Opinion
E038888
5-18-2007
JAMES COOK, III as Conservator etc., Plaintiff and Appellant, v. EQUIMAX, INC. et al., Defendants and Respondents.
Martin E. Keller for Plaintiff and Appellant. Michael J. Gilligan for Defendants and Respondents Equimax, Inc. et al. Elliott Luchs for Defendant and Respondent Capree Escrow.
NOT TO BE PUBLISHED
INTRODUCTION
This appeal raises two distinct but related questions. The first is whether constructive notice of the existence of a conservatorship is imparted to a buyer of real property where the recorders office indexes the applicable letters of conservatorship in a manner which, though in accordance with its own informal policy, does not comport with statutory requirements. The court below found that it is not and concluded that the buyer was a bona fide purchaser for value without notice. The second question is whether an assignment of proceeds from the sale of that property is a "transaction that affects real property of the conservatorship estate" for purposes of Probate Code section 1875, which provides, in essence, that unless notice of the conservatorship has been properly recorded, such transaction is unaffected by the fact the conservatee otherwise lacks capacity to enter into it. Inferring that it is, the trial court concluded that the escrow company which effectuated the assignment incurred no liability whatsoever for performing its obligation to comply with the conservatees instructions. We agree with the trial court on both points and affirm the judgment in its entirety.
All further statutory references will be to the Probate Code unless otherwise indicated.
FACTUAL AND PROCEDURAL BACKGROUND
In 2002, octogenarian James Cook (Cook) moved from his San Bernardino residence to a convalescent facility in Fontana. In October, Cooks son, James Cook, III (appellant), was appointed conservator of Cooks person and estate, and letters of conservatorship were issued. According to appellant, the conservatorship was necessary because Cook was "no longer capable of handling his affairs."
In August 2003, Sam Harris (Harris), president of Equimax, Inc., learned that the San Bernardino house was for sale. On August 23, 2003, Harris and Cook executed a residential purchase agreement and joint escrow instructions, indicating a purchase price of $110,000.
On September 21, 2003, Cook executed a grant deed, transferring his property to Equimax. Cook signed the deed in the presence of notary public Wendell Grant (Grant), who first asked Cook if he was coherent and knew what he was signing. Cook replied that he was and that he knew he was signing a deed and transferring his property. Cook also signed a document entitled "Statement of Facts," indicating his full name as "James Cook." Although the document also requested "full middle name," and stated "if none, indicate," Cook did not indicate that he did not have a middle name. A nurse at the convalescent home, who had apparently tried to prevent Cook from signing the documents, thereafter contacted appellant to inform him that his father was signing "some kind of real estate papers." Upon receiving this information, appellant made no effort to communicate with his father. He did, however, contact his attorney who, two days later, caused the previously issued letters of conservatorship to be recorded with the San Bernardino County Recorder.
We cannot help but note at this juncture that the outcome of this case might have been different had appellant asked his father directly about the nature of the real estate papers he had signed. Had appellant known that his father was attempting to sell his house, he could have elected to contact the buyer or the escrow company to advise that a conservatorship was in place.
On September 30, 2003, Cook furnished written authorization to Capree Escrow (Capree) to transfer the net proceeds at the close of escrow to Avis Glass (Glass), a friend who had been occupying his residence since his departure. Escrow closed on October 22, 2003, and a check for $93,543.68 was tendered to Glass. That same day, a deed of trust was recorded, with Equimax as trustor and Gary M. Deacon, Teri L. Deacon, and Sara F. Deacon, trustee of the Deacon Family Trust (the Deacon group), as beneficiaries.
On November 24, 2003, appellant filed the underlying lawsuit against Equimax, Capree, and the Deacon group, among others. As later amended, the complaint alleged causes of action for quiet title to real property, incompetency, unsound mind, and negligence. Appellant sought a declaration that the grant deed and deed of trust were null and void and of no effect, and that the defendants had no interest in the property. He also sought damages against Capree of at least $100,000.
