Opinion ID: 1353789
Heading Depth: 1
Heading Rank: 3

Heading: Transamerica Title Insurance Company Vis-a-vis The Macdonald Group

Text: In this action, the superior court granted Joseph F. and Marilynn C. Macdonald, G.E. Stein, J.M. Lancaster and L.N. Christian, cotenants in the real estate (the Macdonald group), judgment in the sum of $104,178.12, plus interest, costs and attorneys' fees against Transamerica Title Insurance Company. This judgment was awarded on plaintiff Macdonald group's claim that, while participating in arrangements for the sale of the land to Equity Investors and the subsequent construction loan, it was a victim of Transamerica's asserted breach of fiduciary obligation as an escrow agent and negligent handling of the escrow. Joseph F. Macdonald and his wife by contract had purchased the project real estate in two parcels, the first in 1966 for $42,500, and the second in 1967 for $15,000, making a total purchase price obligation of $57,500. The Macdonald group, as cotenants in the real estate, after an intermediate agreement to sell, not relevant here, sold the real property through Joseph Macdonald to Equity Investors for about $160,000 on December 30, 1968, payable under a contract which called for payments of $1,000 per month. Equity Investors, a limited partnership, consisting of Richard Walsh and Brama Construction, Inc., as general partners, arranged with Central Savings Bank to purchase a first mortgage loan which the parties assumed would ultimately be made by another finance institution for the construction of the 220-unit apartment complex upon the property. On completion of the project in accordance with this series of agreements  which we have described only in part  the Macdonald group would finally receive about $165,810.34 for the same property which they had acquired in 1966 and 1967 at a price of $57,500. In April, 1969, Equity Investors and Macdonald established an escrow with Transamerica Title Insurance Company as escrow holder and at that time left with Transamerica a set of escrow instructions dated April 25, 1969, that explicitly stated they would become void after May 10, 1969. These escrow instructions contemplated that an irrevocable security be established to protect the financial institution which would ultimately undertake to make the construction loan. Equity Investors, to secure the Macdonald group's interests in the real estate, had executed as grantors what was designated a second deed of trust, dated December 31, 1968, to Transamerica as trustee, naming the Macdonald group as beneficiaries. Attached to this second deed of trust was a rider signed by Equity Investors as grantor, Transamerica Title as trustee, and individually by members of the Macdonald group as beneficiaries, which stated that the second deed of trust was subject to a First Mortgage (or First Deed of Trust) running to National Bank of Washington ... in the original amount of $1,850,000.00. Beneficiaries agree that this document shall not be placed of record until the said First Mortgage has been duly recorded. The Macdonald group thus had actual knowledge that no money would be loaned by the National Bank of Washington, and its associates, unless the Macdonald group's interest in the land was explicitly made subordinate in some manner to the lender's interests. This second deed of trust and attached rider were filed for record May 15, 1969, at the office of the county auditor at the request of Transamerica Title Insurance Company, some 5 days after the first set of escrow instructions left by Macdonald were to become void. The basic question, thus, is whether Macdonald knew, or should be charged as a matter of law with knowing, that the bank would not proceed to advance the loan under the construction loan agreement unless its security was unconditionally superior to that of the Macdonald group. On May 7, 1969, 3 days before the first set of instructions left by Macdonald and Equity Investors with Transamerica was by its terms to become void, Mr. Macdonald read the construction loan agreement in which the National Bank of Washington agreed to lend Equity Investors $1,750,000 for the construction of the apartment house complex. This construction loan agreement stated, like the rider to the second deed of trust, that the loan was to be secured by a Deed of Trust which shall be a first lien on the unencumbered, marketable, fee simple, absolute title to the property. (Italics ours.) As a matter of law, this language, we think, must be deemed clear, definite and certain; it unmistakably declares that the bank did not intend to and would not lend $1,750,000 for the construction of the apartment house complex unless its loan was to be a first and absolutely prior lien upon the property. Mr. Macdonald thus, with knowledge of the contents