Michigan Supreme Court
Lansing, Michigan 48909
____________________________________________________________________________________________
C hief Justice Justices
Maura D. Cor rigan Michael F. Cavanagh
O pinion
Elizabeth A. Weaver
Marilyn Kelly
Clifford W. Taylor
Robert P. Young, Jr.
Stephen J. Markman
____________________________________________________________________________________________________________________________
FILED JUNE 25, 2002
CLARENCE G. ARCHAMBO, III,
Plaintiff-Appellant,
v No. 118508
LAWYERS TITLE INSURANCE
CORPORATION and CHEBOYGAN TITLE
COMPANY,
Defendants-Appellees.
BEFORE THE ENTIRE BENCH
MARKMAN, J.
We granted leave to appeal in this case to consider
whether defendants, a title search company and a title
insurer, are liable to plaintiff under a policy of title
insurance, where plaintiff failed to disclose to defendants a
known recorded tax lien as required by the title insurance
commitment, but not required by the subsequently issued title
insurance policy. Following a bench trial, the trial court
ruled in plaintiff’s favor, concluding that the policy is
controlling, and thus that plaintiff is not excluded from
coverage for failing to disclose a known recorded tax lien.
The Court of Appeals reversed the judgment of the trial court
and held that the commitment is controlling, and thus that
plaintiff is excluded from coverage for failing to make such
a disclosure. This Court then remanded this case to the Court
of Appeals for it to consider whether it had erred in relying
on the commitment in light of the integration clause in the
policy. On remand, the Court of Appeals concluded that the
policy “never became effective” because of “plaintiff’s breach
of the conditions precedent in the title insurance
commitment.” We disagree.
The commitment provides that nondisclosure of “any
defect, objection, lien or encumbrance” of which the insured
has “personal knowledge or intimation” shall render the policy
null and void as to that undisclosed “defect, objection, lien
or encumbrance.”1 This language is not, as the Court of
Appeals held, a condition precedent to the effectiveness of
the policy; instead, it attempts to impose a condition
subsequent because, rather than attempting to prevent the
1
For simplicity’s sake and because our resolution of
this case does not require interpretation of the language
“personal knowledge or intimation,” this condition will
hereinafter be described in terms of the nondisclosure of a
known lien.
2
policy from becoming effective, it attempts to render an
already effective policy null and void as to any undisclosed
known liens. Accordingly, plaintiff’s failure to disclose the
known lien did not prevent the policy that the defendants
issued from becoming effective. Further, because the policy
contains an integration clause that evidences an intent to
abrogate the commitment, the policy supersedes the commitment.
Therefore, plaintiff is not excluded from coverage under §
3(b) of the policy for failing to disclose the known tax lien
because the policy does not require such disclosure.
Accordingly, we reverse the decision of the Court of Appeals
and remand this case to that Court to decide whether coverage
is excluded under § 3(a) of the policy, which excludes
coverage for liens “created, suffered, assumed or agreed to by
the insured claimant . . . ,” an issue that was raised by
defendants, but not addressed by the Court of Appeals, given
its conclusion that coverage is excluded under § 3(b).
I. FACTS AND PROCEDURAL HISTORY
Plaintiff was one of three shareholders of a corporation
that was formed in or about 1980 and that has ceased to exist
since 1985. Plaintiff apparently had no role in the payment
of corporate taxes or in the handling of the corporation’s
books and records,2 and thus was unaware that the corporation
2
The corporation installed solar equipment. Plaintiff
testified that his role in this corporation was limited to the
(continued...)
3
had failed to pay its withholding taxes for the year of 1985.
However, because of the corporation’s failure to pay such
taxes, the Internal Revenue Service in 1987 filed a lien
against plaintiff, as well as the other two shareholders.3
After the corporation’s demise, plaintiff formed a new
company. This new company built a home for Victoria Bonus.
In 1992, when a dispute arose regarding Ms. Bonus’ ability to
pay for the home, plaintiff purchased the home from her. At
this point, plaintiff allegedly believed that there was no
longer a tax lien in his name.4
First of America Bank financed plaintiff’s purchase of
the home and obtained title insurance from Cheboygan Title
Company, an agency of Lawyers Title Insurance Corporation,
which failed to discover the tax lien.5 The commitment and
2
(...continued)
installation of such equipment.
