Rideau v. Stewart Title of California CA4/1

Filed 9/12/13 Rideau v. Stewart Title of California CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

EARL B. RIDEAU et al., D061497

Plaintiffs and Appellants,

v. (Super. Ct. No.
37-2010-00096274-CU-BC-CTL)
STEWART TITLE OF CALIFORNIA, INC.,

Defendant and Respondent.

APPEAL from a judgment of the Superior Court of San Diego County, Jay

Bloom, Judge. Reversed; judgment directed.

Dennis R. Delahanty, a Prof. Corp. and Dennis R. Delahanty for Plaintiffs and

Appellants.

Best Best & Krieger LLP, Robert J. Hanna, Kira L. Klatchko and Shannon M.

Erickson for Defendant and Respondent.
 I.

INTRODUCTION

Earl B. Rideau and Marina Rideau (the Rideaus) entered into an agreement with a

developer, BGJB de Mexico, S. de R.L. de C.V. (BGJB), to purchase a condominium in a

building to be constructed in Mexico. The Rideaus deposited $239,700 toward the

purchase price with an escrow company, defendant Stewart Title of California (Stewart

Title). The escrow instructions provide in relevant part:

"ESCROW HOLDER is authorized and instructed to release funds
as instructed by SELLER . . . without further authorization from
BUYERS; said funds to be disbursed by California Fund Control to
pay direct costs, commissions and construction costs only.
California Fund Control and SELLER have in place, an agreement
where California Fund Control inspects the project site and
authorizes payment of construction costs to contractor, sub-
contractors and suppliers according to a pre-approved voucher
control system."

Stewart Title released the Rideaus' deposit, together with the deposits of other

purchasers, to entities other than California Fund Control, including to BGJB. BGJB

failed to construct the condominium building, and neither Stewart Title nor BGJB

returned the Rideaus' deposit.

The Rideaus brought this action against Stewart Title. Among other claims, the

Rideaus brought causes of action for breach of contract and negligence in which they

alleged that Stewart Title had breached the escrow instructions by releasing their

deposited funds to entities other than California Fund Control. The trial court held a

bench trial, interpreted the escrow instructions, and concluded that, "[Stewart Title] had

2
no obligation to send funds to [California Fund Control]." The court entered a judgment

in favor of Stewart Title on all of the Rideaus' claims.

On appeal, the Rideaus claim that the trial court misinterpreted the escrow

instructions and erred in failing to find that Stewart Title breached the escrow instructions

by releasing their funds to entities other than California Fund Control. With respect to

their negligence claim, the Rideaus argue that Stewart Title breached its duty "to comply

with the [Escrow Instructions]. . . ."

We conclude that the most reasonable interpretation of the escrow instructions is

that they implicitly required Stewart Title to release the Rideaus' funds only to California

Fund Control. In light of this interpretation, we conclude that Stewart Title breached the

escrow instructions by releasing the Rideaus' funds to entities other than California Fund

Control and that the Rideaus were entitled to judgment in their favor on their breach of

contract claim. However, we conclude that the Rideaus cannot prevail on their tort claim

for negligence based on Stewart Title's breach of contractual duties. We reverse the

judgment and direct the trial court to enter a new judgment in favor of the Rideaus on

their breach of contract claim and in favor of Stewart Title on the Rideaus' remaining

causes of action.

3
 II.

FACTUAL AND PROCEDURAL BACKGROUND

A. The first amended complaint

In March 2011, the Rideaus filed a first amended complaint against Stewart Title

and GJL, S. de R.L. de C.V., a Mexican corporation (GJL).1 In the operative complaint,

the Rideaus alleged that on or about May 2, 2007, they entered into a written agreement

(Purchase Agreement) with BGJB, a Mexican corporation, for the purchase of a

condominium in a building to be constructed, called "The Falls" (the Project). The

Project was to be built in the city of Playas de Rosarito, Mexico.

The Rideaus alleged that they entered into this agreement based upon the

assurances of Shane Delmer, a salesperson for the Project. According to the Rideaus,

Delmer told them that their deposits for the purchase of the condominium would be held

in an escrow account with Stewart Title, in the United States. The Rideaus further

alleged that "Stewart Title would distribute the funds to a fund control company [that]

would periodically inspect the project and release the funds on an 'as work is done' basis

utilizing a pre-approved voucher system . . . ."

The Rideaus claimed that a few days after entering in the Purchase Agreement,

they delivered Sale Escrow Instructions (Escrow Instructions), together with an initial

deposit of $5,000, to Stewart Title. According to the Rideaus, they read and reviewed the

Escrow Instructions and concluded that the instructions were consistent with Delmer's

representations concerning the manner by which their deposits would be released. The

1 GJL is not a party to this appeal.
4
Rideaus alleged that on or about June 13, 2007, they wired $234,700—the balance of

their required deposit toward the purchase of the condominium, to Stewart Title.

