MacDonald v. Lawyers Title Insur

UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

DAVID R. MACDONALD; THOMAS P.
ONDECK, on their own behalf and on
behalf of all the partners of BOM
Associates Limited Partnership,
Plaintiffs-Appellees,
No. 95-1219
v.

LAWYERS TITLE INSURANCE
CORPORATION,
Defendant-Appellant.

DAVID R. MACDONALD; THOMAS P.
ONDECK, on their own behalf and on
behalf of all the partners of BOM
Associates Limited Partnership,
Plaintiffs-Appellants,
No. 95-1220
v.

LAWYERS TITLE INSURANCE
CORPORATION,
Defendant-Appellee.

Appeals from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Claude M. Hilton, District Judge.
(CA-94-706)

Argued: September 28, 1995

Decided: March 15, 1996

Before RUSSELL, Circuit Judge, CHAPMAN,
Senior Circuit Judge, and BEATY, United States District Judge for
the Middle District of North Carolina, sitting by designation.
Affirmed by unpublished per curiam opinion.

_________________________________________________________________

COUNSEL

ARGUED: F. Douglas Ross, ODIN, FELDMAN & PITTLEMAN,
P.C., Fairfax, Virginia, for Appellant. Richard A. Gross, ROSEN-
MAN & COLIN, Washington, D.C., for Appellees. ON BRIEF:
J. Mark Young, ROSENMAN & COLIN, Washington, D.C., for
Appellees.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

This action arises from a mistake made by Lawyers Title Insurance
Corporation ("Lawyers Title") when it issued a title insurance com-
mitment to BOM Associates Limited Partnership ("BOM"). Due to its
own error, Lawyers Title neglected to except six mechanics liens
encumbering the property on which it issued the commitment. When
Lawyers Title subsequently refused to issue a title insurance policy
according to the terms of the commitment, the plaintiffs brought this
action against Lawyers Title. The district court granted summary
judgment in favor of the plaintiffs and awarded damages based on the
cost of removing the six mechanics liens from the property. Both par-
ties appeal the judgment of the district court. Finding no merit in
either parties' argument, we affirm the judgment of the district court.

I.

David R. MacDonald and Thomas P. Ondeck were limited partners
in Merrifalls Plaza Limited Partnership, which owned property known
as Merrifalls Plaza (the "Property"). The Merrifalls Plaza Limited

2
Partnership borrowed money from Ameribanc Savings Bank
("Ameribanc") and made two promissory notes payable to Ameribanc
in the amount of $2,800,000 and $156,000. These notes were secured
by two deeds of trust against the Property.

Before lending this money to the Merrifalls Plaza Limited Partner-
ship, Ameribanc had obtained title insurance on the Property, which
served as the collateral for the promissory notes. Ameribanc pur-
chased its policy from Chicago Title Insurance Company ("Chicago
Title"), which issued a title insurance policy to Ameribanc only after
MacDonald and Ondeck had first agreed to indemnify Chicago Title
for any loss associated with this title insurance policy.

The Merrifalls Plaza Limited Partnership defaulted on the notes.
William Casterline (the "Trustee"), the substitute trustee under the
two deeds of trust, made preparations to foreclose on the Property.
The Trustee ordered a title insurance commitment from Real Title
Company, Inc. ("Real Title"), an agent of Lawyers Title. Real Title
reviewed the title and prepared a report, which listed six mechanics
liens filed against the Property. Nevertheless, Real Title issued to the
Trustee a Lawyers Title Commitment for Title Insurance (the "Com-
mitment"), effective June 4, 1993, without excepting any of the six
liens from its commitment.

The Trustee sent notices to interested parties and advertised the
foreclosure sale. Before the date of the sale, one of the lienholders
informed the Trustee that he wanted to assert a claim against the
Property. This lienholder was one of the six whose liens were not
excepted in the Commitment. The Trustee notified Real Title that the
lienholder had asserted a claim and that the foreclosure sale was
scheduled for July 8, 1993. Neither Real Title nor Lawyers Title
responded before July 8. Relying on the Commitment, the Trustee
proceeded with the foreclosure sale despite the lienholder's assertion
of a claim against the property. BOM Associates ("BOM") was the
high bidder. MacDonald and Ondeck were limited partners in BOM
Associates.