The lawsuit was originally brought in appellants name as conservator of Cooks person and estate. Cook died on November 27, 2003, his 90th birthday. The first amended complaint designated appellant as special administrator of Cooks estate. Also named as defendants were Riverside Loan Service, Inc.; Prudential California; Glass; and Grant. For reasons which cannot be ascertained from the record, Prudential, Glass, and Grant were dismissed from the case without prejudice on April 15, 2005. On August 31, 2005, the court on its own motion dismissed Riverside as a defendant.
At trial, appellant indicated that he had read and understood the responsibilities of a conservator as well as the requirements for recording letters of conservatorship. One of those duties was to assume control of and to manage his fathers real property. He acknowledged that the letters of conservatorship were not filed until almost a year after they were issued, and when asked about the reason for the delay, he simply stated that he did not know. He admitted that his father had told him to "leave the property alone." He had lived in Sacramento for 25 years and saw his father about twice a year. He said that their relationship was close, but admitted he did not know who Glass was. He believed that Glass was living in the house since his father had moved to the nursing home, but had never met her. Noting that his fathers bank account had been depleted, he said he believed that Glass was taking advantage of him, but had not conducted an investigation.
On behalf of appellant, evidence was presented regarding the procedure followed by the San Bernardino County Recorders Office in indexing letters of conservatorship. Record document clerk Dianna Hernandez (Hernandez) testified that letters of conservatorship are indexed in the grantor/grantee index. The letters of conservatorship in this case were indexed in the grantor/grantee index under the name "James Cook, Junior estate." Any letters of conservatorship recorded with the San Bernardino County Recorder would show as the grantor the name of the conservatee followed by the word "estate." She was unaware of what other counties do and thus could not say if other counties follow the same practice.
In response to a subpoena issued on behalf of Equimax, Hernandez had conducted her own search for the period October 1, 2002, through December 31, 2003, using the criterion "Cook, James Junior." She found nothing which reflected the existence of the conservatorship. This, she explained, was because the instrument had not been indexed as "James Cook, Junior" but rather as "James Cook, Junior estate." And her search under "Cook, James Junior Estate," did in fact disclose the letters of conservatorship.
According to Hernandez, if someone came in to search a piece of property under a particular individuals name, unless the person knew that there was a conservatorship, he or she would not know to search using the term "estate." Thus, if that person were to search under only the name—and the letters of conservatorship were not indexed under that name—the person would not find out about the letters of conservatorship.
Hernandez had with her a sample of the criteria used in her office with regard to letters of conservatorship. She indicated that one requirement was that the document be indexed under the name of the conservatee. She further indicated that even if "Cook, James estate" came up on a search of "Cook, James," one would not know to look at it unless it is known that the person is either deceased or has a conservator. She said that generally two working days are required before the name would have been indexed. Thus, if the document was recorded on September 23rd, it should have been indexed by September 25th.
Dana Boerg had been supervising the records department since 2002. The departments goal is to index a document within 48 hours of the time it is submitted. The principal index is a grantor/grantee index. Letters of conservatorship are indexed by the names of the conservator and conservatee. The word "estate" is used in the indexing. If the name of the conservatee was James Cook, it would be indexed under "Cook, James estate." The letters of conservatorship here were indexed under the name of "Cook, James estate" and "Cook, James Junior, estate." If a request had been made to index the letters of conservatorship under the name "James Cook," the office would not have done so, as it is not its practice. The department records the documents in the grantor/grantee index because the "statute tells us to." In order to search by way of title of document, such as letters of conservatorship, one would have to know the precise name of the document. Here, the letters of conservatorship were not indexed under the name "James Cook" because the departments "practice is to index it as an estate."