The Rideaus further alleged that, "Although [BGJB] failed to enter into an

agreement with California Fund Control, defendant Stewart Title failed to request and

obtain further instructions from [the Rideaus] and [BGJB] as to the disposition of the

deposited funds and instead released the deposited funds to [BGJB] or its principals."

The Rideaus also claimed that BGJB failed to commence construction of the Project and

that BGJB would be unable to commence construction in the foreseeable future due to a

lack of funding.

In a negligence cause of action, the Rideaus alleged that Stewart Title negligently

failed to: (1) determine whether BGJB had entered into an agreement with California

Fund Control; (2) to inform the Rideaus regarding the lack of a fund control agreement;

(3) to release the deposited funds only to California Fund Control; and (4) to request

further instructions from BGJB and the Rideaus concerning the release of the deposited

funds if release of the funds to California Fund Control was not possible. The Rideaus

further alleged:

"Plaintiffs were damaged in that they would not have deposited the
funds into escrow or would have demanded the immediate return of
the funds to them had they known no agreement for the
disbursement of the funds by California Fund Control had been
consummated; the deposited funds were not paid over by Stewart
Title to California Fund Control or a similar company that would
ensure that the deposited funds were used to pay 'direct costs,
commissions and construction costs only' as provided for in
the . . . Escrow Instructions; and the Condominium would [sic] not
be constructed and thus the deposited funds will not be applied to the
sale price of the Condominium."

5
 The Rideaus alleged that Stewart Title had refused to return their deposits and that

they had suffered damages in the amount of $239,700 as a result of Stewart Title's

negligence.

In a breach of contract cause of action, the Rideaus incorporated by reference their

previous allegations and contended that Stewart Title had failed to perform its obligations

as set forth in the Escrow Instructions. The Rideaus alleged that Stewart Title's breach of

the Escrow Instructions had damaged them in the amount of $239,700—the amount of

their deposits.2

B. The court trial

After the parties waived their right to a jury trial, the trial court held a bench trial

on the Rideaus' first amended complaint.

1. The Rideaus' evidence

Section IV of the Escrow Instructions provides:

"RELEASE OF FUNDS: From BUYERS['] deposit in escrow,
ESCROW HOLDER is authorized and instructed to release funds as
instructed by SELLER, upon receipt of this signed instruction from
all principals and clearance of BUYERS['] funds, without further
authorization from BUYERS; said funds to be disbursed by
California Fund Control to pay direct costs, commissions and
construction costs only. California Fund Control and SELLER have
in place, an agreement where California Fund Control inspects the
project site and authorizes payment of construction costs to

2 Although not at issue in this appeal, the Rideaus also brought causes of action for
fraud (third cause of action) and breach of fiduciary duty (fourth cause of action) against
Stewart Title, and a third party beneficiary breach of contract claim against Stewart Title
and GJL (fifth cause of action) based on an alleged agreement between GJL and Stewart
Title (the GJL Agreement). The Rideaus alleged that in the GJL Agreement, "Stewart
Title agreed to pay . . . 50% of the [Rideaus'] deposited funds to GJL, and GJL agreed to
pay [the Rideaus] the total amount of the deposited funds . . . ."
6
 contractor, sub-contractors and suppliers according to a pre-
approved voucher control system. The undersigned BUYERS and
SELLER hereby acknowledge that they are aware that Stewart Title,
its officers and employees make no warranty or representation of
any kind or nature, either express or implied, as to the ownership or
condition of title to the property described in this escrow, nor as to
the conditions of this escrow will have been complied with nor will
any document be filed for recording in connection therewith. We,
the undersigned, hereby hold Stewart Title harmless from any
loss or damage which may be sustained by reason of the above
disbursement instruction, and for the failure of any of the
conditions of this escrow, and for the recovery of said money so
released, and agree to defend you against any claims whatsoever
arising from [sic] and [sic] any attorneys fee, expenses or costs
incident thereto." (Emphasis in original.)

The Rideaus presented evidence that they deposited $239,700 with Stewart Title

pursuant to the Escrow Instructions, that Stewart Title distributed the Rideaus' funds to

entities other than California Fund Control, and that Stewart Title had not returned the

Rideaus' deposits.

Earl Rideau also testified concerning his interpretation of the Escrow Instructions,

as follows:

"[I]t was my understanding that the seller . . . according to the
[E]scrow [I]nstructions would instruct the escrow company to
release funds. And then those funds were to be released to
California Fund Control. California Fund Control was the only one
mentioned in the escrow instructions who actually disburses funds.
There's no mention . . . of the funds being disbursed by the escrow
company to the seller or else the fund control is a moot point. [¶]
You're not going to get the developer to give the money back to the
fund control so that they could in turn give the money back to the
developer. That's irrational. That's illogical. So I took it at face
value."