After the foreclosure sale, Real Title issued a revised title commit-
ment in which it excepted the six mechanics liens. BOM, however,
demanded that Lawyers Title issue insurance based on the original

3
Commitment. Lawyers Title refused to issue such an insurance pol-
icy.

BOM subsequently contacted Chicago Title to inquire whether it
could avail itself of coverage under the title insurance policy that Chi-
cago Title had issued to Ameribanc. Chicago Title agreed that, under
the continuation of coverage provision, BOM could succeed to
Ameribanc's rights under the Chicago Title policy. However, it
reminded BOM that MacDonald and Ondeck had agreed to indemnify
it for any losses and expenses incurred.

Chicago Title expended $85,551.01 to remove the six mechanics
liens against the Property. Three of the liens were invalid. The other
three liens were settled for $12,000.00, $12,500.00, and $35,000.00.
Legal fees and costs accounted for the remaining $26,051.01. There-
after, Chicago Title filed an action against, inter alia, MacDonald and
Ondeck to enforce the indemnity agreement and to recover the
$85,551.01 it expended. MacDonald and Ondeck settled that suit by
paying Chicago Title $83,986.45.

MacDonald and Ondeck, on their own behalf and on behalf of
BOM, brought this action against Lawyers Title for breach of its title
insurance commitment. In Count I of its complaint, the plaintiffs sued
for $154,606.92, representing the face value of the six mechanics
liens encumbering the Property at the time of the foreclosure sale. In
Count II of its complaint, the plaintiffs sued for the $83,986.45, repre-
senting the amount MacDonald and Ondeck paid to Chicago Title as
indemnification for its expenses in removing the six mechanics liens
from the Property.

The district court granted summary judgment in favor of the plain-
tiffs in the amount of $83,986.45. Lawyers Title has appealed. The
plaintiffs have filed a cross-appeal, arguing that the district court
should have awarded damages in the amount of $154,606.92. We
address each argument in turn, but we find no merit in any of the
arguments.

II.

This Court reviews de novo the district court's granting or denying
of summary judgment. Lone Star Steakhouse & Saloon, Inc. v. Alpha

4
of Virginia, Inc., 43 F.3d 922, 928 (4th Cir. 1995). Summary judg-
ment is appropriate where the record shows that"there is no genuine
issue as to any material fact and that the moving party is entitled to
a judgment as a matter of law." Fed. R. Civ. P. 56(c).

A.

In its primary argument on appeal, Lawyers Title concedes for the
sake of argument that it had an obligation to issue title insurance and
to cover the costs of removing the six mechanics liens. Lawyers Title
argues that, notwithstanding its obligation, BOM has no claim against
Lawyers Title because BOM suffered no damages from Lawyers
Title's breach of its title insurance commitment.

Lawyers Title justifies its position by explaining the case in the fol-
lowing way. BOM, as the purchaser of the Property at the foreclosure
sale, was the beneficiary of the Lawyers Title's title insurance com-
mitment issued to the Trustee. When Lawyers Title refused to issue
a title insurance policy conforming to the commitment, BOM could
have sued Lawyers Title for its breach. Lawyers Title, however, chose
another course of action: it sought coverage under the title insurance
policy that Chicago Title had issued to Ameribanc. Chicago Title
extended coverage to BOM and removed the six mechanics liens from
the Property at a cost of $85,551.01. Thus, to Lawyers Title's fortuity,
BOM took clear title to the Property without incurring any expenses
of its own. According to Lawyers Title, BOM had a choice between
suing Lawyers Title under the title commitment issued to the Trustee
or suing Chicago Title under the title policy issued to Ameribanc;
BOM simply elected to pursue its remedy against Chicago Title.