3
This tax lien was filed with the Cheboygan County
Register of Deeds in 1987. See MCL 211.663. It is undisputed
that in 1987 plaintiff was aware of this lien and that a
Notice of Federal Tax Lien Under Internal Revenue Laws had
been received by plaintiff.
4
Plaintiff testified that in 1987 he had spoken with an
IRS agent who had told him that the lien would only be valid
for five years. He further testified that, had he known that
there was a valid tax lien in his name, the property he
purchased from Ms. Bonus could have been titled to his company
or to a relative.
5
The bank originally told Cheboygan Title Company that
plaintiff’s name was “Clarence Archambo,” and thus Cheboygan
searched under that name, and did not discover the tax lien
that would have been discovered had they searched under
(continued...)
4
policy ordered by the bank insured plaintiff’s interest as
owner of the home.6 When plaintiff subsequently sold the
property to Mr. and Mrs. Roberts, in 1993, the tax lien was
discovered.7 In order to clear the title, plaintiff had to
borrow money from the bank in order to pay the IRS. Plaintiff
subsequently brought suit against defendants to recover this
payment and the interest that he has had to pay on that loan.
The commitment between the parties required disclosure of
known liens, whether publicly recorded or not.8 It
specifically provided:
This commitment is delivered and accepted upon
the understanding that the party to be insured has
no personal knowledge or intimation of any defect,
objection, lien or encumbrance affecting subject
land other than these set forth herein and in the
title insurance application. Failure to disclose
such information shall render this commitment and
5
(...continued)
plaintiff’s correct name, “Clarence G. Archambo III.”
Plaintiff’s father’s name is “Clarence Archambo.” Cheboygan
was subsequently provided with plaintiff’s correct name before
issuing the policy, but when it searched using plaintiff’s
correct name, it only searched for liens recorded after the
date of the first search, and thus the lien again was not
discovered.
6
Although both plaintiff and First of America were
insured by this policy, only First of America Bank applied for
the policy.
7
The tax lien was filed against plaintiff, but once
plaintiff purchased the property from Ms. Bonus, it attached
to that property. See 26 USC 6321.
8
Given our resolution of this case, we need not address
the effect of the commitment’s apparent attempt to exclude
coverage of recorded defects, objections, liens, or
encumbrances.
5
any policy issued pursuant thereto, null and void as
to such defect, objection, lien or encumbrance.
The subsequently issued policy, however, only required
disclosure of known unrecorded liens.9 The policy also
included an integration clause.10
Following a bench trial, the trial court ruled in
plaintiff’s favor, holding that the policy controlled. The
Court of Appeals, in a split decision, reversed, holding that
the commitment breached by plaintiff in not disclosing the
9
The policy, § 3(b), excludes from coverage liens
not known to the Company, not recorded in the
public records at Date of Policy, but known to the
insured claimant and not disclosed in writing to
the Company by the insured claimant prior to the
date the insured claimant became an insured under
this policy . . . . [Emphasis added.]
10
The policy, paragraph 15, entitled “Liability Limited
To This Policy; Policy Entire Contract,” provides:
(a) This policy together with all
endorsements, if any, attached hereto by the
Company is the entire policy and contract between
the insured and the Company. In interpreting any
provision of this policy, this policy shall be
construed as a whole.
(b) Any claim of loss or damage, whether or
not based on negligence, and which arises out of
the status of the title to the estate or interest
covered hereby or by any action asserting such
claim, shall be restricted to this policy.
(c) No amendment of or endorsement to this
policy can be made except by a writing endorsed
hereon or attached hereto signed by either the
President, a Vice President, the Secretary, an
Assistant Secretary, or validating officer or
authorized signatory of the Company.
6
known tax lien effectively voided the policy. The dissenting
judge stated that the policy controlled because of the
integration clause. Plaintiff filed a motion for rehearing,
which was also denied in a split decision. This Court then
remanded this case to the Court of Appeals,11 which affirmed
its previous decision, with the original dissenting judge
again dissenting. Subsequently, this Court granted
plaintiff’s application for leave to appeal. 465 Mich 884
(2001).