Based upon the oral and documentary evidence presented, the court ruled in favor of Equimax and Capree, and against appellant. The court found that the letters of conservatorship filed on September 23, 2003, were not properly indexed so as to give notice to Equimax, and that Equimax was therefore a bona fide purchaser for value without notice. The court also found that based on the testimony presented, "it would take at least two working days to have those documents placed in the actual book so that they would be available to the title company or any individual trying to research this particular piece of property. Since the title company had completed its first title search on September 9, [2003,] and the final updated title search on September 26, [2003,] that it is unlikely that the title company, even under the best case scenario would have found the letters of conservatorship that had just been filed."
Additionally, the court concluded that Capree had no liability for disbursing funds to Glass in accordance with Cooks express instructions. It found that it was Caprees responsibility to rely upon the title companys research, which disclosed that Cook was the owner of the property; that there was no notice to Capree that a conservatorship had been established; and that the only information possessed by Capree was that Cook was competent, able and willing to sell his property and had authorized the proceeds to be distributed to Glass.
A judgment was signed by the court on June 24, 2005, and entered on July 14, 2005. On September 12, 2005, appellant filed his notice of appeal from that judgment. On September 13, 2005, an amended judgment was filed and entered nunc pro tunc to the original date the judgment was entered. The court ordered that title to the property be quieted in favor of Equimax, subject to the first trust deed lien in favor of the Deacon Family Trust, as beneficiary.
On August 29, 2005, an order was filed awarding fees and costs to Capree in the sum of $15,604. On September 13, 2005, the court awarded fees and costs to Equimax and the Deacon group in the sum of $50,713.76. Appellant does not challenge these awards in this appeal.
DISCUSSION
A. Substantial evidence supports the trial courts finding that the letters of conservatorship were not properly indexed so as to give notice to Equimax, and that Equimax was therefore a bona fide purchaser for value without notice.
We first address the question of whether Equimax had constructive notice that Cook was under a conservatorship at the time he transferred the property. Ordinarily, a person who has been judicially determined to be of unsound mind "can make no conveyance or other contract, nor delegate any power or waive any right, until his or her restoration to capacity." (Civ. Code, § 40, subd. (a).) And, subject to section 1875, "the establishment of a conservatorship . . . is a judicial determination of the incapacity of the conservatee for the purposes of this section." (Civ. Code, § 40, subd. (b).) Thus, inasmuch as a conservatorship had been established over Cooks person and estate by virtue of the courts appointment of a conservator (Neiman Marcus v. Tait (1995) 33 Cal.App.4th 271, 274), Cooks capability to convey his property was dependent upon whether, pursuant to section 1875, "a notice of the establishment of the conservatorship . . . [had] been recorded prior to the transaction in the county in which the property [was] located."
Section 1875 provides: "A transaction that affects real property of the conservatorship estate, entered into by a person acting in good faith and for a valuable consideration and without knowledge of the establishment of the conservatorship, is not affected by any [of the Probate Code provisions governing capacity to bind or obligate the conservatorship estate] or any order made [thereunder] unless a notice of the establishment of the conservatorship or temporary conservatorship has been recorded prior to the transaction in the county in which the property is located."
In this regard, and notwithstanding the Legislatures use of the term "recorded" in section 1875, a recorded document does not impart constructive notice from the moment of recordation. Rather, the operative event is the indexing of the document. (Lewis v. Superior Court (1994) 30 Cal.App.4th 1850, 1866.) Thus, the dispositive issue is whether the letters of conservatorship filed on September 23, 2003, were properly indexed, for purposes of section 1875, so as to give constructive notice to Equimax of the existence of the conservatorship. Indeed, the purpose of section 1875 is to protect innocent third parties, such as Equimax, who do not have notice that a conservatee lacks the capacity to enter into the subject transaction.
