Court Opinion

ID: 877720
Source: CourtListenerOpinion
Date Created: 2013-06-04 21:39:17.277003+00
Date Added: 2024-06-11T15:42:40.246874
License: Public Domain

No. 81-196
             IN THE SUPREME COURT OF THE STATE OF MONTANA
                               1983

PAUL MALINAK,
                   Plaintiff and Appellant,
    VS.

SAFECO TITLE INSURANCE COMPANY OF
IDAHO, and LINCOLN COUNTY TITLE COMPANY,
                   Defendants and Respondents.

Appeal from:    District Court of the Nineteenth Judicial District,
                In and for the County of Lincoln
                Honorable Robert M. Holter, Judge presiding.
Counsel of Record:
    For Appellant:
          Murray, Kaufman, Vidal and Gordon, Kalispell, Montana
          Leonard L. Kaufman argued, Kalispell, Montana
          S. Y. Larrick argued, Kalispell, Montana
    For Respondents:
          Warden, Christiansen & Johnson, Kalispell, Montana
          Todd A. Hammer argued, Kalispell, Montana
          Murphy, Robinson, Heckathorn and Phillips, Kalispell,
           Montana
          I. James Heckathorn argued, Kalispell, Montana

                             Submitted:   March 31, 1982
                               Decided:    February 25, 1983
Mr. Justice John C.              Sheehy delivered the Opinion of the
Court.

      On    November        9,   1982,    this     Court      issued    an    opinion
holding that the appeal taken by the appellant Paul Malinak
was not timely and we ordered the appeal dismissed.                                 39

St.Rep.     2046.           In   petitioning        for      reconsideration       and
rehearing, Malinak pointed out that this appeal was from a
partial     judgment in the District Court that such partial
judgment        was   not    appealable       until       the   District      Court,
directed the entry of a final judgment and determined that
there     was    no   just       reason     for    delay      under    Rule    54(b),
M.R.Civ.P.,       and that when the District Court did so direct
the entry of final judgment in this case, the appeal had been
timely filed by Malinak.              This Court, in reviewing the steps
taken for appeal as shown in the record, missed that point,
for which this author accepts complete responsibility.                              In
determining the petition for reconsideration and rehearing,
we found that the appeal was timely filed, granted rehearing
and reconsideration, ordered that our opinion of November 9,
1982, be withdrawn, and reinstated the appeal.
      We    come now to consider this appeal on its merits.
Malinak     appeals     from      a   summary      judgment granted           by   the
District Court, Nineteenth Judicial District, Lincoln County,
determining       in effect        that he        had   no    right of       recovery
against the title insurance companies which are defendants in
this case.
      We determine that the summary judgment must be reversed,
and   the     cause    remanded       for    further         proceedings      in   the
District Court.
      Malinak purchased 640 acres of land in Lincoln County,
Montana, in 1970.           At the time he purchased the property, he
was    aware      that     St.    Regis    Paper     Company,      a    New     York
corporation, had rights to timber on the land, although he
was not sure of the extent of those rights.
       In 1973, a St. Regis representative informed Malinak
that a timber reservation owned by St. Regis would expire in
1973, and requested of Malinak a one-year extension.                      Malinak
granted the request of a one-year extension.                       At the same

time, Malinak sought to exchange other timber rights which he
believed were his on the land for additional grazing rights
from St. Regis.
       In 1975, Malinak entered into a contract to sell his
land to Gerald Williams.             Malinak's realtor, Heller-Mark and
Company of Denver, requested a commitment of title insurance
from    Lincoln     County       Title    Company.      The     title     company
conducted a       search of the records in Lincoln County and
prepared    a     commitment for title            insurance through Safeco
Title Insurance Company of Idaho.                  The commitment was dated
July 10, 1975.
       Malinak reviewed the title commitment and advised his
realtors that the exceptions listed in Schedule B of the
title commitment, nos. 6 and 9 were in error.                   Each of these
exceptions on the title commitment related to merchantable
timber claims apparently vested in St. Regis Paper Company
and    to   J.    Neils     Lumber    Company       through   prior      recorded
instruments.        At Malinak's behest, Heller-Mark and Company
requested        Lincoln     County       Title    Company    to       check    the
restrictions, and to delete them.
       Thereafter Lincoln County Title Company prepared a "date
down   endorsement," dated            July    14,    1975,    in which         those
exceptions were deleted.              It delivered the commitment, with
the date down endorsement, to Malinak and Heller-Mark and
Company.
       The sale to Williams fell through and later negotiations
for the purchase of Malinak's property were conducted and a
sale to Lowell L. Novy and Canwood Pacific Land Company was
completed by Mal-inak.          In the transfer, Malinak warranted
title to the lands he was selling to Novy without the timber
reservations, relying on the commitment for title insurance
which he had received.          On December 29, 1975, Safeco Title

