14/1989 Page: 12 
satisfies its duty by giving instructions that sufficiently cover 

the case and that are correct. United States v. Gurule, 437 F.2d 

239, 242 .(10th Cir. 1970), cert. denied, 403 U.S. 904 (1971); 

United States v. Burns, 624 F.2d 95, 105 (10th Cir.), cert. 

denied, 449 U.S. 954 (1980). 

Attorneys' Title as~erts apparent authority requires (1) the· 

principal make statements or act in a manner to make a third party 

believe the agent is authorized to act and, (2) the third party 

relies on the apparent authority to its detriment. The district 

court's instruction on apparent authority is taken from the 

standard Colorado Jury Instructions 2d Civil 7:14 (1980). 2 In 

order to establish apparent authority, the principal's words or 

conduct must cause another reasonably to believe that the agent is 

authorized to act. See Kuehn v. Kuehn, 642 P.2d 524 (Colo. App. 

1981); Russell v. First American Mtg. Co., 39 Colo. App. 360, 565 

P.2d 972, 975 (1977); Zambruk v. Perlmutter 3rd Generation 

Builders, Inc., 32 Colo. App. 276, 510 P.2d 472, 475 (1973); but 

cf. Bemel, 435 P.2d at 409-10 (to establish agency by estoppel 

reliance must be proven). Reliance is defined as a belief which 

motivates an act. See Colorado Jury Instructions 2d Civi1 19:7 

(1980). 3 The reasonable belief element of reliance is contained 

2 

3 

Instruction 7:14 on apparent authority states: 

When a principal by his words or conduct has caused 

another reasonably to believe that the principal has 

authorized his agent to take certain action on the 

principal's behalf, though in fact the principal may not 

have done so, such words or conduct constitute apparent 

authority, and as to the other person is the same as if 

the principal had authorized such action. 

Instruction 19:7 defines reliance as: 

-13-

Appellate Case: 85-2656 Document: 01019598696 Date Filed: 02/14/1989 Page: 13 
in· the district court's instruction on apparent authority. The 

jury's determination that Centennial had apparent authority to act' 

as Attorneys' _Title's agent is also a finding that Richards 

reasonably believed Centennial was authorized to act. After 

viewing the instructions as a whole, we find the district court's 

refusal to include the reliance element in the general _liability 

instruction based on § 261 is not error because the court's 

instruction on apparent authority properly placed the ~ssue before 

the jury. 

Attorneys' Title also asserts Richards did not rely on 

Centennial's authority to receive the sale proceeds in escrow 

because the closing instructions prepared by Richards did not 

discuss escrow of the proceeds. We find no merit to this argument 

because it fails to recognize the general rule that an agent's 

instructions come from the principal and not from the third party 

dealing with the agent. Bank of British N. Am. v. Cooper, 137 

U.S. 473, 478 (1890). 

III. 

Attorneys' Title next asserts the district court improperly 

instructed the jury on the elements of an agency relationship 

because the instruction did not include the element that an agent · 

is "subject to the control of the principal." 

·The plaintiff relied on the claimed representation 

if, believing it t~ be true, he teok action he otherwise 

would not have taken, or decided against taking action 

he otherwise would have taken. 

-14-

Appellate Case: 85-2656 Document: 01019598696 Date Filed: 02/14/1989 Page: 14 
Attorneys' Title concedes the instruction the court gave is 

the standard Cplorado jury instruction defining agency. 4 

"Control'' is not an element in this instruction. This instruction 

is based on the Colorado Supreme Court's holding in Pouppirt v. 

Greenwood, 48 Colo. 405, 110 P. 195, 196 (1910). This instruction 

has been cited with approval by the Colorado Court-of Appeals in 

Cheney v. Hailey, 686 P.2d 808 (Colo. App. 1984). See also 

Shriver v. Carter, 651 P.2d 436 (Colo. App. 1982). Attorneys' 

Title has failed to cite any cases in support of its theory that 

in Colorado a court's instruction defining agency must discuss the 

element of "control." We hold the district court did not err in 

refusing to instruct the jury that an agency relationship is based 

upon control. The instruction given sufficiently defines "agency" 

and is correct. 

IV. 

We conclude the district court properly instructed the jury 

based on § 261. The court did not err in refusing Attorneys' 

Title's instructions on "reliance" and "control." The district 

court's judgment is AFFIRMED. 

4 Colorado Jury Instructions 2d Civil 7:3 AGENCY reads: 

An agency is created by an agreement, written or 

oral, express or implied, by which the persons agree 

that one of them is to act for, or in the place of, the 

other. The person who agrees to act for another is 

called the agent, and the other is called the principal. 

-15-

Appellate Case: 85-2656 Document: 01019598696 Date Filed: 02/14/1989 Page: 15