"The policy objective of providing constructive notice requires that the instrument be indexed and reproduced in such a manner that a third party can be informed of any interest reflected by the recorded instrument. To impart notice, an instrument must be indexed and reproduced in the public records in such a manner that it can be located readily and read by a subsequent party. If an instrument cannot be located by searching the grantor and grantee indices of the public records, the instrument does not constitute constructive notice and later bona fide purchasers or encumbrancers are not charged with knowledge of its existence. Proper indexing is necessary to enable the document to be located by subsequent parties. If it is not properly indexed it cannot give notice because it cannot be located by a subsequent party dealing with the property and later purchasers and encumbrancers are not charged with knowledge of its existence or contents." (5 Miller & Starr, Cal. Real Estate (3d ed. 2001) Recording and Priorities, § 11.21, pp. 58-59, fns. omitted.)
Stated more succinctly, "[a] document is `in the chain of title when it can be located by a proper examination of the public records. When it cannot be found by a review of the public records in the proper manner, it is `outside the chain of title, and does not constitute constructive notice to subsequent parties." (5 Miller & Starr, Cal. Real Estate, supra, Recording and Priorities, § 11:33, p. 98, fn. omitted.)
Appellant insists the letters of guardianship were properly indexed in accordance with the policies and procedures followed by the San Bernardino County Recorders Office so as to impart constructive notice upon Equimax and to render the transfer to Equimax void. He acknowledges there is no dispute as to the facts surrounding the indexing of the letters of conservatorship, but maintains, without citation to authority, that it is a question of law as to whether the indexing was proper. However, "[t]he determination whether a party is a good faith purchaser or encumbrancer for value ordinarily is a question of fact; on appeal, that determination will not be reversed unless it is unsupported by substantial evidence. [Citation.]" (Triple A Management Co., Inc. v. Frisone (1999) 69 Cal.App.4th 520, 536.) Thus, to the extent appellant is asserting it is a question of law as to whether the actions of the San Bernardino County Recorder complied with statutory requirements, we conclude they did not and that, in any event, substantial evidence supports the trial courts ruling.
The rationale of Hochstein v. Romero (1990) 219 Cal.App.3d 447 (Hochstein) is instructive. In that case, a judgment naming both a husband and his wife as judgment debtors was recorded, with the name of the husband on the front of the document and that of the wife on the reverse. Only the name of the husband was indexed by the county recorder. After the husband died, the wife sold the property to a person who would be a bona fide purchaser if he did not have constructive notice of the judgment. Holding that the purchaser did not have constructive notice because the judgment was not properly indexed, the court explained: "Ordinarily a recorded document imparts constructive notice to subsequent purchasers and precludes them from acquiring the property as bona fide purchasers without notice, because the law conclusively presumes that a party acquiring property has notice of the contents of a properly recorded document affecting such property. [Citations.] [¶] However, before the constructive notice will be conclusively presumed, the document must be `recorded as prescribed by law. (Civ. Code, § 1213.) A document not indexed as required by statute (see Gov. Code, §§ 27230-27265), does not impart constructive notice because it has not been recorded `as prescribed by law. `The policy of the law [requiring recordation and indexing] is to afford facilities for intending purchasers . . . in examining the records for the purpose of ascertaining whether there are any claims against [the land], and for this purpose it has prescribed the mode in which the recorder shall keep the records of the several instruments, and an instrument must be recorded as herein directed in order that it may be recorded as prescribed by law. If [improperly indexed], it is to be regarded the same as if not recorded at all. [Citation.] Thus, it is not sufficient merely to record the document. `California has an "index system of recording," and . . . correct indexing is essential to proper recordation. [Citations.]" [Citations.] [¶] The California courts have consistently reasoned that the conclusive imputation of notice of recorded documents depends upon proper indexing because a subsequent purchaser should be charged only with notice of those documents which are locatable by a search of the proper indexes. Conversely, where the document is improperly indexed and hence not locatable by a proper search, mere recordation is insufficient to charge the subsequent purchaser with notice." (Hochstein, at p. 452.) The court continued: "[O]ur review of the current statutory scheme convinces us that proper indexing remains an essential precondition to constructive notice." (Id. at p. 453.)
