Filed 1/25/24 Christensen v. First American Title Co. CA1/5
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FIVE
ANDREW J. CHRISTENSEN, et al.
A166796
Plaintiffs and Appellants,
v. (Alameda County
Super. Ct. No. 22CV005893)
FIRST AMERICAN TITLE CO.,
Defendant and Respondent.
Andrew J. Christensen and Susan M. Christensen (Plaintiffs) appeal
from the trial court’s order sustaining the demurrer of First American Title
Company (First American) without leave to amend, and the subsequent
judgment in favor of First American. We affirm.
FACTUAL BACKGROUND1
In 1992, Oscar B. Goodman and Nancy Hanawai Goodman purchased
0.26 acres containing a single-family residence (the Property). In 1994, the
1 “When reviewing a judgment dismissing a complaint after the
granting of a demurrer without leave to amend, courts must assume the
truth of the complaint’s properly pleaded or implied factual allegations.”
(Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081 (Schifando).)
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Goodmans purchased a portion of an adjoining lot in order to extend the
property line further south (the Addition). The 1994 grant deed identifies
both the Property and the Addition together, approximately 0.319 acres
(hereafter, the Expanded Property). The Goodmans did not obtain an official
lot line adjustment to reflect an expanded parcel.
In 2000, the Goodmans transferred the property to the Hanawai-
Goodman Family 2000 Trust (the Hanawai-Goodman Trust) by executing two
transfer deeds, one conveying the Property and another conveying the
Expanded Property.
In 2013, Benjamin and Gabrielle Blair purchased the Property—not the
Expanded Property—from the Hanawai-Goodman Trust. In 2019, Plaintiffs
purchased the Property from the Blairs. Although the 2019 grant deed
identified only the Property, Plaintiffs allege the Blairs, the Blairs’ real
estate agent, and Plaintiffs’ real estate agent all represented the sale was of
the Expanded Property.
First American was the escrow agent and title insurer for the Blairs’
2013 purchase of the Property from the Hanawai-Goodman Trust. First
American also was the escrow agent and title insurer for Plaintiffs’ 2019
purchase of the Property. Plaintiffs allege First American knew there were
two deeds from the Goodmans to the Hanawai-Goodman Trust because of its
role in the 2013 purchase.
PROCEDURAL BACKGROUND
In 2022, Plaintiffs sued the Blairs, the Goodmans, the trustees of the
Hanawai-Goodman Trust, the real estate agents for the 2019 sale, and First
American. As to First American, Plaintiffs asserted a negligence claim based
on First American’s role in the 2019 sale, alleging First American owed
Plaintiffs a duty of care “to accurately represent the size and boundaries of
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the Subject Property and to exercise reasonable care in ensuring that the
legal description of the property is accurate.” Plaintiffs also alleged claims
for negligence and breach of contract based on First American’s role in the
2013 sale.
First American filed a demurrer as to all claims against it. As to the
negligence claim based on the 2019 sale, First American argued the duties it
owed were limited and it could not have effected a transfer of the Expanded
Property because the Blairs owned only the Property. With respect to the
negligence claim based on the 2013 sale, First American argued escrow
agents do not owe duties to third parties. As to the contract claim, First
American argued Plaintiffs were not intended third party beneficiaries of the
2013 contract. The trial court sustained the demurrer without leave to
amend and issued judgment in favor of First American.
DISCUSSION
“ ‘ “On appeal from an order of dismissal after an order sustaining a
demurrer, our standard of review is de novo, i.e., we exercise our independent
judgment about whether the complaint states a cause of action as a matter of
law.” ’ ” (Pointe San Diego Residential Community, L.P. v. Procopio, Cory,
Hargreaves & Savitch, LLP (2011) 195 Cal.App.4th 265, 274.) “It is the
validity of the court’s action in sustaining a demurrer, not its reasons, which
is reviewable.” (Lee v. Bank of America (1990) 218 Cal.App.3d 914, 919.)