7
 The Rideaus also offered in evidence Delmer's affidavit.3 Delmer testified in

relevant part:

"During 2007, I was employed as an onsite salesperson for [the
Project]. . . . [¶] Typically, during the sales process with a buyer I
would explain how purchases would be conducted. . . . I would
specifically point out that the transaction would require that funds be
placed into escrow with Stewart Title Company. I would then
explain that there would be a voucher system through California
Fund Control to pay for the construction of the project and related
costs of the project. I would explain these procedures to make the
potential buyers feel more comfortable in purchasing real estate in a
foreign country."

The Rideaus offered in evidence the Purchase Agreement between the Rideaus

and BGJB, which provides in relevant part:

"All deposits shall be made payable to Stewart Title. The deposits
shall be withheld and released by Stewart Title in accordance with
the terms of the Escrow Contract.

"Also, the parties agree that the release of the payment of the PRICE
by Stewart Title shall be made in accordance with the Construction
Supervision and Resource Management Contract entered into by (in
process) and [BGJB], through which said company will instruct
Stewart Title to release the PRICE that the BUYERS progressively
pays under this Contract and the progress of the construction of the
Unit."

The Rideaus also presented the expert testimony of Judy Lydick, an escrow officer

and consultant to escrow companies. Lydick offered her opinion concerning what the

Escrow Instructions required of an escrow officer in order for the officer to comply with

the standard of care in the escrow industry. Lydick testified in part:

3 The trial court admitted Delmar's affidavit without objection pursuant to an
agreement between the parties.
8
 "The escrow instructions are created in a format that an escrow
officer really has to choose which portion of those escrow
instructions they're going to abide by. [¶] If I were to receive this
. . . instruction, the first thing I would do, [is] cease . . . sending out
the money until it was clear as to whether the money is to be
released to anyone the seller delegated for the money to go to or
whether the money's going to the California Fund Control."

Lydick also stated that, in her opinion, the Escrow Instructions were "misleading"

if the parties intended to permit Stewart Title to release the deposited funds to BGJB.

The Rideaus also presented the expert testimony of Jeff Katzer, a real estate broker

and former chief executive officer of a bank that specialized in construction lending, who

testified concerning the use of voucher and fund control systems in the construction

finance industry. Katzer testified in relevant part as follows:

"One of the primary components to a construction loan which is
tantamount [sic] to the success of the completion of the project is
that [the] lender enters into a fund control . . . within their own bank,
if they have the facilities to have that system in place, or [they] will
contract with [a] third party independent fund control company.
That company then will evaluate from the cost breakdown and create
stages of disbursements. Those stages of disbursements will be
funded under a voucher system or completion of those stages by
elements of, say, foundation, grading, electrical, things of that
nature.

"Once those agreements are in place and the voucher system is in
place, the lender then will, upon request of the developer for specific
funds to meet a specific line item, those funds will then be released
to the fund control. Fund control will inspect the property.
Determine that they've met the line item component, where the
money went to that contractor or subcontractor [sic] or material
provider. And, in fact, lien releases were in place. Without that
happening, the moneys can go sideways. Developers can get ahead
of the project. [The] project may not be finished on time or
sufficient funds remaining in the loan account to complete the
project."

9
 2. The defense

Stewart Title presented the expert testimony of Donna Grosso, an escrow officer

and manager of an escrow company. Grosso testified concerning whether Stewart Title

had met the standard of care for performing escrow services. Grosso stated that she

interpreted the Escrow Instructions as permitting Stewart Title to release the buyers'

funds upon the seller's instruction, without further limitation. Grosso further testified that

language pertaining to California Fund Control in the Escrow Instructions was "a thing

between the buyer and the seller."

C. The trial court's statement of decision

The trial court issued a statement of decision in which it found for Stewart Title on

all of the Rideaus' causes of action. With respect to the Rideaus' breach of contract cause

of action, the trial court noted that the Rideaus claimed that Stewart Title had breached

the Escrow Instructions in numerous ways, including "failing to release the [Rideaus]

funds to California Fund Control." With respect to the Rideaus' contention that Stewart

Title was required to release their funds only to California Fund Control, the trial court

stated:

"[I]t is claimed the funds should have been released to [California
Fund Control]. However, without any mechanism for such funding,
it is unclear to the court how this should have been done. In
addition, as noted above,[4] the [Escrow Instructions] did not require

4 The trial court apparently was referring to a portion of its statement of decision in
which it stated the following:

"[The Rideaus'] argument assumes [Stewart Title] was to release the
funds upon instruction by the seller and then disburse the funds to
[California Fund Control] under the [Escrow Instructions]. . . .The
10
 [Stewart Title] to release funds to [California Fund Control]. It said
the funds were to be disbursed by California Fund Control."