Insurance Company of Idaho, through its agent Lincoln County
Title    Company,     issued    its    policy   of   title   insurance    in
accordance with the title commitment as modified by the date
down endorsement.       No exception was noted in the policy for
the timber rights or reservations belonging to St. Regis.
       In the fall of 1977, St. Regis notified Novy of its plan
to cut and remove trees from the land Novy was purchasing
from    Malinak.      Novy     demanded    payment   from    Safeco   Title
Insurance Company for the timber rights on his land.                     On
January 27, 1978, Safeco notified Malinak that if it had to
pay Novy for the timber rights, which Malinak warranted to
Novy, it would seek to he reimbursed by Malinak.                    Malinak
received   a    second letter         from Safeco's associate general
counsel on February 8, 1978, in which Safeco said that it had
retained a Great Falls law firm to research the issue of the
validity   of   St.    Regis'    timber reservations.         The     letter
stated that research showed that St. Regis' claim to the
timber was likely to be valid.
       On March 13, 1978, Malinak intervened as a plaintiff in
Novy's lawsuit to enjoin St. Regis from cutting timber on the
lands sold to Novy.       Malinak also named Lincoln County Title
Company and Safeco Title Insurance Company as defendants.
      Malinak's claim for relief against Safeco and Lincoln
Title     was   for damages           involving    travel    costs, expenses,
attorneys       fees     and    other    damages     which    he    incurred    in
attempting to defend Novy's right to the timber.                       Malinak's
complaint alleges that he relied on the correctness of the
title commitment as amended by the date down endorsement in
warranting all timber rights to Novy.                   Malinak's complaint
sought recovery on the grounds of negligence and breach of
warranty.
      Safeco Title has paid to Novy the value of the timber
rights, and the only remaining parties are Malinak, Lincoln
County Title and Safeco Title Insurance Company.                          Safeco
Title cross-claimed against Lincoln County Title, and both
defendants counterclaimed against Malinak.                    Both defendants
moved for summary judgment on Malinak's claim against them.
On November 26, 1980, the District Court qranted defendants'
motion for summary judgment against Malinak.                       On January 6,
1981,     after    hearing       on     Malinak's    motion    to     amend    the
judgment, the District Court found that there was no just
reason for delay and directed entry of judgment under Rule
5 4 ( b ) , M.R.Civ.P.     From this summary judgment, Malinak timely

appealed.
      A    summary        judgment      is    proper    if    the     pleadings,

depositions, answers to interrogatorj-es, and admissions on
file show there is no genuine issue as to any material fact
and that the moving parties are entitled to a judgment as a
matter of law.         Rule 5 6 ( c ) , M.R.Civ.P.     In this case, Malinak
principally contends (1) that the District Court erred in
determining       that    the    title       insurance companies were          not
liable as a matter of law to Malinak, and (2) that a genuine
and material issue of fact existed as to Malinak's state of
mind with respect to his knowledge as to the status of his
timber rights on the land.          Therefore, Malinak contends that
the summary judgment against him was improper.
        In a recent case, Lipinski v. Title Insurance Company
and Flathead County Title Company (Dec. 23, 1982),                       Mont .