of the rider and the construction loan agreement, met his attorney, Mr. Best, at the Transamerica office, where the attorney, on Mr. Macdonald's behalf, examined the escrow instructions and other papers in connection with the escrow. Macdonald's attorney required certain changes to be made in the deed of trust and rider thereto, and had Macdonald execute the papers. These escrow instructions which Macdonald then signed were directed to Transamerica as escrow holder, and provided that the Macdonald deed of trust should be filed for record later than the mortgage which would be given to secure the construction loan. And, as noted, the rider to the Macdonald deed of trust contained conditions as to its subordination. May 12, 1969, the National Bank of Washington delivered to Transamerica Title Insurance Company its escrow instructions specifying that the deed of trust which the bank held as security for the $1,750,000 loan  with option for an increase of $100,000  must become a first and prior lien upon the property. Transamerica at that time as escrow agent held a deed of trust from Equity Investors to the bank, dated May 6, 1969, which it had recorded at the county auditor's office May 9, 1969. To effectuate the bank's categorical condition that its security interests be a first and prior lien and to comply with the bank's escrow instructions and at the same time confine its liability as the insurer of the bank's title, Transamerica prepared the subordination agreement form now before us for signature by the Macdonald group. It was the execution of this subordination agreement form by the Macdonald group on May 14, 1969, that provided the basis for awarding plaintiffs judgment on the theory of a breach of fiduciary trust. Mr. Randy Stenesen, Transamerica escrow officer, after preparing the form, called plaintiff Macdonald on the telephone to tell him that the closing papers were ready at Transamerica's office. Mr. Macdonald went to Transamerica's office where Mr. Stenesen told him that Transamerica would have to have the escrow instructions signed, and handed him the subordination agreement purporting to make the Macdonald group's lien on the real estate unconditionally inferior and junior to that of the National Bank of Washington's lien for the loan. Mr. Stenesen did not advise Mr. Macdonald as to the legal effect of the two instruments, nor did he otherwise counsel him about the transaction, or advise him that the effect of the documents in any way differed from the prior agreement of the parties. Mr. Stenesen did make clear, however, that the escrow arrangement depended upon the documents being signed and returned to Transamerica, and he left no doubt that the entire escrow would not be consummated without them. Mr. Macdonald took the proposed escrow instructions and the subordination agreement to his home and without consulting his attorney, Mr. Best, or any other attorney, had his wife sign them and returned them several hours later that day to the Transamerica office. Subsequently that same day, two other members of the Macdonald group went to the Transamerica office and signed the escrow instructions and the subordination agreement. The Macdonald deed of trust was recorded May 15, 1969, after the recordation of the bank's deed of trust on May 9, 1969. The Macdonald group claimed damages against Transamerica on the theory that Transamerica had breached its duties as a fiduciary by exceeding its authority as an escrow agent, had changed the nature of the transaction to their detriment and damage, and had negligently failed to protect their interests in the escrow as ultimately arranged. Construction was brought to a halt before the project reached completion, leaving many construction liens unpaid. In resolving the numerous claims of priority following the halt of construction, the trial court held that the Macdonald group's deed of trust was junior and inferior to that of the National Bank of Washington and, thus, their interest in the land forfeited by operation of law. In Macdonald's suit against Transamerica, the trial court sustained the Macdonald contentions of breach of fiduciary duty and negligence and awarded them judgment against Transamerica. The execution of the subordination agreement and second set of escrow instructions explicitly laid to rest any possible attack the Macdonalds could make against the priority of the bank's lien. Damages were awarded these plaintiffs against Transamerica in lieu of their claimed loss of priority to the bank. In essence, the court held that not only had Transamerica been negligent, but that it had breached a fiduciary duty in failing to point out to Macdonald the legal operation and effect the escrow instructions and subordination agreement would have as to the priority of their deed of trust