Lawyers Title mischaracterizes the facts. Chicago Title did not
remove the mechanics liens from the Property at no expense to BOM.
BOM, through MacDonald and Ondeck, paid to have them removed.
Although Chicago Title issued a title insurance policy on the Prop-
erty, Chicago Title never assumed any risk under that policy. Chicago
Title agreed to issue a policy only after MacDonald and Ondeck first
agreed to indemnify Chicago Title for any loss incurred on the policy.
In effect, Chicago Title's policy was nothing more than a retention of
Chicago Title's services to handle any litigation required to remove

5
any liens on the Property. Ultimately, MacDonald and Ondeck had to
pay for the cost of clearing title.

Lawyers Title insists, however, that we must distinguish between
BOM as a corporate entity and MacDonald and Ondeck as individual
persons. BOM, not MacDonald and Ondeck, was the beneficiary of
Lawyers Title's commitment. BOM, not MacDonald and Ondeck,
sought coverage under Chicago Title's title insurance policy.
Although MacDonald and Ondeck, in their individual capacities, had
to indemnify Chicago Title for the costs of removing the mechanics
liens from the Property, BOM itself did not have to indemnify Chi-
cago Title.

We find Lawyers Title's argument to be overly-formalistic. Mac-
Donald and Ondeck were limited partners of BOM and co-presidents
of BOM's general partner. Clearly, MacDonald and Ondeck directed
the actions of BOM. When Lawyers Title breached its Commitment,
MacDonald and Ondeck could have directed BOM to remove the
liens at its own expense and then sue Lawyers Title for breach of its
Commitment. Presumably, MacDonald and Ondeck thought they
were doing just that when they had Chicago Title remove the liens,
indemnified Chicago Title in their individual capacities, and then sued
Lawyers Title for damages. For purposes of this case, we conclude
that the formalism of the corporate structure should not prevent us
from merging the interests of BOM with those of MacDonald and
Ondeck.

Thus, when Lawyers Title breached its Commitment, BOM elected
to remove the liens on the Property at its own expense. BOM asked
Chicago Title to clear title to the Property, knowing that it--through
MacDonald and Ondeck--would have to indemnify Chicago Title for
its expenses. Chicago Title did not do BOM any favors; BOM's lim-
ited partners had to pay $83,954.45 to remove the liens from the Prop-
erty. The plaintiffs therefore had a legitimate action against Lawyers
Title for its breach of its Commitment.

B.

Lawyers Title also argues that it had no duty to issue title insurance
because the Trustee did not satisfy the conditions precedent to the

6
issuance of title insurance. See Lerner v. The Gudelsky Co., 334
S.E.2d 579, 584 (Va. 1985) (holding that "[a] party seeking to recover
on a contract right must allege and prove performance of any express
conditions precedent upon which his right of recovery depends").
Schedule B, section 1 of the Commitment provides that:

This company must be furnished with proof that the foreclo-
sure proceedings were carried out in accordance with appli-
cable statutes and the terms and provisions of the Deed of
Trust.

Lawyers Title maintains that the Trustee did not meet this condition
precedent because the foreclosure proceedings were not carried out in
accordance with the applicable statutes. Specifically, Lawyers Title
argues that (1) the Trustee did not advertise the foreclosure proceed-
ings as required by statute, and (2) William Casterline, the Trustee,
began foreclosure proceedings before he was appointed to his posi-
tion.

Lawyers Title correctly maintains that the Trustee did not comply
with Virginia's requirements for advertising a foreclosure sale. Under
Virginia law, a trustee overseeing a foreclosure sale must advertise
the sale once a week for four consecutive weeks, unless the deed of
trust provides otherwise. Va. Code Ann. § 55-59.2(A)(2) (Michie
1995). Because the Deeds of Trust in the instant case contained no
provision governing the advertisement of a foreclosure sale, the
Trustee was required to place four advertisements of the foreclosure
sale. However, the Trustee placed advertisements on only two days:
June 28, 1993 and July 6, 1993.