“If the court sustained the demurrer without leave to amend, as here,
we must decide whether there is a reasonable possibility the plaintiff could
cure the defect with an amendment. [Citation.] If we find that an
amendment could cure the defect, we conclude that the trial court abused its
discretion and we reverse; if not, no abuse of discretion has occurred.
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[Citation.] The plaintiff has the burden of proving that an amendment would
cure the defect.” (Schifando, supra, 31 Cal.4th at p. 1081.)
I. Negligence: Plaintiffs’ 2019 Purchase
Plaintiffs argue the trial court erred in sustaining the demurrer as to
their claim that First American was negligent in connection with the 2019
purchase.
A. Title Insurer
Plaintiffs argue First American owed them a duty of care in its capacity
as title insurer. We disagree.
“Title insurance is a contract by which the title insurer agrees to
indemnify its insured against losses caused by defects in or encumbrances on
the title not excepted from coverage. [Citation.] An insured’s claim against
his title insurer is under the policy, and an insured has no separate claim
against a title insurer based on negligence or negligent misrepresentation.”
(Vournas v. Fidelity Nat. Title Ins. Co. (1999) 73 Cal.App.4th 668, 675–676;
accord, Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter
Group 2023) ¶ 6:2695.)
Plaintiffs’ reliance on Lee v. Fidelity National Title Ins. Co. (2010)
188 Cal.App.4th 583 (Lee) is not to the contrary. Lee involved a contract
claim against a title insurer, such that the issue was what property was
covered by the title insurance policy in light of an ambiguous description.
(Id. at pp. 593, 598.) Lee has no bearing on whether Plaintiffs can assert a
negligence claim against First American for its conduct as a title insurer.
Accordingly, Plaintiffs fail to state a negligence claim against First
American for its conduct as a title insurer in the 2019 sale.
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B. Escrow Agent
Plaintiffs argue First American owed them a duty of care as an escrow
agent “to identify and include the correct legal description in the grant
deeds.”
“ ‘An escrow involves the deposit of documents and/or money with a
third party to be delivered on the occurrence of some condition.’ [Citation.]
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.] [¶] In delimiting the scope of an
escrow holder’s fiduciary duties, then, we start from the principle that ‘[a]n
escrow holder must comply strictly with the instructions of the parties.
[Citations.]’ [Citation.] On the other hand, an escrow holder ‘has no general
duty to police the affairs of its depositors’; rather, an escrow holder’s
obligations are ‘limited to faithful compliance with [the depositors’]
instructions.’ [Citation.] Absent clear evidence of fraud, an escrow holder’s
obligations are limited to compliance with the parties’ instructions.”
(Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002)
27 Cal.4th 705, 711 (Summit Financial).)
Plaintiffs did not attach the escrow instructions to the complaint but
argue they could amend the complaint to allege “that the escrow instructions
did obligate [First American] to include the correct legal description.” They
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also argue First American had an independent duty of care to identify and
include the “correct” legal description.2
We assume, without deciding, that First American had a duty to
identify and include the correct legal description, either pursuant to the
escrow instructions or as part of its duty of care. As First American argues,
the complaint alleges the grant deed from the Hanawai-Goodman Trust to
the Blairs conveyed solely the Property; thus, the Blairs held title only to the
Property, not the Expanded Property. “It is axiomatic that a deed cannot
convey more than is owned by the grantor.” (3 Miller & Starr, Cal. Real
Estate (4th ed. 2015) § 8:58.) Because the grant deed conveying property
from the Blairs to Plaintiffs could not include property the Blairs did not own,
the legal description of the Property, rather than the Expanded Property, was
at issue and was stated correctly. The complaint fails to establish breach of
the asserted duty.