against the bank's deed of trust. The award of damages was based, inter alia, upon finding No. 48 [1] which we think a mixed finding of fact and conclusion of law. [2] Joseph F. Macdonald was no novice in dealing in land, nor were the other three members of the Macdonald group completely uninitiated. The four, all engineers, had worked together at the Boeing Company, and prior to the instant transactions had purchased about 181 acres of land near Portland, as an investment for future resale. Joseph F. Macdonald, nominal head of the group, had made several purchases of land  amounting to about 12 parcels  prior to acquiring an interest in the property at issue in this case. He had read books on real-estate investment and had actually drafted documents in connection with real-estate transactions. In the present case, he had actively participated in the drafting of the second earnest money agreement, a real-estate contract, the escrow instructions, and helped draft a rider to the deed of trust similar to the rider to exhibit No. 8. He acknowledged on the witness stand that he made a practice of reading carefully all legal documents in which he had an interest. There was no claim made that anyone connected with Transamerica had committed any fraud or deceit upon or made misrepresentation to or overreached the Macdonald group. Liability was predicated, as we understand the record, upon a composite breach of duty to alert them to the changes made by the proffered documents, and to inform them of the legal effects of the subordination agreement and the escrow instructions  the very documents which Macdonald had taken to his home for his wife's signature and returned hours later to Transamerica's office. It was the failure to advise and counsel Macdonald that the trial court regarded as a breach of fiduciary duty. We think that the facts as found by the court do not warrant a conclusion of either negligence or breach of fiduciary duty. The Macdonald group was fully advised that the National Bank of Washington would not lend the $1,850,000, or thereabouts, except upon a bedrock assurance that its security constituted a first, senior and prior lien to that of any other titleholders or claimants. The Macdonald group, as we have noted, had earlier individually signed an instrument (plaintiff's exhibit No. 8) entitled Second Deed of Trust, dated December 31, 1968, in which Equity Investors, as grantor, conveyed through Transamerica Title Insurance Company, as trustee, to the Macdonald group as beneficiary, the real property in issue. This second deed of trust had a rider annexed to it which declared expressly that the Macdonald group's interests would be junior and inferior to that of the lending bank. This rider, signed individually by Joseph F. and Marilynn Macdonald, G.E. Stein, J.M. Lancaster and L.N. Christian, by his attorney in fact, George E. Stein, in express language subordinated the Macdonald group's interests to those of the bank. The rider annexed to the second deed of trust stated that it would be Subject to a First Mortgage (or First Deed of Trust) running to National Bank of Washington, Tacoma, Washington, and/or Central Savings Bank of New York, N.Y. and/or their assigns, in the original amount of $1,850,000.00. Beneficiaries agree that this document shall not be placed of record until the said First Mortgage has been duly recorded. The escrow instructions, signed by both Joseph F. and Marilynn C. Macdonald, and G.E. Stein and L.N. Christian, through his attorney in fact George E. Stein, stated that: The undersigned authorizes Transamerica Title Insurance Company to record said Deed of Trust and agrees to pay for Mortgagee's policy insuring said Deed of Trust to be Second only to that certain Deed of Trust to National Bank of Washington. Finally, the instrument  the subordination agreement  which categorically declared the bank's interests to be prior and senior to those of the Macdonald group and subordinated the Macdonald group interests in the real property to that of the bank's, made its purpose and legal effect clear in unmistakable definitive language. This was the subordination agreement form handed to Mr. Macdonald by Transamerica's representative, Mr. Stenesen, at Transamerica's offices when Transamerica's Mr. Stenesen informed Mr. Macdonald that the escrow could not be closed without it. That instrument, when executed, on its face served to carry out the very subordination of interests which had so markedly characterized the earlier instruments. Mr. Macdonald, as noted, took this from Mr. Stenesen to his home where he had it in his possession several hours before returning it to Transamerica with his and his wife's signatures affixed to it. He did not, as he had done on earlier occasions with respect to other escrow papers and documents