II. STANDARD OF REVIEW
This case involves issues concerning the proper
interpretation of contracts, which are questions of law that
are subject to de novo review by this Court. Henderson v
State Farm Fire and Casualty Co, 460 Mich 348, 353; 596 NW2d
190 (1999).
III. ANALYSIS
A. EFFECTIVENESS OF POLICY
The commitment requires disclosure of all known liens,
while the subsequently issued policy only requires disclosure
of known unrecorded liens. In this case, plaintiff failed to
11
That order provided:
In lieu of granting leave to appeal, the case
is remanded to the Court of Appeals as on rehearing
granted to consider plaintiff’s argument that, in
light of paragraph 15 [the integration clause] of
the policy of title insurance, the Court erred in
relying on the title commitment. [463 Mich 889
(2000).]
7
disclose a known recorded tax lien,12 and thus it can be argued
that he breached the commitment while not breaching the
policy. The Court of Appeals held that the policy never took
effect because of plaintiff’s breach of the commitment. We
respectfully disagree.
MCL 500.7301(d) defines “title insurance commitment” as
“a document issued by a duly authorized title insurer offering
to issue a title insurance policy upon performance of the
conditions set forth in the document.” Thus, a commitment is
an agreement between an insurance company and a potential
insured that, if the potential insured meets certain
conditions, the insurance company will issue a policy. Such
conditions are ones that the insured must meet before the
insurer is obligated to fulfill his contractual duty under the
commitment to issue a policy. In other words, such conditions
relate to whether the insurer must issue a policy to the
insured. Accordingly, such conditions do not serve as
conditions precedent to the effectiveness of a policy; rather,
12
Because we conclude that the policy controls, and thus
that plaintiff was not required to disclose the recorded tax
lien, there is no need to address whether plaintiff “knew” of
the lien. Accordingly, we assume arguendo that plaintiff
“knew” of the lien, despite his contention that, although he
knew of the lien in 1987, he did not know that it continued to
obtain in 1992. We also note that the trial court did not
address this issue because it also concluded that plaintiff
was not required to disclose the recorded tax lien. Although
the Court of Appeals did not expressly address this issue, a
finding of “personal knowledge” is implicit in its conclusion
that defendant breached the commitment by failing to disclose
the lien.
8
they serve as conditions precedent to the insurance company’s
obligation to issue a policy. Therefore, in the normal
situation which, as explained below, we do not deal with here,
when an insured fails to meet one of these conditions, the
insurer has no obligation to issue a policy; but if, despite
this failure, the insurer does issue a policy, the policy is
nonetheless effective.
In this case, the Court of Appeals held that a condition
precedent contained in the commitment was not met, and thus
that the policy never became effective. We do not agree. The
relevant language of the commitment provides that “[f]ailure
to disclose [the known lien] shall render . . . any policy .
. . null and void as to such . . . lien . . .” (Emphasis
added.) First, clearly this is not a condition precedent to
the insurance company’s obligation to issue a policy. The
condition speaks to voiding part of a subsequently issued
policy, not to avoiding the obligation to issue a policy.
Second, this condition is also not a condition precedent to
the effectiveness of the entire policy. That is, if this
condition was not met, the policy would nevertheless become
effective when issued. Rather, this condition is an attempt
to render the policy, as to those liens of which a claimant
had knowledge and failed to disclose, null and void.13 In
13
We use the word “attempt” because, as we explain below,
the policy that was issued expressly superseded the terms of
(continued...)
9
other words, this condition is an attempt to render the policy
null and void, “as to” an undisclosed lien, upon the failure
to disclose such lien. But, it is not an attempt to render
the entire policy null and void “as to” all liens upon such a
failure.
The Court of Appeals majority provided:
In the instant case, the title insurance
commitment contained a specific reservation of
rights to void the policy if plaintiff failed to
disclose the existence of a lien. Plaintiff
acknowledged at trial that he did not disclose the
federal tax lien to his insurers. Therefore,
pursuant to the explicit language of the title
commitment, the resulting policy was void with
regard to the federal lien. [Slip op at 2 (emphasis
added).]