Despite the Trustee's failure to properly advertise the foreclosure
sale, the Trustee nonetheless carried out the foreclosure sale in accor-
dance with Virginia law. Section 55-59.2(E) specifically provides that
"[f]ailure to comply with the requirements for advertisement con-
tained in [§ 55-59.2] shall, upon petition, render a sale of the property
voidable by the court." Va. Code Ann. § 55-59.2(E) (Michie 1995).*
_________________________________________________________________
*The Virginia General Assembly enacted § 55-59.2(E) in 1992 in
response to the Virginia Supreme Court's decision in Deep v. Rose, 364

7
Because nobody challenged the validity of the foreclosure sale, the
sale was legitimate despite the lack of proper notice.

Lawyers Title also argues that William Casterline, the Trustee,
began foreclosure proceedings before he was appointed to his position
as Trustee. Casterline was appointed to his position as Trustee by two
documents, each entitled Deed of Appointment of Substitute Trustee,
entered into by BOM and Ameribanc. The two documents were dated
June 24, 1993, and were signed by BOM on that same day. However,
before Ameribanc had a chance to sign the documents, which it did
on June 29, 1993, Casterline began foreclosure proceedings. Specifi-
cally, Casterline placed the first advertisement of the foreclosure sale
and sent the required fourteen-day notices of sale to interested parties.

We do not reach the question of whether Casterline was vested
with the Trustee's powers on June 24, 1993 or June 29, 1993. Instead,
we conclude that, even if Casterline had exercised the powers of
Trustee before his actual appointment, the foreclosure sale was none-
theless carried out in accordance with Virginia law. We have already
stated that, under § 55-59.2(E), the failure to comply with the adver-
tisement requirements of § 55-59.2 renders a foreclosure sale void-
able, not void. Thus, even if Casterline did not have the authority to
advertise the foreclosure sale on June 28, 1993, the foreclosure sale
was still valid. Nobody challenged Casterline's authority to place that
advertisement, just as nobody challenged the fact that the foreclosure
sale was advertised only twice, instead of the required four times.

Similarly, the foreclosure sale was valid even if Casterline did not
have the authority to send fourteen-day notices of sale to interested
_________________________________________________________________
S.E.2d 228 (Va. 1988), in which the court held that the failure to comply
with the advertisement requirement of § 55-59.2(A)(1) rendered the for-
feiture sale void. The requirement at issue in Deep provided that "the
[forfeiture] sale shall be held on any day following the day of the last
advertisement which is no earlier than eight days following the first
advertisement nor more than thirty days following the last advertise-
ment." Va. Code Ann. § 55-59.2(A)(1) (Michie 1995). The enacting of
§ 55-59.2(E) ensured that the violation of any of the advertisement
requirements in § 55-59.2 would render the forfeiture sale voidable, not
void.

8
parties. Section 55-59.1(A) of the Virginia Code requires the "trustee
or the party secured" to send notices of the foreclosure sale to certain
interest parties "no less than fourteen days prior to such sale . . . ."
Va. Code Ann. § 55-59.1(A) (Michie 1995). However, § 55-59.1(C)
expressly provides that the "[f]ailure to comply with the requirements
of notice contained in this section shall not affect the validity of the
sale, and a purchaser for value at such sale shall be under no duty to
ascertain whether such notice was validly given." Va. Code Ann. §
55-59.1(C) (Michie 1995). Thus, the foreclosure sale was valid even
if Casterline did not have the authority to send the notices of sale to
interested parties.

Despite any errors in the advertisement and notice of the foreclo-
sure sale, BOM was the valid purchaser of the Property. Lawyers
Title cannot use the technical errors of the foreclosure sale to escape
its duty to issue a title insurance policy on the Property.

C.

Lawyers Title also argues that it had no duty to issue title insurance
because the Commitment did not identify either the proposed insured
or the amount of the policy. The Commitment expressly states:

This Commitment shall be effective only when the identity
of the proposed insured and the amount of the policy or pol-
icies committed for have been inserted in Schedule A hereof
by [Lawyers Title], either at the time of the issuance of this
Commitment or by subsequent endorsement.

Schedule A of the Commitment merely stated that each was "to be
determined." Because the identity of the proposed insured and the
amount of the policy were never identified on Schedule A, Lawyers
Title argues that the Commitment never took effect.