With respect to the Rideaus' breach of contract claim, the trial court stated the

following:

"Also, if the [Escrow Instructions are] read with consideration of the
language as well as the custom and practice in the industry as
indicated by the defense expert, there is no breach of the [Escrow
Instructions]. The first part of Section IV [of the Escrow
Instructions] indicates the escrow holder is authorized and instructed
to release funds as instructed by seller upon receipt of the signed
[Escrow Instructions] from all principals and clearance of buyers'
funds without further authorization from the buyers. This clause
clearly required the escrow company to release the funds upon order
of the seller without any instruction from the buyer. The next clause
indicating said funds are to be disbursed by [California Fund
Control] does not relate to the escrow company. It states the funds
are to be distributed by California Fund Control[.]

"According to the uncontradicted testimony of the defense expert,
this clause deals with the obligations between the buyer, seller, and
creditors. It has nothing to do with the escrow company."

In addition to finding in favor of Stewart Title on the Rideaus' breach of contract

cause of action, the trial court found in favor of Stewart Title on the Rideaus' causes of

action for negligence, breach of fiduciary duty, and fraud. The court also found that the

Rideaus were not entitled to prevail on their breach of contract claim premised on the

GJL Agreement.

[Escrow Instructions] state[] that the funds are to be disbursed by
[California Fund Control]. It does not state [Stewart Title] was to
send the funds to California Fund Control. Thus, [Stewart Title] had
no obligation to send funds to [California Fund Control]."
11
D. The judgment and the appeal

A few weeks after issuing its statement of decision, the trial court entered

judgment in favor of Stewart Title. The Rideaus timely appealed from the judgment.

III.

DISCUSSION

A. Stewart Title breached the Escrow Instructions by releasing the Rideaus' funds to
entities other than California Fund Control

The Rideaus claim that the trial court erred in failing to find that Stewart Title

breached the Escrow Instructions by releasing their funds to entities other than California

Fund Control. Resolution of the Rideaus' claim requires that we interpret the Escrow

Instructions.

1. Standard of review

We must first determine the appropriate standard of review to apply in

interpreting the Escrow Instructions. In People v. Paredes (2008) 160 Cal.App.4th 496,

507, this court discussed the applicable law governing this determination:

" '[T]he "interpretation of a contract is subject to de novo review
where the interpretation does not turn on the credibility of extrinsic
evidence." ' [Citations.] 'In contrast, "[i]f the parol evidence is in
conflict, requiring the resolution of credibility issues, we would be
guided by the substantial evidence test. [Citation.]" [Citation.]' "
(Id. at p. 507.)

12
 In this case, both parties contend that this court should apply the de novo standard

of review on appeal.5 We agree that, as Stewart Title states in its brief, the trial court's

"conclusions, as expressed in the Statement of Decision, were based on the plain

language of the [Escrow] Instructions," and that the de novo standard of review therefore

applies on appeal.

We acknowledge that the trial court stated that the testimony of Grosso,

concerning the "custom and practice in the industry," supported the court's interpretation

of the Escrow Instructions. However, our review of the record reveals that Grosso's

testimony was not based on extrinsic evidence of the custom and practice in the escrow

industry that might be "admissible to interpret the written words" of the Escrow

Instructions. (Hayter Trucking, Inc. v. Shell Western E&P, Inc. (1993) 18 Cal.App.4th 1,

20.) Rather, Grosso's opinion was based on her own interpretation of the Escrow

Instructions. Grosso stated that her opinion was based on her "read[ing] . . . of the

escrow instructions," and a review of her testimony makes clear that such testimony was

based on an examination of the language of the Escrow Instructions. (See e.g., "[w]e had

a paragraph here that say's we're authorized and instructed to release funds as instructed

by seller"; "[i]t says 'From buyers' deposit in escrow, escrow holder is authorized and

instructed to release funds as instructed by the seller"; "if the seller instructed us to

5 The Rideaus argue, "The interpretation of the . . . Escrow Instructions presents a
question of law for the appellate court to determine anew." Stewart Title argues,
"[I]nterpretation of a contract is reviewed independently on appeal . . . . .The [Escrow]
Instructions here . . . are clear on their face, and it was not necessary for the trial court to
admit, or rely on, nor did the trial court admit or rely on, extrinsic or parole evidence to
interpret them."

13
disburse to California Fund Control, we would do so. But all the instructions state here

[is] it comes from the seller"; "[y]ou have a semicolon after 'buyers' which starts a new

thought process.")

