Summary
In Graddon v. Knight, 138 Cal.App.2d 577, 292 P.2d 632 (1956), a California appellate court considered whether homeowners, who were obligated under a deed of trust to procure and maintain fire insurance on their home, could establish a cause of action based upon an oral promise by a bank to obtain the insurance on the homeowners' behalf.
Summary of this case from Shoemaker v. Commonwealth BankOpinion
Docket No. 16364.
January 20, 1956.
APPEALS from judgments of the Superior Court of Santa Clara County. John D. Foley, Judge. Affirmed in part and reversed in part with directions.
Henry C. Clausen, John H. Machado and Richard G. Burns for Plaintiffs and Appellants.
Frederick M. Fisk, Chickering Gregory, Nathan C. Finch, Howe Finch, John P. Macmeeken and Charles E. Luckhardt for Interveners and Appellants.
Cross-complainants (and plaintiffs) Graddon appeal from a judgment of nonsuit in favor of cross-defendant bank on their third cause of cross-complaint. The bank appeals (1) as cross-defendant from a judgment for $13,639.79 in favor of cross-complainants Graddon on their second cause of cross-complaint, and (2) as cross-complainant from a judgment in favor of cross-defendants Graddon on the bank's cross-complaint against them.
QUESTIONS PRESENTED
A. BANK'S APPEALS.
1. Was the admission of evidence of the oral agreement upon which the estoppel cause of action is based an attempt to vary the terms of the deed of trust and hence a violation of the parol evidence rule?
2. Does the evidence support the judgments?
(a) Estoppel.
(b) Authority of bank's officer.
3. Damages.
4. Failure of jury to offset indebtedness to bank.
5. Interest.
6. Bank's cross-complaint.
B. PLAINTIFFS' APPEAL (now moot).
RECORD
This action grew out of a fire which destroyed a residence being built for Graddons by defendant Knight upon which the bank had granted a so-called G.I. loan. Graddons sued Knight for alleged negligence in the starting of the fire. Then followed a maze of cross-complaints, answers and other pleadings. After a trial certain judgments were rendered and appeals taken therefrom. These appeals were determined in Graddon v. Knight, 99 Cal.App.2d 700 [ 222 P.2d 329]. All judgments were thereby affirmed save a judgment in favor of Graddons on their cross-complaint against the bank. That judgment, based on a jury verdict, had granted Graddons certain damages on the theory that under the terms of the deed of trust executed to the bank by Graddons and oral evidence permitted to explain an alleged ambiguity in said deed of trust, the bank was obligated to procure fire insurance on the property and had failed to do so. Holding that there was no ambiguity in the deed of trust and hence oral evidence was not admissible to explain the document, the appellate court reversed that judgment, stating "The parties should be allowed to amend their pleadings if they see fit in the light of this opinion." (P. 706.) Thereafter Graddons with permission of the trial court amended their cross-complaint against the bank setting up two additional causes of cross-complaint: (1) alleging an estoppel against the bank claiming that it had not agreed to procure insurance on the property; (2) alleging negligence in the failure of the bank to procure said fire insurance. On these two causes of cross-complaint and on the issue raised by a cross-complaint of the bank charging that under the terms of the deed of trust Graddons had agreed to procure fire insurance on the property and had failed so to do, the cause was retried. The trial court granted a nonsuit on Graddons' third cause of cross-complaint (negligence). Graddons appeal. The jury found for Graddons and against the bank in the sum of $13,639.79 on Graddons' second cause of cross-complaint, and found in favor of Graddons and against the bank on its cross-complaint. From the judgments entered thereon the bank appeals.A. BANK'S APPEALS. 1. Oral Agreement.
2. Evidence. (a) Estoppel.
[1] Graddon Knight, supra Painter Twinsburg Banking Co. 84 Ohio App. 418 87 N.E.2d 502 Sheller Seattle Title Trust Co.120 Wn. 140Bates Northern Bond Mortgage Co.129 Wn. 343Buckner A. Leon Co., 204 Cal. 225 267 P. 693 Gardiner Burket,3 Cal.App.2d 666 40 P.2d 279 Dobbins Horsfall,58 Cal.App.2d 23 136 P.2d 35 [2]
The bank also characterizes this cause of action as having "flagrant deficiencies." However, it alleged (1) that the bank on June 27, 1946, represented and promised that it would procure and maintain "adequate fire insurance" on the Graddons' home, shop and carport; (2) that the bank knew or should have known that the Graddons would rely upon those alleged representations and promises; (3) that they did so rely and that they would have secured insurance had they known that the bank would fail to do so; (4) that the bank did not procure insurance; and (5) that in consequence the Graddons had been damaged.
The evidence here was such that the jury could and did find all the elements necessary for the doctrine of promissory estoppel to apply, namely, (1) a promise clear and unambiguous in its terms ( National Dollar Stores, Ltd. v. Wagnon, 97 Cal.App.2d 915 [ 219 P.2d 49]); (2) reliance by the party to whom the promise is made ( Estate of Jackson, 112 Cal.App.2d 16 [ 245 P.2d 684]); (3) his reliance must be both reasonable and foreseeable ( Pacific Finance Corp. v. Hendley, 119 Cal.App. 697 [ 7 P.2d 391]; Rest. Contracts, § 90); (4) the party asserting the estoppel must be injured by his reliance ( National Dollar Stores, Ltd. v. Wagnon, supra).
