Case Name: CITICORP SAVINGS OF ILLINOIS, Plaintiff-Appellant, v. STEWART TITLE GUARANTY COMPANY, Defendant-Appellee
Court: United States Court of Appeals for the Seventh Circuit
Jurisdiction: United States
Decision Date: 1988-02-22
Citations: 840 F.2d 526
Docket Number: No. 87-1225
Parties: CITICORP SAVINGS OF ILLINOIS, Plaintiff-Appellant, v. STEWART TITLE GUARANTY COMPANY, Defendant-Appellee.
Judges: Before CUDAHY and COFFEY, Circuit Judges, and NOLAND, Senior District Judge.
Reporter: Federal Reporter 2d Series
Volume: 840
Pages: 526–535

Head Matter:
CITICORP SAVINGS OF ILLINOIS, Plaintiff-Appellant, v. STEWART TITLE GUARANTY COMPANY, Defendant-Appellee.
No. 87-1225.
United States Court of Appeals, Seventh Circuit.
Argued Nov. 4, 1987.
Decided Feb. 22, 1988.
Martin E. Hauselman, Liebling & Hau-selman, Chicago, Ill., for plaintiff-appellant.
Mitchell S. Goldgehn, Greenberg, Keele, Lunn & Aronberg, Chicago, Ill., for defendant-appellee.
Before CUDAHY and COFFEY, Circuit Judges, and NOLAND, Senior District Judge.
The Honorable James E. Noland, Senior District Judge of the Southern District of Indiana, is sitting by designation.

Opinion:
CUDAHY, Circuit Judge.
in May 1979, James D. Haggerty & Co. sold some real estate to Charles Robinson. The parties executed a mortgage securing a note for the bulk of the purchase price. Defendant Stewart Title Guaranty Company ("Stewart Title") issued an insurance policy to Haggerty, insuring against loss sustained due to "[t]he invalidity or unen-forceability of the lien of the insured mortgage upon said estate_" Supplementary Appendix of Appellee at 4 (hereinafter "Appendix"). Haggerty immediately assigned the mortgage and note to a predecessor of plaintiff, Citicorp Savings of Illinois, which had financed the transaction.
Some time later, Citicorp was notified that Robinson had been adjudicated incompetent in May 1953, 26 years before the purchase. A conservator (now referred to as "guardian" by the relevant Illinois statutes) was appointed. Robinson was not restored to legal competency prior to May 1979.
Citicorp notified Stewart Title of the apparent policy breach. Stewart Title and the guardian arranged for transfer of title by quitclaim deed to Stewart Title in exchange for $1,550.91, Robinson's down payment on the property. The probate court accepted this agreement, and the property was transferred to Stewart Title.
Stewart Title tendered the deed to Citi-corp. Citicorp refused to accept the deed, saying that tender was not a valid option under the policy and Citicorp was entitled to $27,000 damages due to the unenforce-ability of the mortgage lien. Citicorp then filed this action in July 1986 for breach of the policy.
Both parties filed summary judgment motions. Noting that this ease involves only the construction of documents, the district court granted Stewart Title's summary judgment motion and denied Citi-corp's motion. Citicorp Sav. v. Stewart Title Guar. Co., No. 86 C 4833 (N.D.Ill. Jan. 12, 1987). In granting Stewart Title's motion, the court held that "by tendering title to the plaintiff, the defendant has given the plaintiff everything to which it was entitled." Id., transcript at 4. The court also stated that the guardian may have affirmed the mortgage by transferring the property to Stewart Title, id. at 3, but made clear in a hearing on Citicorp's motion to reconsider that this was not a basis of the decision. See Citicorp Sav. v. Stewart Title Guar. Co., No. 86 C 4833, transcript at 4 (N.D.Ill. Feb. 6, 1987) ("I granted summary judgment because I believe that the defendant has tendered to you all that you are entitled to.") Citicorp appeals. Applying Illinois law, we reverse.
I.
Under the federal rules, summary judgment is appropriate where the pleadings and supplemental materials "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R. Civ.P. 56. This case presents one disputed issue of fact — whether the guardian ratified Robinson's agreement — but that issue is not material to the outcome, as will be discussed below.
The case boils down to two disputes over construction of the insurance policy. First, the parties disagree about whether the policy was breached. Second, if the policy was breached, the parties cross swords over whether tendering the deed cured that breach. The district court's disposition of the second question made resolution of the first unnecessary. Since we disagree with Judge Marshall on the second issue, we consider both issues in turn.
II.
If a contract entered into by an incompetent were void as a matter of law, the parties would probably not be before us today. Obviously if Robinson could not contract, the mortgage lien was unenforceable and invalid. Life, unfortunately, is rarely so simple.
Under Illinois law, "[e]very . contract by any person for whom a plenary guardian has been appointed or who is adjudged to be unable to so contract is void as against that person and his estate, but a person making a contract with the person so adjudged is bound thereby." Ill.Rev. Stat. ch. IIOV2, para, lla-22 (1985). In lawyer's parlance, the contract is "voidable." See, e.g. Brandt v. Phipps, 398 Ill. 296, 315, 75 N.E.2d 757, 766 (1947); Jordan v. Kirkpatrick, 251 Ill. 116, 120, 95 N.E. 1079, 1080 (1911). The guardian of the incompetent person is free to enforce or reject the contract. Thus, the question presented is whether a voidable mortgage lien constitutes "invalidity or unenforce-ability of the lien" under the policy.