Even assuming that Grosso's testimony was admissible for the purpose of

interpreting the Escrow Instructions (but see Summers v. A.L. Gilbert Co. (1999) 69

Cal.App.4th 1155, 1180 ["[e]xpert opinion on the legal interpretation of contracts has . . .

been found to be inadmissible"]), it is clear that a proper interpretation of the Escrow

Instructions does not turn on the credibility of Grosso's testimony. Thus, we conclude

that the parties are correct that the de novo standard of review applies. (See People v.

Paredes, supra, 160 Cal.App.4th at p. 507.)

2. Governing law

a. The duties of an escrow holder

In Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27

Cal.4th 705 (Summit), the Supreme Court described the duties of an escrow holder as

follows:

" 'An escrow involves the deposit of documents and/or money with a
third party to be delivered on the occurrence of some condition.'
[Citations.] An escrow holder is an agent and fiduciary of the parties
to the escrow. [Citations.] The agency created by the escrow is
limited—limited to the obligation of the escrow holder to carry out
the instructions of each of the parties to the escrow. [Citations.] If
the escrow holder fails to carry out an instruction it has contracted to
perform, the injured party has a cause of action for breach of
contract. [Citation.]" (Id. at p. 711.)

"An escrow holder has an implied obligation to do all of the things normally done

by an escrow agent which were not expressly excluded by the escrow instructions.

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[Citation.] Upon the escrow holder's breach of an instruction that it has contracted to

perform or of an implied promise arising out of the agreement with either party, the

injured party acquires a cause of action for breach of contract. ([Citation]; Claussen v.

First American Title Guaranty Co. (1986) 186 Cal.App.3d 429, 435 [(Claussen)].) As

noted in Claussen, supra, at page 436, '. . . some escrow instructions may be implicit in

the express instructions given. (Gordon v. D & G Escrow Corp. (1975) 48 Cal.App.3d

616, 621-623 [(Gordon)]—escrow instructions implicitly required proceeds of sale to be

paid to both sellers.) In the event of a conflict or apparent error in instructions, the

escrow holder is obliged to take corrective steps before obeying questionable instructions.

[Citations.]' " (Kirk Corp. v. First American Title Co. (1990) 220 Cal.App.3d 785, 807.)

b. Principles of contract interpretation

"Escrow instructions are interpreted under the rules applicable to contracts."

(Claussen, supra, 186 Cal.App.3d at p. 437.)

The general principles of contract interpretation are well established:

" ' "The fundamental rules of contract interpretation are based on the
premise that the interpretation of a contract must give effect to the
'mutual intention' of the parties. 'Under statutory rules of contract
interpretation, the mutual intention of the parties at the time the
contract is formed governs interpretation. [Citation.] Such intent is
to be inferred, if possible, solely from the written provisions of the
contract. [Citation.] The "clear and explicit" meaning of these
provisions, interpreted in their "ordinary and popular sense," unless
"used by the parties in a technical sense or a special meaning is
given to them by usage" [citation], controls judicial interpretation.
[Citation.]' . . ." [Citation.]' [Citation.]" (Minich v. Allstate Ins. Co.
(2011) 193 Cal.App.4th 477, 485.)

15
 In addition, and of particular relevance to this case, is the following statutory rule

of contract interpretation:

"The whole of a contract is to be taken together, so as to give effect
to every part, if reasonably practicable, each clause helping to
interpret the other." (Civ. Code, § 1641.)

This principle is embodied in case law in numerous formulations, all of which

guide our interpretation of the Escrow Instructions. (See e.g., Jones v. Jacobson (2011)

195 Cal.App.4th 1, 18 ["We must view the language of a contract as a whole, avoiding a

piecemeal, strict construction approach"]; Sprinkles v. Associated Indem. Corp. (2010)

188 Cal.App.4th 69, 82 [" '[t]he character of a contract is not to be determined by

isolating any single clause or group of clauses' "]; In re Quantification Settlement

Agreement Cases (2011) 201 Cal.App.4th 758, 799 ["[E]ven if one provision of a

contract is clear and explicit, it does not follow that that portion alone must govern its

interpretation; the whole of the contract must be taken together so as to give effect to

every part"]; Advanced Network, Inc. v. Peerless Ins. Co. (2010) 190 Cal.App.4th 1054,

1063 (Advanced Network) [" 'We must give significance to every word of a contract,

when possible . . .' "]); Hayden v. Robertson Stephens, Inc. (2007) 150 Cal.App.4th 360,

367 [" 'A construction rendering some words surplusage is to be avoided' "].)