In our judgment, this paragraph contains two inconsistent
statements. First, the Court of Appeals provides that the
failure to disclose the tax lien “void[s]” the policy. But,
in the very next breath, the Court provides that a failure to
disclose only voids the policy “with regard to” the
undisclosed lien, thereby acknowledging that the commitment
did not attempt to render the entire policy void for failure
to disclose. Rather, the commitment merely attempts to
exclude coverage for that undisclosed lien. Accordingly, the
failure to meet this condition does not prevent the issued
13
(...continued)
the commitment. Accordingly, because the policy does not
include such a condition, that condition no longer effectively
exists.
10
policy from taking effect.14
Finally, and most importantly, the condition contained in
the commitment is not a condition precedent of any sort.
Rather, it is an attempt to make null and void some coverages
in a subsequently issued policy after that policy becomes
effective. Hence, it is an attempt at a condition subsequent.
A “condition precedent” is a condition that must be met by one
party before the other party is obligated to perform; a
“condition subsequent” is a condition that, if not met by one
party, abrogates the other party’s obligation to perform. See
8 Corbin, Contracts (rev ed), Conditions, § 30.7, p 14;
14
During oral argument, defendants’ counsel herself
conceded that the policy took effect:
Justice Taylor: But do you agree it leaves the
policy extant? In other words the commitment does
not say failure to meet this condition precedent
ends the policy. It just says it ends coverage as
to the undisclosed lien.
Ms. Powers: I agree with that, Your Honor.
* * *
Justice Young: Are you saying that any defect
in the commitment voids the entire policy? I fail
to disclose one kind of encumbrance and therefore
any policy that issues, whether the policy covers
that defect or not, the whole policy is voided?
Ms. Powers: Not the whole policy, no Your
Honor. I would submit to the Court, as I believe
in response to Justice Markman’s question before
and also Justice Taylor, Your Honor, in this
particular case I agree with the amicus in that the
voiding part of the policy only speaks to the lien
or defect or what have you at issue. It does not
speak to the entire policy.
11
Black’s Law Dictionary (6th ed). In this case, the condition
provided that, if the insured failed to disclose a known lien,
the policy would be rendered null and void as to that
undisclosed lien. Accordingly, this is not a condition
precedent, as the Court of Appeals asserted. It is an attempt
at a condition subsequent. Therefore, the Court of Appeals
erred in concluding that, because this condition was not met,
the policy did not take effect. Rather, after issuing a
commitment, the insurance company issued a policy, and that
policy took effect, despite the insured’s failure to meet the
condition in the commitment.
B. COMMITMENT SUPERSEDED BY POLICY
Because the policy took effect, there are two contracts,
the commitment and the policy. Under the commitment,
plaintiff was required to disclose the known tax lien, even
though it was recorded. However, under the policy, plaintiff
was not required to disclose the known tax lien because it was
recorded. Therefore, the issue is which of these two
contracts is controlling. The issuance of the commitment
preceded the issuance of the policy. Accordingly,
[t]he problem at hand can best be analyzed as a case
of contract substitution. It is hornbook law that
parties to a contract are not forever locked into
its terms. They are at all times free to alter,
amend, or modify their agreement. Moreover, the
parties may execute a substituted agreement which
totally supersedes the terms of the original.
[Lawyers Title Ins Corp v First Federal Savings Bank
& Trust, 744 F Supp 778, 783 (ED Mich, 1990).]
12
In this case, the subsequently issued policy contains an
explicit statement of intent to abrogate the antecedent
commitment. This intent is evidenced by the integration
clause of the policy that provides in paragraph 15(a) that the
policy represents the “entire policy and contract between the
insured and the Company.” Further, paragraph 15(b) of the
policy provides that “[a]ny claim of loss or damage . . .
which arises out of the status of the title to the estate or
interest covered hereby or by any action asserting such claim,
shall be restricted to this policy.” It is clear from these
provisions that the policy was intended to supersede the
commitment.