Civil Code section 1213 states, in pertinent part: "Every conveyance of real property . . . therein acknowledged or proved and certified and recorded as prescribed by law from the time it is filed with the recorder for record is constructive notice of the contents thereof to subsequent purchasers and mortgagees; and a certified copy of such a recorded conveyance may be recorded in any other county and when so recorded the record thereof shall have the same force and effect as though it was of the original conveyance . . . ."
Appellant contends Hochstein is distinguishable in that there, the recorders actions were "contrary to its policies and procedures" whereas in the present case, the actions of the recorder were in accordance with policy. However, appellants position ignores the fact the evidence showed that the letters of conservatorship were not indexed in a manner consistent with statutory requirements.
Civil Code section 1172 provides that the duties of county recorders in respect to recording instruments are prescribed by the Government Code. The index which is commonly used by county recorders is referred to as the official records, which uses two indices: one for grantors and one for grantees. (See Gov. Code, § 27257; 5 Miller & Starr, Cal. Real Estate, supra, Recording and Priorities, § 11:18, pp. 54-55.) Although the San Bernardino County Recorder utilizes the grantor-grantee index, its policy differs with respect to letters of conservatorship. That is, in indexing the name of the conservatee, it uses the name followed by the word "estate." Consequently, if a search was performed using an individuals name without the word estate, the search would not disclose the existence of the letters of conservatorship. The county recorder followed this procedure even though its manual instructs that letters of conservatorship be indexed using the name of the conservatee as the grantor—not the name of the conservatee followed by the word "estate."
Further, testimony was offered that if someone came in to search a piece of property under a particular individuals name, unless the person knew that there was a conservatorship, he or she would not know to search using the term "estate." Thus, if that person was to search under the name—and the letters of conservatorship were not indexed under that name—the person would not find out about the letters of conservatorship.
In reaching its decision, the trial court also had the benefit of expert testimony offered by Richard Kadow on behalf of Equimax. Kadow indicated that his search of "James Cook" in the records at the county recorders office for the period beginning September 23, 2003, the date the letters of conservatorship were delivered for recording, did not reveal the existence of a conservatorship. Kadow said that when searching title to property owned by a person named James Cook, one looks under the name "James Cook" only—and does not utilize middle initials. Nor, as in the present case where the existence of a conservatorship was unknown, would a search encompass use of the term "estate." In his opinion, it would be needlessly time consuming to perform an unlimited search based upon variations in a name. (See Orr v. Byers (1988) 198 Cal.App.3d 666, 671-672.)
Additionally, and contrary to appellants argument, Kadow indicated that a "date down," which he described as a measure taken by a title company prior to recording when it checks to see if there were any documents recorded since the preliminary report was issued, even if one had been done (he did not know if it had) would not have revealed the conservatorship because the name "James Cook" simply was not in the grantor/grantee index. In any event, as the court observed, because the title company performed its final search just three days after the letters of conservatorship were recorded, "it is unlikely that the title company, even under the best case scenario would have found the letters of conservatorship that had just been filed."
Finally, appellant complains that the Statement of Facts signed by Cook on September 21, 2003, did not indicate that Cook had no middle name—as expressly requested on the form—thereby creating an ambiguity as to whether Cook did, in fact, have a middle name. Thus, he insists that "any reasonably prudent title searcher would have had to research the title by checking all persons with the name of James Cook, including those reflecting middle names." He contends that if such a search had been performed, the name "Cook James Estate" would have been uncovered and the outcome would have been different. We disagree.
Without knowledge that a conservatorship existed, there would have been no reason for the title company to investigate "Cook James Estate." Further, as Equimax points out, inasmuch as there was evidence that Cook did not have a middle name, including the original grant deed to the property, there was no reason for anyone to believe otherwise. Moreover, knowledge of a title insurance company is not imputed to its insured. (In re Marriage of Cloney (2001) 91 Cal.App.4th 429, 439.) Thus, it is irrelevant as to what the title company did or did not do. As Equimax puts it, "The issue in this case is whether a bona fide purchaser has constructive notice of the Letters of Conservatorship, not what the title company should have done which might have discovered the Letters of Conservatorship."