3. The Escrow Instructions implicitly required Stewart Title to release the
Rideaus' funds only to California Fund Control

a. The Escrow Instructions

The Escrow Instructions provide in relevant part:

"RELEASE OF FUNDS: From BUYERS['] deposit in escrow,
ESCROW HOLDER is authorized and instructed to release funds as

16
 instructed by SELLER, upon receipt of this signed instruction from
all principals and clearance of BUYERS['] funds without further
authorization from BUYERS; said funds to be disbursed by
California Fund Control to pay direct costs, commissions and
construction costs only. California Fund Control and SELLER have
in place, an agreement where California Fund Control inspects the
project site and authorizes payment of construction costs to
contractor, sub-contractors and suppliers according to a pre-
approved voucher control system."

b. The most reasonable interpretation of the Escrow Instructions is that
they implicitly require that, upon instruction from seller, the escrow
holder release the buyers' funds to California Fund Control for
disbursement by California Fund Control

The signed Escrow Instructions clearly and unambiguously permitted Stewart

Title to release the Rideaus' funds upon an instruction from BGJB and clearance of the

Rideaus' funds. Further, reading the instruction as a whole, as we must (Civ. Code,

§ 1641), the Escrow Instructions implicitly authorized Stewart Title to release the

Rideaus' funds to only one entity—California Fund Control.

To begin with, in the same sentence in which the Escrow Instructions authorize

Stewart Title to release the Rideaus' funds, the instructions state that "said funds" would

be disbursed by California Fund Control. California Fund Control could not disburse

"said funds" without having received those funds. Further, the disbursement clause of the

sentence pertaining to California Fund Control is separated from the remainder of the

sentence pertaining to Stewart Title's release of the funds by only a semicolon. A

semicolon is used to separate parts of a sentence that "are too closely connected to be

made into separate sentences." (Bryan A. Garner, A Dictionary of Modern Legal Usage

(2d Ed. 1995) p. 717.) By using a semicolon and the phrase "said funds," the text and

17
grammar of the Escrow Instructions indicate that Stewart Title was authorized, upon

BGJB's instruction, to release the Rideaus' funds to California Fund Control.

The structure of the Escrow Instructions supports this interpretation. The

references to California Fund Control appear in Section IV of the Escrow Instructions,

entitled "RELEASE OF FUNDS"—the portion of the instructions that expressly imposes

duties on Stewart Title. Further, Stewart Title's contention that it was authorized to

"release funds as instructed by BGJB" without any limitation, would render the bulk of

this section surplusage because if Stewart Title were authorized to release the funds to

any entity merely upon BGJB's instruction, there would be no reason to include any of

the language in the Release of Funds section pertaining to California Fund Control.

An interpretation rendering such a large portion of the Release of Funds section of

the Escrow Instructions surplusage should be avoided. (See National City Police

Officers' Assn. v. City of National City (2001) 87 Cal.App.4th 1274, 1279 ["An

interpretation which renders part of the instrument to be surplusage should be avoided"].)

Rather, we should interpret that portion of the Escrow Instructions authorizing Stewart

Title to "release funds as instructed by SELLER," in light of the remainder of the

sentence, which provides, "said funds to be disbursed by California Fund Control. . . ."

(See In re Quantification Settlement Agreement Cases, supra, 201 Cal.App.4th at p. 799.)

Further, "In determining the meaning of a written instrument, we are permitted to

consider not only its language, but also ' "the circumstances under which [it] was made

and the matter to which it relates." ' " (See PV Little Italy, LLC v. MetroWork

Condominium Assn. (2012) 210 Cal.App.4th 132, 152.) Our interpretation of the Escrow

18
Instructions fully comports with the purpose for which the principals to an escrow

agreement would use a fund control agent. A fund control agent is used to ensure that

funds intended for the construction of real property are actually and properly used by the

owner-builder to construct that property. (See e.g., Summit, supra, 27 Cal.4th at p. 713

["a lender agreed to fund an owner-builder's construction of homes, and to ensure that the

loan funds would actually be used to pay the construction costs, the lender deposited the

funds with the plaintiff fund control agent"].)

The Escrow Instructions expressly provided that the fund control agent (California

Fund Control) would "inspect[] the project site and authorize[] payment of construction

costs to contractor, sub-contractors and suppliers according to a pre-approved voucher

control system." In order for a fund control agent to perform this function, it is essential

that the fund control agent receive the funds that it is to disburse for the payment of

construction costs. The Rideaus' interpretation of the Escrow Instructions is fully

consistent with this purpose: upon instruction from BGJB, the escrow holder was

authorized and instructed to release the Rideaus' funds to California Fund Control for

disbursement by California Fund Control to pay direct costs, commissions and

construction costs.

In contrast, Stewart Title's interpretation of the Escrow Instructions to the effect

that, upon BGJB's instruction, it was authorized to release the funds to any entity that

BGJB selected—including BGJB itself—is completely inconsistent with the purpose of

having a funds control agent disburse the funds. We can think of no reason, and neither

the trial court nor Stewart Title has offered any, as to why principals to an escrow

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agreement who intended to use a fund control agent to disburse funds for a construction

project, would intend to permit the escrow holder to release funds directly to entities

other than the fund control agent. As noted above, the entire raison d'être of a fund

control agent is to act as an intermediary between those funding a construction project

and those building the project. To put it simply, a fund control agent cannot disburse a

project's funds if the builder directs the disbursal of the funds instead.