In their reply brief, Plaintiffs argue the complaint alleges in the
alternative that the Blairs did own the Expanded Property. These
allegations are based on theories of adverse possession or mutual mistake in
the 2013 grant deed. Plaintiffs fail to provide authority that the Blairs could
transfer the Expanded Property based on such theories absent a legal
proceeding to quiet title or for reformation of the 2013 grant deed. (See
6 Miller & Starr, Cal. Real Estate (4th ed. 2015) § 18:26 [“A title acquired by
adverse possession is not a marketable title until the title is established by
judicial proceedings against the record owner.”].) Thus, Plaintiffs’ argument
2 For this proposition, Plaintiffs rely on Rianda v. San Benito Title
Guarantee Co. (1950) 35 Cal.2d 170, 173, and Garton v. Title Ins. & Trust Co.
(1980) 106 Cal.App.3d 365, 381, which refer to an escrow agent’s duty to
exercise reasonable skill and ordinary diligence.
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does not change the fact that, under the allegations of the complaint, the
Property was the “correct” description for the 2019 grant deed.
Plaintiffs suggest no amendments that could cure this defect.
Accordingly, the trial court did not abuse its discretion in denying leave to
amend. (Schifando, supra, 31 Cal.4th at p. 1081.)
II. Negligence: The Blairs’ 2013 Purchase
In a separate cause of action, Plaintiffs assert a negligence claim
against First American in connection with its conduct in the Blairs’ 2013
purchase of the Property from the Hanawai-Goodman Trust.
“[T]he threshold question in an action for negligence is whether the
defendant owed the plaintiff a duty to use care [citation], and the
‘[r]ecognition of a duty to manage business affairs so as to prevent purely
economic loss to third parties in their financial transactions is the exception,
not the rule, in negligence law’ [citation]. [¶] In Biakanja v. Irving (1958)
49 Cal.2d 647, 650 [320 P.2d 16, 65 A.L.R.2d 1358], we stated: ‘The
determination whether in a specific case the defendant will be held liable to a
third person not in privity is a matter of policy and involves the balancing of
various factors, among which are the extent to which the transaction was
intended to affect the plaintiff, the foreseeability of harm to him, the degree
of certainty that the plaintiff suffered injury, the closeness of the connection
between the defendant’s conduct and the injury suffered, the moral blame
attached to the defendant’s conduct, and the policy of preventing future
harm.’ ” (Summit Financial, supra, 27 Cal.4th at p. 715.)
“Under ordinary circumstances, an escrow holder owes duties only to
the parties to the escrow, not to third parties.” (2 Miller & Starr, Cal. Real
Estate (4th ed. 2015) § 6:18.) Courts applying the Biakanja test to determine
whether an escrow agent owed a duty of care to third parties have generally
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adhered to this usual rule and found no duty. (See Summit Financial, supra,
27 Cal.4th at pp. 715–716 [under Biakanja test, no duty of care owed to
assignee of note-holder paid off from escrow in refinancing]; Alereza v.
Chicago Title Co. (2016) 6 Cal.App.5th 551, 553–554 (Alereza) [under
Biakanja test, escrow agent “did not owe a duty of care to [the plaintiff]
because he was not a party to the escrow, not mentioned in the escrow
instructions as a third party beneficiary, and did not sustain his losses as a
direct result of the escrow company’s negligence”].) We reach the same
result.
Plaintiffs allege the 2013 transaction was intended to benefit “Plaintiffs
and all future owners of the Subject Property because it was the first time the
original parcel and the [Addition] should have been officially joined by a lot
line adjustment.” We need not accept this legal conclusion unsupported by
allegations as to contract terms or extrinsic manifestations of such an intent.