It is helpful to begin by noting the principles used by Illinois courts to construe insurance policies. See generally National Fidelity Life Ins. Co. v. Karaganis, 811 F.2d 357, 361 (7th Cir.1987) (discussing Illinois rules of insurance policy interpretation). Obviously, where the policy language is clear, it is to be given its plain and ordinary meaning. Id. However, "if a provision of an insurance contract can reasonably be said to be ambiguous it will be construed in favor of the insured and against the insurer, who was the drafter of the instrument." United States Fire Ins. Co. v. Schnackenberg, 88 Ill.2d 1, 4, 57 Ill.Dec. 840, 842, 429 N.E.2d 1203, 1205 (1981); see also National Fidelity, 811 F.2d at 361; Goldblatt Bros., Inc. v. Home Indem. Co., 773 F.2d 121, 125 (7th Cir.1985). "A term is ambiguous if it is subject to more than one reasonable interpretation." National Fidelity, 811 F.2d at 361.
We find that on the facts of this case the policy is ambiguous. One plausible interpretation, urged on us by Stewart Title, is that a voidable mortgage is not necessarily invalid or unenforceable, since the guardian could choose to enforce it against Citicorp. Another reasonable construction, pressed by Citicorp, is that the lien was unenforceable ab initio by Citi-corp, since a voidable mortgage lien cannot be enforced by the mortgagee and the policy was intended to ensure that Citicorp could enforce the lien.
Either of these interpretations is reasonable. When one examines the purposes of title insurance, it becomes clear that Citi-corp's construction is not only correct under mechanical application of the interpretive canons, but is also probably what the parties intended when they entered the agreement. More precisely, it is probably what they would have intended had they given any thought to this unique problem.
Put most simply, "[t]he purpose of a title insurance policy is . to protect a purchaser of real estate against title surprises." Pohrer v. Title Ins. Co., 652 F.Supp. 348, 352 (N.D.Ill.1987). The mortgagee relies on the title insurer's expertise in checking public records; the lender parts with a great deal of money in reliance upon the insurer's guarantee that the lien is valid. Cf. 9 J.A. Appleman & J. Appleman, Insurance Law and Practice § 5201 (1981). "Thus he expects the insurer to have researched the applicable law, as well as the records, before issuing the commitment and to provide him with areas in which he might find surprises—not to itself surprise him with the use of ambiguous clauses." Pohrer, 652 F.Supp. at 353; see also McLaughlin v. Attorneys' Title Guar. Fund, Inc., 61 Ill.App.3d 911, 916, 18 Ill.Dec. 891, 895, 378 N.E.2d 355, 359 (3d Dist.1978).
As a practical matter, Citicorp would not have extended $27,000 credit to Robinson on the basis of a voidable mortgage. No lender would do so. Citicorp gave Robinson $27,000 on Stewart Title's promise that the mortgage lien was enforceable by Citi-corp. In actuality, at that time Citicorp could not enforce the lien. It could only do so at some future date if Robinson's guardian affirmed the lien's validity. In May 1979, Citicorp's lien was unenforceable, regardless of whether the guardian later ratified it.
Stewart Title breached the policy's guarantee of the mortgage's enforceability, and Citicorp is therefore entitled to $27,000 in damages, the amount they gave Robinson in reliance upon Stewart Title's guarantee, unless tender of the deed cured the defect.
III.
The next question, resolved by the district court in Stewart Title's favor, is whether Stewart Title's tender of a quitclaim deed to Citicorp cured the policy breach. The relevant policy provision states that no claim is payable if Stewart Title, after notice, "removes such defect, lien or encumbrance and establishes the title, or the lien of the insured mortgage, as insured_" Policy para. 7, Appendix at 10. The district court held that tendering the deed gave Citicorp everything to which it was entitled. It is not clear whether Judge Marshall meant that the deed was an effective substitute for damages or that it satisfied the cure provision. Construing the provision in light of the entire policy, we disagree with both interpretations.
First, it is worth noting that nowhere in the policy does it state that the insurer may tender the property's deed in lieu of damages. Stewart Title can cite no case allowing that remedy. Indeed, the policy contains an explicit provision governing "Determination and Payment of Loss." Policy para. 6, Appendix at 9. That provision is drafted solely in monetary terms. By implication, damages are not payable in real estate, any more than they are payable in potatoes or colored beads.
More important, tender is an imperfect substitute for damages in this case. Citi-corp loaned $27,000, and the land was worth at least $27,000 in May 1979. By the time Stewart Title tendered the deed, however, the land may have been worth much less due to changes in market value. The policy was breached in 1979, and the loss became fixed at that time. Stewart Title should therefore bear any risk of market value decline in the property after that time. This supports our conclusion that the parties could not have intended tender of the real estate to be an acceptable substitute for damages.