Stewart Title's contention that references in the Escrow Instructions pertaining to

California Fund Control implicates only BGJB's duty to the Rideaus not only fails to

make practical sense, it is also in conflict with the fact that this language appears in the

Escrow Instructions, which describe and control Stewart Title's release of the funds

deposited into escrow.6

6 Although not material to our decision in light of the applicable de novo standard of
review, we disagree with the trial court's statement that, "According to the uncontradicted
testimony of the defense expert, th[e] clause [pertaining to California fund Control in the
Escrow Instructions] deals with the obligations between the buyer, seller and creditors."
(Italics added.)
The Rideaus' expert testified on this subject as follows:

"If . . . the intent, was to release the money to the seller, then I would
eliminate all verbiage regarding the California Fund Control because
that is misleading. If the money was to be paid to the seller or
someone the seller wanted, all that wording about California Fund
Control would be out . . . and the [Escrow Instructions] would read
that the moneys were to be paid to the seller or someone delegated
by the seller. And then all the information about California Fund
Control shouldn't be there. It's misleading. It gives [the Rideaus] a
false feeling of security."
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 Contrary to Stewart Title's contention, its interpretation finds no support in the

Purchase Agreement. As noted previously, the Purchase Agreement provides in relevant

part:

"[T]he parties agree that the release of the payment of the PRICE by
Stewart Title shall be made in accordance with the Construction
Supervision and Resource Management Contract entered into by (in
process) and [BGJB], through which said company will instruct
Stewart Title to release the PRICE that the BUYERS progressively
pays under this Contract and the progress of the construction of the
Unit."

We reject Stewart Title's suggestion that this provision "unequivocally stated that

BGJB would instruct Stewart Title to release funds." To begin with, the reference to

"said company" in the provision is ambiguous, and may reasonably be read to refer to the

company with which BGJB would enter into a Construction Supervision and Resource

Management Contract, rather than to BGJB itself. In any event, even if "said company"

is interpreted as referring to BGJB, the provision is fully consistent with our

interpretation of the Escrow Instructions that Stewart Title was authorized, upon BGJB's

instruction, to release the Rideaus' funds to California Fund Control. Moreover, the

provision expressly states that "the release of the payment of the PRICE by Stewart Title

shall be made in accordance with the Construction Supervision and Resource

Management Contract." (Italics added.) It is undisputed that BGJB never entered into a

Construction Supervision and Resource Management Contract (i.e. a fund control

agreement). It is thus clear that Stewart Title did not release the Rideaus' deposits "in

accordance with" a fund control agreement. This provision of the Purchase Agreement

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therefore does not support Stewart Title's contention that it complied with the Escrow

Instructions.

3. Stewart Title breached the Escrow Instructions

It is undisputed that Stewart Title released the Rideaus' funds in the amount of

$239,700 to entities other than California Fund Control.7 In light of our interpretation of

the Escrow Instructions provided above, the release of the Rideaus' funds to entities other

than California Fund Control constituted a breach of the instructions.

Accordingly, we conclude that the trial court erred, as a matter of law, in entering

judgment in favor of Stewart Title on the Rideaus' breach of contract cause of action.

B. The judgment may not be affirmed on the basis of the exculpatory provisions in the
Escrow Instructions

Stewart Title contends that the judgment may be affirmed based on the following

provisions in the Escrow Instructions:

"The undersigned BUYERS and SELLER hereby acknowledge that
they are aware that Stewart Title, its officers and employees make no
warranty or representation of any kind or nature, either express or
implied, as to the ownership or condition of title to the property
described in this escrow, nor as to the conditions of this escrow will
have been complied with nor will any document be filed for
recording in connection therewith. We, the undersigned, hereby
hold Stewart Title harmless from any loss or damage which may
be sustained by reason of the above disbursement instruction,

7 For example, during his opening statement at trial, Stewart Title's counsel stated:

"There were disbursements. We will show money was disbursed
pursuant to the seller's instructions, and that those funds went to the
contractor. Everyone, I think, assumed they would go to California
Fund Control. They did not. And the developer later said that they
were incapable of obtaining the loan, and unfortunately, they had
used the money."
22
 and for the failure of any of the conditions of this escrow, and
for the recovery of said money so released, and agree to defend
you against any claims whatsoever arising from [sic] and [sic]
any attorneys fee, expenses or costs incident thereto." (Emphasis
in original.)