B. Substantial evidence supports the trial courts finding that Capree has no liability for disbursing funds to Glass in accordance with Cooks express instructions.
We turn now to appellants contention that Capree is liable for wrongly releasing to Glass the proceeds from the sale of the property. Appellant maintains that even if, as we have already concluded, the letters of conservatorship were not properly indexed, Capree is not entitled to protection pursuant to section 1875 because the assignment was not "[a] transaction that affects real property of the conservatorship estate." Insisting that a disbursement of funds is separate and apart from a conveyance of title, he argues the assignment is void and of no effect, and he is entitled to recover from Capree the monies paid to Glass out of escrow. Moreover, characterizing the language of section 1875 as "clear and unambiguous," he argues, without the benefit of any authority, that the subject phrase "certainly cannot be interpreted to convey protection to the purported assignment of cash proceeds." We disagree.
Section 1870 states: "As used in this article, unless the context otherwise requires, `transaction includes, but is not limited to, making a contract, sale, transfer, or conveyance, incurring a debt or encumbering property, making a gift, delegating a power, and waiving a right." Additionally, section 1872, subdivision (a), states "[e]xcept as otherwise provided in this article, the appointment of a conservator of the estate is an adjudication that the conservatee lacks the legal capacity to enter into or make any transaction that binds or obligates the conservatorship estate." Viewing both of these statutes in conjunction with section 1875, we are satisfied that the reference in section 1872 to the term "transaction" is applicable to section 1875 and that a "transaction that affects real property of the conservatorship" is comparable to one which "binds or obligates the conservatorship estate." Thus, we have no problem interpreting section 1875 to apply to the assignment which essentially bound the conservatorship estate.
In ruling in Caprees favor, the trial court relied on Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705. In that case, an escrow company made a payment to an original lender on a note instead of making it to the company to whom the note had been assigned. The trial court entered judgment for the company and the Court of Appeal reversed. The Supreme Court affirmed the decision of the Court of Appeal, reiterating the general rule that an escrow holder incurs no liability for failing to do something not required by the terms of the escrow or for a loss caused by following the escrow instructions. In other words, an escrow holder owes no duty of care to a nonparty to the escrow based on an assignment to that nonparty by another nonparty to the escrow. (Id. at pp. 707-708.)
"Generally speaking, an `escrow is a transaction in which one person, for the purpose of effecting a sale, transfer or incumbrance of real or personal property to another person, delivers any written instrument, money, evidence of title or other thing of value to a third party, the escrow holder or depository, to be held by him for ultimate transmittal to the other person upon the happening of an event or the performance of certain specified conditions [citations]. Thus, according to one view, the escrow holder is not the agent of either party; he is merely a third party depository [citation]. However, an escrow holder has also been referred to as the agent of all the principals to the escrow. But even so, the agency is not considered a general one. On the contrary, it is treated as a limited agency wherein the obligations of the escrow holder to each party are strictly in accordance with the escrow instructions given by that party [citations]. Consequently, under both views it is generally held that no liability attaches to the escrow holder for his [or her] failure to do something not required by the terms of the escrow or for a loss incurred while obediently following his escrow instructions [citations]." (Lee v. Title Ins. & Trust Co. (1968) 264 Cal.App.2d 160, 162-163.)
Here, the evidence disclosed that Capree relied upon the signed escrow instructions and amendment in performing its duties, including the payment to Glass of the sales proceeds. In addition, Capree obtained a preliminary title report from the title company, which said nothing about the conservatorship. Accordingly, Capree had no reason to question the amendment signed by Cook directing payment to Glass. Thus, in effectuating the payment to Glass, Capree was doing exactly what it was asked to do.
DISPOSITION
The judgment is affirmed. Respondents are entitled to costs on appeal.
We concur:
McKINSTER, Acting P. J.
RICHLI, J.