(b) Authority.
There can be but little, if any, question that the bank held out its vice-president and manager of its branch bank as having the authority to agree to get the insurance for Graddons. [3] It is a matter of common knowledge that branch bank managers handle all the details of loans of this type, including the obtaining of title insurance as well as fire insurance. If the bank is permitted to repudiate its branch manager's actions of this type, dealing with a bank would become a most hazardous matter. "Ostensible authority is such as a principal, intentionally or by want of ordinary care, causes or allows a third person to believe the agent to possess." (Civ. Code, § 2317) See Safeway Stores, Inc. v. King Lbr. Co., 45 Cal.App.2d 17 [ 113 P.2d 483], where the court said concerning a branch manager of a lumber corporation (p. 23): "Where, as here, an agent is by his principal put in charge of a business as the apparent manager thereof, he is clothed with apparent authority to do all things that are essential to the ordinary conduct of such business at that place, and third persons acting in good faith and without notice of, or any reason to suspect, any limitations of his authority, are entitled to rely on such appearance."
(3) Damages.
The jury awarded $13,639.79. Just how it arrived at this figure is difficult to say. The court instructed on the measure of damages to the effect that although the total amount of insurance to be procured by the bank was $12,000, Graddons could only recover the amount which would have been payable to them upon the fire loss, and that from such sum should be deducted $7,188.60, the amount due from Graddons to the bank on the loan. The amount payable under the policy would be the cost of restoring the property to its condition before the fire. (This is the measure stated in section 2051, Insurance Code.) The architect who testified to the damage stated that the materials destroyed were of the reasonable value of $10,000. He also stated that the value of "the salvage still remaining and usable on the property was some $3500;" that his figure of $10,000 was exclusive of this salvage figure. He also testified it would take $6,500 for labor to complete the house, including free labor to be donated as a favor to plaintiffs.
Plaintiffs claim that either both the $10,000 and the $3,500, or all three figures should be added together, making a total replacement value of either $13,500 or $20,000. Both of these figures are in excess of the judgment if interest was included. It is difficult to understand how the $3,500 representing salvage could be recovered under an insurance policy, had one been issued, as such figure does not represent a loss. It would appear, too, from the architect's testimony that the figure of $6,500 for labor was included in the $10,000 estimated loss, although in one place the architect referred to the $10,000 as the value of the materials lost. It must be remembered that the value of the building when completed would have been only $13,500, and the original contract price was "not to exceed $11,999.81." (It was 90 per cent completed at the time of the fire.) The architect was the only witness who discussed damages. His testimony is most confusing. However, as the question of damages has to be retried, as hereafter set forth, it is not necessary to attempt to determine the effect of his testimony.
(4) Offset.
The court instructed that the jury should reduce the amount it should find due plaintiffs from the bank by the sum of $7,188.60, being the amount paid by the bank to the contractor and secured by the deed of trust. The evidence showed that prior to trial the bank had foreclosed the deed of trust and sold the property for $4,000, and that the actual amount then due to the bank from plaintiffs on said loan was $4,482.73. Apparently the court in its instructions mentioned the wrong amount. However, it is obvious that the jury made no deduction for any amount due the bank. Therefore the matter of damages will have to be retried. Undoubtedly, on the retrial of the damage issue, the trial court will determine the present situation concerning said indebtedness and the effect of the foreclosure.
5. Interest.
The court instructed that interest from December 13, 1946, the date of the fire, at 7 per cent per annum should be allowed. This instruction was incorrect. [4] Until a determination was made as to the amount of damage caused by the fire and which would have been recoverable under the contemplated fire insurance policy, the indebtedness from the bank to plaintiffs was unliquidated. Interest, therefore, could not commence until judgment. (See Axell v. Axell, 114 Cal.App.2d 248 [ 250 P.2d 182]; Albertsworth v. Glens Falls Indem. Co., 84 Cal.App.2d 816 [ 192 P.2d 66].) Apparently the judgment allowed interest from the date of the fire on some amount. This probably accounts for the odd figures in the judgment. For this reason, also, the issue of damages will have to be retried.
(6) Bank's Cross-complaint.
This cause of action is based upon the bank's contention that by the terms of the deed of trust Graddons were obligated to procure the fire insurance, and having failed to do so the bank is entitled to reimbursement for all moneys loaned Graddons. Inasmuch as the jury found that the physical obtaining of the insurance was the bank's duty, the jury properly found against the bank on the latter's cross-complaint.
B. PLAINTIFFS' APPEAL.
[5] Because we have sustained the judgment as to defendant's liability under the second cause of action in Graddon's cross-complaint, the appeal from the judgment on the order granting a nonsuit in favor of the bank on the third cause of action in Graddons' cross-complaint has become moot. The appeal therefrom is dismissed.
The judgment insofar as it imposes liability in favor of Graddons under the second cause of action in their cross-complaint and the judgment in Graddons' favor on the bank's cross-complaint are affirmed. The judgment as to the amount of damages is reversed and the cause is remanded with instructions to the trial court to retry solely the issue as to damages. The interests of justice require that plaintiffs recover costs. (See Rule 26(a), Rules on Appeal.)
Peters, P.J., and Wood (Fred B.), J., concurred.
The petition of intervener and appellant Anglo California National Bank for a hearing by the Supreme Court was denied March 14, 1956.