-'      - P.2d -, 39 St.Rep. 2283, this Court held that a
title insurance company was liable to its insured for failure
to determine and disclose certain ditch right easements which
a search of the record title would have revealed.                    Malinak
contends here for a different aspect of the liability of a
title insurance company, that is, liability to the vendor or
seller of the land, for providing to the seller a title
commitment which fails to disclose to the seller defects in
the seller's title, where the seller relies on the title
commitment to warrant the title he is selling.
       Title insurance is a contract to indemnify the insured
against loss through defects in the insured title or against
liens or encumbrances that may affect the insured title at
the time the policy is issued.             Walters v. Marler (Cal. App.
1978), 147 Cal.Rptr. 655, 83 Calk
                                          Yk5&
                                                  .    Undoubtedly the named
insured in a policy may enforce the terms of the contract of
title    insurance    for   defects       in     the    title   conveyed    and

insured.
       A title commitment is in a somewhat different category
from    the   title   policy    that      follows       it.     Ordinarily    a
commitment is ordered          by   the    seller for         the purpose    of
exhibiting it to the buyer as a representation of the quality
of the title seller expects to sell to the buyer.                    A title
commitment naturally        contemplates a             search by   the   title

insurer of the chain of title, an opinion by an expert of
what    the search reveals, a guaranty that the search was
accurate and that the title commitment expresses the quality
of the title of the seller as shown by the record.                  The
person who seeks a title insurance commitment expects to
obtain a professional title search, as well as a professional
legal opinion as to the condition of the title and a guaranty
that the title expressed in the commitment will be insured to
the extent of the policy coverage.          A title commitment does
not propose that the title company will insure the property;
rather that the title company will insure the title.                The
title insurer, of course, does not agree to clear the title;
rather by its commitment, the title company agrees to afford
coverage in a title policy later to be issued insuring the
title according to its commitment.
       The function of a title insurance commitment was not
lost    on   the   California   appellate    court   in   Jarchow   v.
Transamerica Title Insurance (1975), 48 Ca1,App. 917, 122
                                                          24
                                                          A
Cal.Rptr. 470, 485, where it said:
             "When a title insurer presents a buyer with
             both a preliminary title report and a policy
             of     title     insurance,    two    distinct
             responsibilities are assumed.     In rendering
             its first service, the insurer serves as an
             abstractor of title and must list all matters
             of public record regarding the subject
             property in its preliminary report (Hardy v.
             Admiral Oil Company, 56 Cal.2d 836, 841, 16
             Cal.Rptr. 894, 366 P.2d 310; 2 Miller and
             starrc Current. Law of California Real Estate
             (1968), $ 226, at 2m-285). The duty imposed
             upon an abstractor of title is a rigorous one:
             'An abstractor of title is hired because of
             his professional skill, and when searching the
             public records on behalf of a client, he must
             use the degree of care commensurate with that
             professional skill  ..   . The abstractor must
             report all matters which could affect his
             client's interests and which are readily
             discoverable    from   those  public   records
             ordinarily examined when a reasonably diligent
             title search is made.'         (Citing cases)
             Similarly, a title insurer is liable for his
             negligent    failure     to   list    recorded
             encumbrances in preliminary title reports.
                           .
             (Citing cases) "
Jarchow involved the duty of a title insurance company with
respect to the purchaser of property.               The courts of Hawaii
and Alaska have applied to title insurers the duty carefully
to examine and report the title to sellers in Chun v. Park
(Hawaii 1970) , 462 P. 2d 905, 907, and Transamerica Title
Insurance Company v. Ramsey (~laska1973), 507 ~ . 2 d492, 496.
     The title insurers in this case contend that they are
absolved from any liability to Malinak by virtue of the
following clause contained in the title insurance commitment:
             "This Commitment is further conditioned by the
             conditions and stipulations and exclusions
             from coverage of the basic form of the policy
             or policies committed to be issued.        The
             examination of the public records made by
             Company as to the land set out in schedule A
             was   made   wholly    for   determining   the
             insurability of the title to said land and not
             for reporting on the condition of the record."
The foregoing condition of the title commitment is, to say
the least, ambiguous.           It would be difficult for a trained
lawyer      not    to   speak   of    a   layman,   to   distinguish   the
difference between the           "insurability of the title" after
examination of the public records, and the "condition of the
record. "         But we do not rely on the possible ambiguity in
the clause        to determine this        issue.     It is within     the
expectations of the parties, the seller ordering the title
commitment        and   the   title   insurer   inspecting   the   public
records, that the title commitment will accurately reflect
the insurability of the title, or the condition of the public
record, as the case may be, with respect to that title.                We
find a duty on the part of the title insurer when it issues a
title commitment which later forms the basis for a title
insurance policy, particularly where the seller relies on the
title commitment, to base its title commitment and report
upon    a   reasonably    diligent    title   search    of    the    public
records.     A breach of that duty would constitute negligence.
       A second ground, relied upon by the District Court in
granting summary judgment was that Malinak had "knowl.edge" of
the title defects at the time he agreed to convey the land
and to warrant its title to Novy.
       At   the   summary      judgment   stage,   Malinak ' s   possible
knowledge of the defects in his title are not in point.
Barring circumsta.nces amounting to fraud on Malinak's part,
or his possible comparative negligence in conveying the title
when a reasonably prudent person might not do so, Malinak's
knowledge of the      status of his title is irrelevant with
respect to the liability of the title insurer.               It is stated
in Maggio v. Abstract Title and Mortgage Corporation (1950),
277 App.Div. 940, 98 N.Y.S.2d        1011, 1013:

