Unpublished Disposition, 869 F.2d 1497 (9th Cir. 1989)

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US Court of Appeals for the Ninth Circuit - 869 F.2d 1497 (9th Cir. 1989)

In re Harry Louis McROYAL, Debtor.HANCOCK SAVINGS AND LOAN ASSOCIATION, a California LicensedSavings and Loan Association, Plaintiff-Appellant,v.Harry Louis McROYAL, et al., Defendants,andSafeco Title Insurance Company, Defendant-Appellee.

No. 88-5611.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 5, 1988.Decided March 3, 1989.

Before HALL, WIGGINS and DAVID R. THOMPSON, Circuit Judges.



Hancock Savings & Loan Association made loans to its borrower, Phillips. It funded the loans by issuing checks to First National Title Company. With the checks, Hancock gave escrow instructions to First National to disburse the loan funds upon issuance of ALTA title insurance policies showing the Hancock deeds of trust on the Phillips properties to be second only to specified first deeds of trust securing specified sums. First National issued the title policies and disbursed the loan proceeds. The policies showed the Hancock deeds of trust to be subject to prior deeds of trust to different trust deed holders securing substantially greater amounts than those specified in Hancock's escrow instructions to First National. Phillips defaulted on the Hancock loans. There was not enough value in the Phillips properties to discharge the obligations owed to Hancock and the prior trust deed holders. As a result, Hancock lost money on its loans.

Hancock sued Safeco Title Insurance Company. It contended that Safeco was vicariously liable for First National's alleged negligence in disbursing the Phillips loan proceeds. First National was an underwritten title company. It was Safeco's agent with express, written authority to issue "commitments, binders, guarantees, endorsements and title insurance policies" on behalf of Safeco. Hancock contended that this agency relationship between Safeco and First National extended to First National's escrow activities in the Phillips loan transaction. The district court disagreed. It granted Safeco's motion for summary judgment on the ground that the agency relationship between Safeco and First National did not extend to First National's escrow activities. Hancock dismissed its claims against all other defendants, and filed a timely notice of appeal from the district court's order granting summary judgment in favor of Safeco. We have jurisdiction under 28 U.S.C. § 1291 and we affirm.



We apply California law to the substantive issues in this case, involving claims concerning the property of a debtor under Title 11 of the United States Code, because the issues presented would ordinarily be governed by California law and to do so creates no conflict with any federal law. See Butner v. United States, 440 U.S. 48, 54-55 (1979).

Hancock argues that there is at least a triable issue of fact as to whether First National was functioning as Safeco's agent when it performed its escrow services in connection with the Phillips loan transaction. Hancock points to a 1980 contract between Safeco and First National, entitled "Issuing Agency Agreement" ("the Agreement"), as evidence of this agency relationship. Hancock argues that the Agreement, on its face, makes First National Safeco's agent for all functions, including escrow activities.

Safeco does not deny that the Agreement "appoints [First National] to be its ... policy issuing agent." See paragraph 1 of the Agreement. Nor does Safeco deny that it has authorized First National "to sign, countersign and issue commitments, binders, guarantees, endorsements and title insurance policies" on its behalf. See paragraph 3 of the Agreement. However, " [a]n admission that a person is an agent does not adopt every act performed by him; the admission does not cover the extent of his authority." Turner v. Citizens National Bank, 206 Cal. App. 2d 193, 202, 23 Cal. Rptr. 698, 704 (1962) (citing Cal.Civ.Code Secs. 2315-2318) (emphasis added).

"The extent of an agency is measured by the authority conferred upon the agent, actually or ostensibly, and his power is sufficient to do everything that is necessary, proper or usual to accomplish the purpose of the principal." Wallace v. Sinclair, 114 Cal. App. 2d 220, 229, 250 P.2d 154, 160 (1952) (citing Cal.Civ.Code Secs. 2315-2320 and 2330. The Agreement does not on its face authorize First National to act as Safeco's agent for escrow purposes. Hancock has not presented any other evidence to support a finding of actual or ostensible authority in this regard. Indeed, Hancock has not cited any cases on the substantive law of agency. "While it is true that the existence or absence of agency is ordinarily a question of fact, triable by a jury, where the evidence ... is susceptible of only one inference, i.e., the absence of agency, no triable issue of fact is presented." DeSuza v. Andersack, 63 Cal. App. 3d 694, 700, 133 Cal. Rptr. 920, 925 (1976). In this case the evidence is susceptible of only one inference: First National was not Safeco's agent for escrow transactions.

Hancock argues that the California statutory framework governing underwritten title companies like First National compels the conclusion that First National was acting as Safeco's agent when it disbursed the funds. The sections from the California Financial and Insurance Codes cited by Hancock have nothing to do with agency law. California Insurance Code section 12389(b) simply provides that an underwritten title company "may engage in the escrow business and act as escrow agent," if it complies with certain record keeping and security deposit requirements. Thus underwritten title companies need not obtain a separate license to act as escrow holders. See California Financial Code Secs. 17200 and 17006(c). Hancock would have us conclude that every title insurer who issues policies through underwritten title companies is automatically deemed to have authorized the underwritten title company to act as its agent whenever the underwritten title company performs escrow activities. Hancock has failed to cite any applicable authority for this proposition.

On the other hand, a leading authority on California real estate law has noted that the performance of escrow functions is entirely distinct from the performance of title insurance functions in the typical real estate transaction.

[F]ailure of the parties and the court to recognize the separateness of these functions and the respective, independent responsibilities can result in liability being imposed contrary to the expectations of the parties and in contravention of their express contractual obligations. It is unjust and illogical, for example, to impose liability on an escrow company because of a defect in the insured title which is not excepted in the title policy. Such imposition ignores the separateness of the duties and relationships between the parties, whether these two functions are performed by one entity or separate companies" (emphasis in original).

Miller and Star, Current Law of California Real Estate, Sec. 12:79 (1977). The same logic applies here, where Hancock seeks to impose liability on the title insurer because of a defect in the handling of the escrow. California law does not compel this result, and to impose vicarious liability on Safeco for First National's independent escrow activities would be unjust and illogical.



This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3