The parties stipulated that "[i]t is the customary practice in Virginia
that when a foreclosing trustee obtains a commitment for title insur-
ance prior to foreclosure, the named insured and amount of the policy
are left open to be determined by the high bid at the foreclosure sale."
Statement of Stipulated Fact 7 (J.A. 45). The parties followed the cus-
tomary practice in this case.

9
Despite the parties' adherence to the customary practice, Lawyers
Title argues that the Commitment nonetheless failed to identify the
proposed insured and the amount of the policy. A court should not
consider extrinsic evidence when interpreting an unambiguous con-
tractual provision. See Schneider v. Continental Casualty Co., 989
F.2d 728, 731 (4th Cir. 1993). A contract is ambiguous if it is capable
"of admitting of two or more meanings, of being understood in more
than one way, or of referring to two or more things at the same time."
Berry v. Klinger, 300 S.E.2d 792, 796 (Va. 1983). Thus, Lawyers
Title argues, we must follow the unambiguous language of the Com-
mitment and conclude that the Commitment never took effect because
the proposed insured and the amount of the policy remained unidenti-
fied.

We reject Lawyers Title's position. The unambiguous provision of
the Commitment was satisfied: the Commitment identified the pro-
posed insured with the words "To Be Determined" and the amount of
the policy with the words "AMOUNT TO BE DETERMINED." By
using these words instead of leaving these provisions of Schedule A
blank, the parties to the Commitment indicated that they had reached
some sort of agreement as to the identity of the proposed insured and
the amount of the policy. What is ambiguous is the meaning the
words "to be determined." When we consider the customary practice
in Virginia, however, it is clear what the parties meant. The identity
of the proposed insured and the amount of the policy are determined
by the high bid at the foreclosure sale. The intention of the parties
would have been clearer if Lawyers Title had stated on Schedule A
that the proposed insured is "the high bidder at the July 8, 1993 fore-
closure sale" and that the amount to be insured is "the amount of the
high bid at the July 8, 1993 foreclosure sale." Nonetheless, we find
that, given the customary practice in Virginia, Lawyers Title's short-
hand phrases sufficiently identified the proposed insured and the
amount of the policy.

We also reject Lawyers Title's position because its interpretation
of the contractual language would render the Commitment illusory.
Lawyers Title completed Schedule A of the Commitment, designating
the proposed insured and the amount to be insured with the ambigu-
ous expressions "To Be Determined" and "AMOUNT TO BE
DETERMINED," respectively. At the foreclosure sale on July 8,

10
1993, the proposed insured and the amount to be insured became
clear. But, Lawyers Title never completed its ministerial duty of
inserting the name and amount in Schedule A of the Commitment.
Even when it issued a revised Commitment on July 12, 1993, it still
stated that the proposed insured and the amount of the policy were to
be determined. Under Lawyers Title's interpretation of the Commit-
ment, Lawyers Title had the unilateral power to invalidate the con-
tract by simply neglecting to carry out its own ministerial duty.

We refuse to interpret the Commitment in a way that renders the
whole contract void. See Wilson Mushroom Co. v. Davis Distribs. Inc.
(In re Davis Distribs., Inc.), 861 F.2d 416, 419 (4th Cir. 1988) (citing
Newport News Shipbuilding & Drydock Co. v. United States, 226
F.2d 137, 142-43 (4th Cir. 1955), which stated "a construction which
would render the provision of a contract of doubtful validity is to be
avoided, if another reasonable construction can be placed upon it");
Island Creek Coal Co. v. Lake Shore, Inc., 832 F.2d 274, 277 (4th
Cir. 1987) (citing Cordovan Assocs., Inc. v. Dayton Rubber Co., 290
F.2d 858, 861 (6th Cir. 1961), which stated that"[w]here a contract
is susceptible to different interpretations, the court will adopt the one
which will give it validity, if it is reasonable, rather than one which
renders it illusory"). Instead, we conclude that Lawyers Title identi-
fied the proposed insured and the amount of the policy when it wrote
"To Be Determined" and "AMOUNT TO BE DETERMINED" on
Schedule A. If not earlier, the Commitment certainly became effec-
tive on the day of the foreclosure sale, when the proposed insured and
the amount of the policy were identified. Lawyers Title cannot escape
its obligation to issue a title insurance policy simply because it
neglected to identify the proposed insured and the amount of the pol-
icy more precisely in Schedule A.