related to this transaction, submit it or the escrow instruction documents to his attorney, Mr. Best, nor seek his or any other attorney's advice or counsel with respect to them. The language of the subordination agreement, a 1-page instrument, was clear, definite and explicit. Not surprisingly, it was entitled in bold, black type at top center Subordination Agreement. Under this caption in three lines of nearly equal size to that of the title, and much larger than the type of the body of the instrument was this caveat: NOTICE: THIS SUBORDINATION AGREEMENT RESULTS IN YOUR SECURITY INTEREST IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT. And just above the dotted lines for the signatures in type as large as that of the first notice, was this final caveat: NOTICE: THIS SUBORDINATION AGREEMENT CONTAINS A PROVISION WHICH ALLOWS THE PERSON OBLIGATED ON YOUR REAL PROPERTY SECURITY TO OBTAIN A LOAN A PORTION OF WHICH MAY BE EXPENDED FOR OTHER PURPOSES THAN IMPROVEMENT OF THE LAND. IT IS RECOMMENDED THAT, PRIOR TO THE EXECUTION OF THIS SUBORDINATION AGREEMENT, the parties consult with their attorneys with respect thereto. (Italics ours.) These two caveats and the title Subordination Agreement were of such a size type as to occupy nearly one-third of the space taken up by the body of the entire 1-page instrument. It was signed, as we have observed, by Macdonald, his wife and the three other members of the Macdonald group. No person of ordinary understanding, even on a most cursory examination, could possibly have mistaken the subordination agreement's import, nor questioned that it put the Macdonald group's interests in the land in a position junior and subordinate to the interests of the National Bank of Washington. Where, then, was the breach of fiduciary duty, or negligence, upon which liability was found? [3] We agree with the rules as stated by the Macdonald group defining the characteristics and governing the responsibilities of escrow holders. An escrow holder is an agent. Radach v. Prior, 48 Wn.2d 901, 297 P.2d 605 (1956); Angell v. Ingram, 35 Wn.2d 582, 213 P.2d 944, 15 A.L.R.2d 865 (1950); Sanwick v. Puget Sound Title Ins. Co., 70 Wn.2d 438, 423 P.2d 624, 38 A.L.R.3d 315 (1967). Whether he be designated escrow agent or escrow holder, or both, makes little difference in law; the important thing is that as an agent, holder, or trustee for the parties (28 Am.Jur.2d Escrow § 1 (1966)), he occupies a fiduciary relationship to all parties to the escrow. As an agent, trustee or holder, the escrow holder owes a fiduciary duty to his principals in the same way that all agents are held to such standards. Cantwell v. Nunn, 45 Wash. 536, 88 P. 1023 (1907); Westerbeck v. Cannon, 5 Wn.2d 106, 104 P.2d 918 (1940); 28 Am.Jur.2d Escrow § 16 (1966); Restatement (Second) of Agency § 14 D, Reporter's n., Appendix (1958). The escrow agent's duties and limitations are defined, however, by his instructions. The rule on this point is well stated at 30A C.J.S. Escrows § 8 (1965): The duties of a depositary or escrow holder are those set out in the escrow agreement.... As a general rule, the escrow holder must act strictly in accordance with the provisions of the escrow agreement; he must comply strictly with the instructions of the parties, and it is his duty to exercise ordinary skill and diligence, and due or reasonable care in his employment. In his fiduciary capacity, he must conduct the affairs with which he is entrusted with scrupulous honesty, skill, and diligence. Thus, it is the rule that an escrow agent or holder becomes liable to his principals for damage proximately resulting from his breach of the instructions, or from his exceeding the authority conferred on him by the instructions. Sanwick v. Puget Sound Title Ins. Co., supra ; Kirby v. Woolbert, 48 Wn.2d 141, 291 P.2d 666 (1955). The damages were awarded here solely upon a claim of negligence and breach of fiduciary duty. When narrowed down to the acts or omissions upon which the claim was based, it consisted of submitting to Mr. Macdonald a new set of escrow instructions to replace the first set which he had prepared but which had expired by their very terms, and in handing him the subordination agreement for the signatures of the members of that group without orally advising him of its legal effect or orally directing him to consult a lawyer. Putting Transamerica's actions, arguendo, in the poorest light possible, and regarding them most favorably toward the Macdonald group, as a matter of law we cannot find where in these acts Transamerica breached any fiduciary duty created by the escrow arrangement or acted negligently toward the Macdonald group. There was, as we have earlier observed, no claim of fraud, deceit, misrepresentation or overreaching and none shown even by inference. Mr. Stenesen's