            "In the case of a title insurance policy, the
            insurer undertakes to indemnify the insured if
            the title turns out to be defective. That is
            the purpose of procuring the insurance and
            knowledge of defects in the title by the
            insured in no way lessens the liability of the
            insurer. The doctrine of skill or negligence
            has no application to a contract of title
            insurance."
See also Shotwell v.           Transamerica Title Insurance Company
(Wa. 1978), 91 Wash.2d 161, 588 P.2d 208.
       It is evident that a material issue of fact d.oes exist

as to Malinak's knowledge in the circumstances under which he
conveyed and warranted his title to Novy.
       Accordingly,      the    summary   judgment     entered      by    the
District Court against Malinak is reversed and this cause is
remanded    for   further proceedings       in accordance with           this
opinion.
W e Concur:

      Chief J u s t i c e

          Justices
  --*--7

  District ~ u d ~ 6 6 p ' s i t t i n ~
  f o r M r . J u s t i c e F r a n k B.
  Morrison, Jr.
Mr. C h i e f J u s t i c e F r a n k I . H a s w e l l ,     c o n c u r r i n g i n p a r t and
dissenting in part:
         I   concur       that     summary judgment               is   improper.            It        is

p r e c l u d e d by t h e e x i s t e n c e o f    a genuine i s s u e of m a t e r i a l
facts     as    to     whether       Malinak        had      knowledge        of     the     title

d e f e c t s i n q u e s t i o n a t t h e time he warranted t h e t i t l e t o

         I     strenuously         dissent         from     the    holding         that      title

i n s u r a n c e companies have a d u t y t o conduct a d i l i g e n t s e a r c h
f o r t i t l e d e f e c t s when t h e y i s s u e a commitment t o i n s u r e a

land t i t l e ,     t h a t the seller has a r i g h t t o r e l y thereon t o
t h a t e x t e n t , and t h a t a n a c t i o n f o r damages l i e s i n f a v o r o f
t h e s e l l e r f o r b r e a c h of t h a t d u t y .
         The p u r p o s e of       a   t i t l e s e a r c h by a t i t l e          insurance

company is t o d e t e r m i n e t h e i n s u r a b i l i t y o f           a land t i t l e ,
n o t d e f e c t s of record t h e r e i n .       T h i s is c l e a r from t h e t e r m s

of t h e commitment:
                   "   . . .        The e x a m i n a t i o n o f t h e p u b l i c
                   r e c o r d s made by t h e Company                 . . . was
                   made w h o l l y f o r d e t e r m i n i n g t h e i n s u r -
                   a b i l i t y of t h e t i t l e   .. .       and n o t f o r
                   r e p o r t i n g on t h e c o n d i t i o n of           the
                   record."
         I n my v i e w ,      t h e m a j o r i t y h a v e c r e a t e d a d u t y beyond

t h e s c o p e a n d c o v e r a g e o f t h e commitment.             And a d d i t i o n a l l y ,
t h e y have c r e a t e d a r i g h t of          reliance thereon o u t of                  thin

air.

                                                                        -                        \.
                                                          Chief J u s t i c e

I concur i n t h e f o r e g o i n g .