(Baldwin v. AAA Northern California, Nevada & Utah Ins. Exchange (2016)
1 Cal.App.5th 545, 550 [“In reviewing an order sustaining a demurrer, the
court does not assume the truth of ‘contentions, deductions, or conclusions of
fact or law.’ ”].) Accepting all reasonable inferences from the complaint’s
factual allegations, First American’s role in the 2013 sale transaction was to
facilitate a transfer of real property from the Hanawai-Goodman Trust to the
Blairs. Any impact on future owners was collateral to the primary purpose of
the transaction. (See Summit Financial, supra, 27 Cal.4th at p. 715 [“ ‘[the
escrow agent] was engaged by Dundrel and Furnish [the homeowner and
refinancing lender] to assist them in closing a loan transaction between
Dundrel and Furnish, and any impact that transaction may have had on [the
third party assignee of homeowner’s prior note-holder] was collateral to the
primary purpose of the escrow’ ”]; Alereza, supra, 6 Cal.App.5th at p. 560
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[“[the plaintiff] was not a party to the escrow instructions nor was he a third
party beneficiary of the transaction” and the escrow agreement was “designed
. . . only to complete a business transaction between” the parties to the
agreement].)
Plaintiffs allege their injury is certain “because there is a material
difference between .26 acres and .319 acres” and was foreseeable “because
Blairs and all subsequent purchasers would be paying property tax on .319
acres instead of the original .26 acres of the original lot with the original
boundary.” The allegations establish certainty, but do not support
foreseeability because there are no factual allegations showing First
American could have foreseen that the Blairs would, as alleged in the
complaint, misrepresent the property they owned when selling it to future
buyers and that the real estate agents involved in the future sale would not
catch or correct the misrepresentation. (See Summit Financial, supra,
27 Cal.4th at pp. 715–716 [“ ‘although the certainty of injury element is
satisfied . . . , the foreseeability of harm element does not support a duty
because there is no suggestion [the escrow agent] could have foreseen [the
injury]’ ”].) Similarly, the closeness of connection alleged—that “First
American could have avoided the harm and error with proper checking of the
documents”—is insufficient. Plaintiffs’ injury was caused by their mistaken
belief that they bought the Expanded Property, rather than the Property.
The connection between this injury and First American’s conduct in the 2013
sale transaction is attenuated because the more immediate cause was the
alleged misrepresentation by the Blairs and the real estate agents in the
2019 sale. (See Alereza, supra, 6 Cal.App.5th at p. 561 [“there was only a
remote connection between the misidentification of the insured by [the escrow
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officer] and [the plaintiff’s] eventual financial losses” because “several
independent errors separated” the two].)
With respect to moral blame, Plaintiffs allege, “First American bears
great moral blame for the conduct in failing to transfer the proper legal
description of the entire parcel because it is a simple and obvious issue that
they are solely responsible for and for which the consequences are so severe,
and is the precise reason that people use title insurance companies to make
sure that the technicalities of the transaction are correct.” The allegation
does not establish moral blame. Even when an escrow company has admitted
negligence, the negligence was found not morally blameworthy where, as
here, “the escrow officer did not act fraudulently, illegally, or with any intent
to cause anyone disadvantage.” (Alereza, supra, 6 Cal.App.5th at p. 561.)
Finally, Plaintiffs allege the policy of preventing future harm weighs in
favor of finding a duty “because title companies are paid to handle these
precise issues, and this type of error should not be allowed to go without
remedy or else title insurance will be rendered meaningless.” We disagree.
“Escrow companies already owe a fiduciary duty to parties to an escrow to
properly carry out all escrow instructions. [Citation.] Failure of an escrow
company to perform gives parties to the escrow a cause of action for breach of
contract for any proximately caused damages. [Citation.] For this reason,
escrow companies already have both duties and incentives to faithfully
execute the escrow instructions of the parties.” (Alereza, supra,
6 Cal.App.5th at p. 561 [holding the policy of preventing future harm does not
require finding a duty to third party].)
Accordingly, the complaint does not state a claim of negligence against
First American in connection with the 2013 sale. Because Plaintiffs do not
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propose any amendments that could cure the defect, the trial court did not
abuse its discretion in denying leave to amend.
III. Breach of Contract: The Blairs’ 2013 Purchase
Plaintiffs assert a claim for breach of First American’s 2013 contract
with the Hanawai-Goodman Trust and the Blairs to provide escrow and title
insurance services.