As the Court of Appeals dissenting judge asserted on
remand:
I do not agree with the majority’s conclusion
that the integration clause, and therefore the
condition of the exclusion that requires that the
lien not be of record to be excluded, can be ignored
because the policy is null and void based on a
clause in the title commitment. The insurance
company issued a policy that purported to contain
the entire agreement of the parties, and which
purported to insure for this lien; plaintiff was
entitled to rely on the policy’s representation that
it embodied the entire agreement of the parties.
The terms of the policy therefore control, and the
inconsistent provision of the earlier title
commitment cannot be relied on to void coverage
because the policy itself grants coverage, and does
not exclude it where the undisclosed lien is of
record. [Slip op at 3.]
Because “an integration clause nullifies all antecedent
agreements,” UAW-GM v KSL Recreation Corp, 228 Mich App 486,
13
499; 579 NW2d 411 (1998), citing 3 Corbin, Contracts, § 578,
p 404,15 when the terms of a commitment and a subsequently
enacted policy conflict and the policy contains an integration
clause, the terms of the policy must control. Lawyers Title,
supra at 783. As observed in UAW-GM, supra at 495:
This conclusion accords respect to the rules
that the parties themselves have set forth to
resolve controversies arising under the contract.
The parties are bound by the contract because they
have chosen to be so bound.
The Court of Appeals majority, on remand, itself recognized
that, if the policy had become effective, the integration
clause would have protected plaintiff.16 See slip op at 3.
15
Subject only to evidence of certain kinds of “fraud (or
other grounds sufficient to set aside a contract) and for the
rare situation when the written document is obviously
incomplete ‘on its face . . . .’” UAW-GM, supra at 495, citing
3 Corbin, Contracts, § 578, pp 402-411.
16
We note that it is not always necessary for a later
contract to contain an integration clause in order for this
later contract to supersede an earlier contract. Rather, if
the later contract covers the same subject matter as the
earlier contract and contains terms that are inconsistent with
the terms of the earlier contract, the later contract may
supersede the earlier contract, unless it appears that this is
not what the parties intended. Joseph v Rottscafer, 248 Mich
606, 610-611; 227 NW 784 (1929). However, where the later
contract contains an integration clause, it cannot be said
that the later contract does not supersede the earlier
contract on the basis that that is not what the parties
intended. Obviously, in such a situation, the integration
clause provides clear evidence to the contrary, i.e., that the
parties did intend the later contract to supersede the earlier
contract. Therefore, the existence of an integration clause
in the later contract necessarily indicates that the parties
intended the later contract to supersede the earlier contract,
and thus provides dispositive evidence with regard to which
contract is controlling.
14
Because we conclude that the policy did become effective,
and because the policy contains an integration clause, we
conclude that the policy supersedes and operates to abrogate
the commitment. Therefore, the commitment and its provision
requiring the disclosure of known recorded liens did not
continue in effect after the formation of the integrated
policy agreement. Accordingly, we must examine the language
of the policy to determine whether plaintiff’s failure to
disclose the known recorded tax lien excludes him from
coverage.17 The policy simply does not require the disclosure
of known recorded liens. Therefore, plaintiff is not excluded
from coverage under § 3(b) of the policy for failing to
disclose the known lien.
IV. CONCLUSION
Despite plaintiff’s failure to disclose the known
recorded tax lien, as required by the commitment, the policy
took effect. Because the subsequently issued policy contains
an integration clause that evidences the parties’ intent to
17
During trial, the president of Cheboygan Title Company,
himself admitted that the policy language controls:
Q. Now, in the policy itself, when a claim was
made, the language in the policy is what we rely
on, isn’t it, as far as denial of claims and so on?
A. Yes, that’s correct.
Q. Not the language in the commitment,
correct?
A. Correct.
15
abrogate the commitment, the policy controls. The policy does
not require the disclosure of known recorded liens, and thus
plaintiff is not excluded from coverage under § 3(b) of the
policy. Accordingly, we reverse the decision of the Court of
Appeals and remand this case to that Court to decide whether
coverage is excluded under § 3(a) of the policy, which
excludes coverage for liens “created, suffered, assumed or
agreed to by the insured claimant . . . .”
CORRIGAN , C.J., and CAVANAGH , WEAVER , KELLY , TAYLOR , and YOUNG ,
JJ., concurred with MARKMAN , J.
16