III.

Furthermore, we find no merit in the plaintiffs' cross-appeal. The
plaintiffs argue that they should have recovered $154,606.92, which
is the total of the face value of the six mechanics liens on the Prop-
erty. This amount includes the three mechanics liens that, when Chi-
cago Title took action to remove the liens, turned out to be invalid.

The plaintiffs argue that Bluff Ventures Limited Partnership v. Chi-
cago Title Insurance Co., 950 F.2d 139 (4th Cir. 1991), and Title

11
Insurance Co. of Richmond v. Industrial Bank of Richmond, 157 S.E.
710 (Va. 1931), support this result. They argue that the rule in those
cases is clear: damages are measured as the extent of impairment of
title on the date the insured receives the impaired title. On the day that
BOM purchased the Property, the face value of the liens on the Prop-
erty amounted to $154,606.92. The plaintiffs thus argue that the dis-
trict court should have awarded that amount in damages.

The plaintiffs misread the cases. When the complicating detail of
the cases are stripped away, both Bluff Ventures and Industrial Bank
roughly reduce to the following scenario:

The plaintiff purchased property at a foreclosure sale. A title
insurance company, the defendant, insured clear title to the
property, but the property turned out to be encumbered by
a lien. Nonetheless, the plaintiff subsequently sold the prop-
erty to a third party for an amount greater than his bid at the
foreclosure sale plus the amount of the lien. In the plaintiff's
suit against the title insurance company, the title insurance
company argues that the plaintiff was not damaged because
his subsequent sale of the property covered the cost of the
lien.

See Bluff Ventures, 950 F.2d at 141-43; Industrial Bank, 157 S.E. at
714. Both courts found that the plaintiff, relying on the title insurance
policy, believed it would receive unimpaired title to the property. Id.
"The insurer's liability became fixed when the insured relying on the
policy made a bid at the [foreclosure sale] and failed to receive the
subject-matter of its purchase unimpaired by [the lien]." Industrial
Bank, 157 S.E. at 715, cited in Bluff Ventures, 950 F.2d at 143. At the
foreclosure sale, the plaintiff "thought it obtained an unimpaired title,
but it did not. At that time it suffered a loss equal to the amount of
the lien . . . ." Industrial Bank, 157 S.E. at 714, cited in Bluff
Ventures, 950 F.2d at 143. The fact that the plaintiff was later able
to sell the property at a price high enough to cover the cost of the lien
does not mitigate the damage caused by the title insurance company.
At the time of the sale, the plaintiff's expectations were reduced by
the amount of the lien.

Neither Bluff Ventures nor Industrial Bank stands for the proposi-
tion that, in the instant case, the plaintiffs damages should be calcu-

12
lated by the face value of the liens at the time of the foreclosure sale,
instead of the cost of actually removing the liens. In Bluff Ventures
and Industrial Bank, the plaintiff received as damages the face value
of the lien because, in each case, the lien was valid and the face value
of the lien was the cost of removing the lien. Neither case involved
a situation where a lien encumbering the property at the time of the
foreclosure sale turned out to be invalid or was settled for a lesser
amount. In Bluff Ventures, however, we anticipated such a situation
and qualified its holding accordingly; we stated that:

when Bluff Ventures [the purchaser] failed to receive the
subject matter of its purchase unimpaired by the judgment
lien, it suffered a loss covered by the policy if the judgment
is in fact determined to have been a valid lien on the
property. The loss it suffered, if the lien was valid, was at
least the amount necessary to pay off the prior lien.

Bluff Ventures, 950 F.2d at 143 (emphasis added).

We conclude that the proper measure of damages in this case is the
cost of removing the liens from the property. Three of the six
mechanics liens turned out to be invalid. The cost of removing the
three valid liens, including attorneys fees, totalled $83,986.45. The
district court correctly entered a judgment in that amount.

IV.

For the foregoing reasons, we affirm the judgment of the district
court.

AFFIRMED

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