“In California, as in other jurisdictions, it is well established that under
some circumstances a third party may bring an action for breach of contract
based upon an alleged breach of a contract entered into by other parties.”
(Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 826–827 (Goonewardene).)
To determine whether a third party may do so, courts look to “the express
provisions of the contract at issue, as well as all of the relevant circumstances
under which the contract was agreed to, in order to determine not only (1)
whether the third party would in fact benefit from the contract, but also (2)
whether a motivating purpose of the contracting parties was to provide a
benefit to the third party, and (3) whether permitting a third party to bring
its own breach of contract action against a contracting party is consistent
with the objectives of the contract and the reasonable expectations of the
contracting parties. All three elements must be satisfied to permit the third
party action to go forward.” (Id. at p. 830.)
We focus on the second element, the motivating purpose of the parties.
To satisfy this element, “the contracting parties must have a motivating
purpose to benefit the third party, and not simply knowledge that a benefit to
the third party may follow from the contract.” (Goonewardene, supra,
6 Cal.5th at p. 830.) The complaint alleges the motivating purpose of the
contracting parties “was to join the two parcels into one parcel of .319 acres
so that all future owners, including [the] Blairs and Christensens, would
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have the full property as Goodmans intended when they bought the extra
parcel from the Church in 1994.” Plaintiffs contend this is sufficient for
purposes of a demurrer. We disagree. “Ascertaining whether there was
intent to confer a benefit on plaintiff as a third party beneficiary is a question
of ordinary contract interpretation.” (The H.N. & Frances C. Berger
Foundation v. Perez (2013) 218 Cal.App.4th 37, 44.) “In reviewing the trial
court’s ruling on defendants’ demurrers, this court is limited to evaluating
whether the [contracts] are susceptible to plaintiff’s interpretation [as to
whether plaintiff was a third party beneficiary], based on the pleaded facts
and the documents attached to the operative complaint.” (Id. at p. 45.)
In Goonewardene, as here, the complaint did not quote from or attach
the contract at issue. (Goonewardene, supra, 6 Cal.5th at p. 832.) The
Supreme Court held the complaint’s “general allegation . . . that the contract
was for the benefit of [the plaintiffs] as well as” the contracting parties was
“too vague and conclusory to support the proposition that the parties to the
[relevant] contract expressly or impliedly authorized [the plaintiffs] to
maintain a breach of contract action” as third party beneficiaries. (Id. at
p. 833.) Instead, the Supreme Court looked to allegations about specific
terms of the contract. (Ibid.) We similarly conclude Plaintiffs’ allegation
about the motivating purpose of the parties is insufficient and we instead
consider whether the terms of the contract are susceptible to Plaintiffs’
construction.
Plaintiffs argue the complaint supports a reasonable inference that the
2013 contract “required [First American] to include the proper legal
description in the deed.” This allegation, taken as true, does not establish
that a motivating purpose of the contracting parties was to benefit
subsequent purchasers. In Goonewardene, the Supreme Court reasoned that
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“providing a benefit to employees is ordinarily not among the motivating
purposes of a contract between an employer and a payroll company.”
(Goonewardene, supra, 6 Cal.5th at p. 837.) Similarly, providing a benefit to
subsequent purchasers of real property is ordinarily not among the
motivating purposes of a contract for escrow and title insurance services.
Plaintiffs’ allegations provide no suggestion that the 2013 contracts were
other than ordinary in this regard, and they do not argue they could so
establish by amending the complaint. Accordingly, Plaintiffs fail to state a
claim for breach of contract as a third party beneficiary, and the trial court
did not abuse its discretion in denying leave to amend.
DISPOSITION
The judgment is affirmed. First American shall recover its costs on
appeal.
SIMONS, J.
We concur.
JACKSON, P. J.
BURNS, J.
(A166796)
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