statements to Macdonald when he turned over to him the subordination agreement and the escrow instructions for ultimate signature did not misrepresent the effect of them in any way. He did no more than inform Macdonald that he needed them in order to close, that is, to consummate, the transaction for which the escrow had been established. Significantly, Transamerica knew that Macdonald had sought and received the advice of his attorney, Mr. Best, with respect to the escrow papers and transactions earlier signed by the Macdonald group. Mr. Stenesen had no reason to believe that Macdonald would not, if he believed it to his benefit, consult Mr. Best again concerning the new escrow instructions and the subordination agreement. That Macdonald felt in no need of any such further consultation is reflected in his testimony that he knew that the agreement made the group's interests subordinate to a loan. Transamerica, of course, was not authorized to practice law nor under any duty to advise Macdonald to consult further with his own lawyer. But aside from these considerations, Macdonald was in no position to repudiate his own signature, freely affixed with time and opportunity for consultation and reflection, upon a document well within his grasp and understanding. He had himself prepared his first escrow instructions  actually had typed them  which by their own terms expired and became void May 10. He was aware of the rider to the second deed of trust which expressly subordinated the Macdonald group's interests to those of the lending bank; he  to Transamerica's knowledge  had sought out and been advised by his own lawyer. And he had sufficient time and opportunity to consult with his lawyer further with respect to the two documents given him on May 14 by Mr. Stenesen to take home for whatever study he desired. If Transamerica had presumed to give Macdonald legal advice, it would have violated two basic professional precepts: The practice of law by an unauthorized and unlicensed person, and the intrusion of one professional consultant upon the affairs of another without the latter's knowledge and consent. The very document which placed the bank's superior position beyond cavil  though perhaps not required  in the legitimate discharge of its fiduciary duty, directly counseled the proposed signers to see their attorney. Plaintiffs here would impose upon Transamerica a duty toward its escrow principals to engage in the practice of law which that corporation had neither the legal right nor the requisite learning to do. See In re Droker & Mulholland, 59 Wn.2d 707, 370 P.2d 242 (1962); and Andersen v. Northwest Bonded Escrows, Inc., 4 Wn. App. 754, 484 P.2d 488 (1971). [4] It is a general rule that a party to a contract which he has voluntarily signed will not be heard to declare that he did not read it, or was ignorant of its contents. Perry v. Continental Ins. Co., 178 Wash. 24, 33 P.2d 661 (1934). One cannot, in the absence of fraud, deceit or coercion be heard to repudiate his own signature voluntarily and knowingly fixed to an instrument whose contents he was in law bound to understand. Plaintiff Macdonald, being not only a person of ordinary understanding but one with more than ordinary experience in land transactions and instruments of conveyance and security, and with time and opportunity both to consult with an attorney and to inspect the instruments before signing, cannot now be heard in law to repudiate his signature. The whole panoply of contract law rests on the principle that one is bound by the contract which he voluntarily and knowingly signs. As we said in Lake Air, Inc. v. Duffy, 42 Wn.2d 478, 480, 256 P.2d 301 (1953): Appellant had ample opportunity to examine the contract in as great a detail as he cared, and he failed to do so for his own personal reasons. Under these circumstances, he cannot be heard to deny that he executed the contract, and he is bound by it. and we would adhere to the principle stated in Johnston v. Spokane & I.E.R.R., 104 Wash. 562, 569, 177 P. 810 (1919), that It would be impossible for a person of ordinary intelligence, much less a person of the intelligence and ability of appellant, to have misunderstood the contents of this instrument upon a casual reading thereof ... We have always held that a party whose rights rest upon a written instrument which is plain and unambiguous, and who has read or had the opportunity to read the instrument, cannot claim to have been misled concerning its contents or to be ignorant of what is provided therein. This aspect of this case is, therefore, reversed with directions to enter judgment for appellant Transamerica Title Insurance Company and against plaintiffs Macdonald, Stein, Lancaster and Christian and such other parties plaintiff as may have been a part of the Macdonald group.