That determination leaves us with the most difficult question: whether tendering the deed "established] . the lien of the insured mortgage, as insured_" Policy para. 7, Appendix at 10. As a practical matter, the policy was intended to ensure that, if Citicorp needed to foreclose on the mortgage, it would be able to do so. Stewart Title contends that since foreclosure would give Citicorp the property, tendering the deed in effect established the mortgage lien.
While Stewart Title's argument is reasonable, ultimately it fails. The "insured mortgage" is defined in the policy as Citi-corp's mortgage on Robinson's interest in the property. That lien was unenforceable by Citicorp at its inception. Had Stewart Title informed Citicorp of that fact, the thrift would not have loaned Robinson $27,-000. The "Limitation of Liability" provision was intended to allow the insurer to cure a defect in the lien, for example by obtaining a subordination agreement from an undiscovered senior lienor. See, e.g., 9 J.A. Appleman & J. Appleman, supra p. 5, at § 5214. In this instance, no action by Stewart Title could have established the mortgage lien as insured, since we concluded, supra p. 530, that voidable title was one of the risks insured against by Stewart Title. The policy was irrevocably breached and the loss incurred as soon as Citicorp loaned Robinson the money. It is one thing to say that the policy allows Stewart Title to correct defects in a lien's priority. It is quite another to contend that Stewart Title may "correct" a voidable mortgage, which the mortgagee would never have entered had it been informed of the voidability, by tendering a deed to the property years later. Tender does not remove the fact that no money would have changed hands but for Stewart Title's mistake.
As a practical matter, Stewart Title failed in its duty to check the lien's validity. It now seeks to have us stretch the policy's language so that Citicorp bears the costs of sale plus any decline in the property's value, even though without Stewart Title's mistake Citicorp never would have loaned any money to Charles Robinson. This proposed reading of the policy taxes credulity and is inconsistent with the notion that an insurance policy should be construed to effect the ex ante intentions of the parties. Stewart Title could have drafted a policy that in plain language achieved the result it desires. It clearly did not do so and ought not to gain through strained "interpretation" what it failed to earn in the drafting. We therefore reverse the grant of Stewart Title's motion, and remand with directions to grant summary judgment in favor of Citicorp, with damages of $27,000. Stewart Title is of course free to sell the property to mitigate its losses.
IY.
Because of our disposition of this case, we must reach one further question. Both here and in the district court, Citicorp has requested the award of attorney fees and punitive damages under Ill.Rev.Stat. ch. 73, para. 767 (1985), and the award of prejudgment interest under Ill.Rev.Stat. ch. 17, para. 6402 (1985). Both statutes require as a condition of the award that withholding of payment be "unreasonable and vexatious." This is a close case and we deny these supplemental remedies.
In short, we hold that Stewart Title breached its policy by failing to discover Robinson's incompetence and that tender of a quitclaim deed to Citicorp did not cure that breach. Therefore, we Reverse and Remand for entry of judgment for Citicorp in the amount of $27,000.
Reversed and Remanded.
. The pertinent policy provision provides:
[Stewart Title] insures . against loss or damage not exceeding the amount of insurance stated in Schedule A and costs attorneys fees and expenses which the Company may become obligated to pay hereunder, sustained or incurred by the insured by reason of
5. The invalidity or unenforceability of the lien of the insured mortgage upon [the estate described in Schedule A]....
Appendix at 4. Schedule A to the policy lists the amount of insurance as $27,000, and describes the insured estate or interest as a fee simple vested in Robinson. Id. at 5. The "insured mortgage" is described as Robinson's mortgage granted to Haggerty to secure a $27,000 debt. Id.
. Hereinafter Citicorp Savings of Illinois and its predecessors will be referred to collectively as "Citicorp."
. In addition, the trustee may, with court approval, "execute and deliver any bill of sale, deed or other instrument." Ill.Rev.Stat. ch. 1101/2, para. lla-18(b) (1985). That action, distinct from ratification of the contract, was taken by the guardian here in order to transfer the property to Stewart Title. We need not decide whether that action constituted a decision to affirm the validity of the mortgage, although we note that the guardian stated the contract was "void," and tendering the quitclaim deed was consistent with an intent to "undo" rather than ratify the transaction.
. Our interpretation of the policy makes a remand to determine whether Robinson's guardian affirmed the contract unnecessary. As a matter of law, Stewart Title breached the policy regardless of any later conduct by the guardian.
. The provision reads in relevant part:
7. LIMITATION OF LIABILITY
No claim shall arise or be maintainable under this policy (a) if the Company after having received notice of an alleged defect, lien or encumbrance insured against hereunder, by litigation or otherwise, removes such defect, lien or encumbrance and establishes the title, or the lien of the insured mortgage, as insured....
Appendix at 10.
. Citicorp stated at oral argument that this is true, but it is not evident from the district court record.
. The insurer was, of course, free to sell the property after payment of the loss. See Policy para. 10, Appendix at 10.
. Stewart Title does not dispute that the property was worth at least $27,000, the policy limit, in May 1979.