Stewart Title argues that it contended in the trial court that these provisions "stated

that Stewart Title would be held harmless from any losses caused by distributing funds in

accord with the [Escrow] Instructions." (Italics added.) Similarly, on appeal, Stewart

Title contends that "the Rideaus agreed that Stewart Title would not be held liable for any

'loss or damage' for disbursing monies in accord with the [Escrow] Instructions." (Italics

added.) Stewart Title also contends, "The hold-harmless clause did not absolve Stewart

Title from wrongdoing or negligence. Instead, the clause protected Stewart Title for

complying with the [Escrow] Instructions. . . ." (Italics added.)

We concluded in parts III.A.2 and III.A.3, that Stewart Title breached the Escrow

Instructions in the manner by which it released the Rideaus' funds. In light of Stewart

Title's acknowledgement that the exculpatory provisions in the Escrow Instructions do

not "absolve Stewart Title from wrongdoing," and apply, if at all, only in the event that

Stewart "compl[ied] with the [Escrow] Instructions," and released funds "in accord with

the [Escrow] Instructions" (italics added), the judgment may not be affirmed on the basis

of these provisions.8

8 In its statement of decision, the trial court expressed its view that the exculpatory
provisions in the Escrow Instructions likely could not be enforced to insulate Stewart
Title from liability:

"[Stewart Title] also alleges that it is not liable because of the hold
harmless clause in the escrow instructions. Although the court does
23
C. The Rideaus are not entitled to reversal of the judgment on their negligence cause
of action

The Rideaus claim that the trial court erred in ruling in Stewart Title's favor on

their negligence cause of action. In support of this contention, the Rideaus argue that

Stewart Title breached its duty "to comply with the [Escrow Instructions] . . . ." This

argument fails because a plaintiff may not prevail on a tort cause of action for negligence

based on the defendant's breach of contractual duties, in the absence of an independent

violation of tort law. (Money Store Investment Corp. v. Southern California Bank (2002)

98 Cal.App.4th 722, 731 (Money Store).) As the Money Store court explained:

"In essence, the Money Store alleges the [escrow holder] breached a
duty to it by failing to perform as specified in the Money Store's
instructions.

not have to reach this issue here, it does not appear the hold harmless
clause would insulate [Stewart Title] from liability. See Diaz v.
United California Bank (1977) 71 Cal.App.3d 161, 171 [(Diaz)];
Akin v. Business Title Corp. (1968) 264 Cal.App.2d 153, 157
[(Akin)]."

In Akin, the court applied Tunkl v. Regents of University of California (1963) 60
Cal.2d 92 (Tunkl), and concluded, on public policy grounds, that "that the exculpatory
clause before us cannot relieve the escrow company from liability." (Akin, supra, 264
Cal.App.2d at p. 159; see also Diaz, supra 71 Cal.App.3d at p. 171 [citing Akin and Tunkl
and stating, "Where the public interest is affected the exculpatory clause will be held
invalid"].)
We need not determine whether the exculpatory provisions in this case could
validly be enforced to exculpate Stewart Title for liability for breaching the Escrow
Instructions, since Stewart Title does not contend that the provisions should be
interpreted in such a fashion.
24
 " 'The Supreme Court has rejected the transmutation of contract
actions into tort actions "in favor of a general rule precluding tort
recovery for noninsurance contract breach, at least in the absence of
violation of 'an independent duty arising from principles of tort law'
[citation] other than the bad faith denial of the existence of, or
liability under, the breached contract." [Citation.]' [Citation.] As
alleged, the Money Store's cause of action for negligence would be
subject to summary adjudication because it does not state a
negligence cause of action apart from its contract cause of action."
(Id. at pp. 731-732.)

In a separate one-sentence section of their brief, the Rideaus also contend that they

are entitled to reversal of judgment on their negligence cause of action because Stewart

Title "fail[ed] to disclose its on-going relationship with [BGJB], the fact that [BGJB]]

was its client, that it met with [BGJB] on several occasions, yet never once spoke to the

Rideaus." The Rideaus fail to present any legal argument or authority in support of this

contention. Accordingly, we deem the contention forfeited. (See, e.g., People ex rel.

Reisig v. Acuna (2010) 182 Cal.App.4th 866, 879 [" 'An appellate brief "should contain a

legal argument with citation of authorities on the points made. If none is furnished on a

particular point, the court may treat it as [forfeited], and pass it without consideration.'

[Citation.]" [Citation.]' "].)

25
 IV.

DISPOSITION

The judgment is reversed and the matter is remanded to the trial court. On

remand, the trial court shall enter a new judgment in favor of the Rideaus on their breach

of contract cause of action and in favor of Stewart Title on the remaining causes of action

in the first amended complaint, in a manner consistent with this opinion. The trial court

may also conduct any further ancillary proceedings that it deems necessary in order to

enter the judgment. The Rideaus are entitled to costs on appeal.

AARON, J.

WE CONCUR:

McCONNELL, P. J.

O'ROURKE, J.

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