Brown’s Tie & Lumber Co. v. Chicago Title Co. of Idaho

Brown’s Tie & Lumber Co. (Brown’s Tie) (plaintiff) entered into an agreement to sell a motel. Chicago Title Company of Idaho (Chicago Title) (defendant) was designated as trustee in the motel’s bill of sale and also acted as closing agent for the transaction. The buyer defaulted, and Brown’s Tie directed Chicago Title to foreclose on the motel and to insure title at the foreclosure sale. Proper notice of the foreclosure was provided, and the statutory time to cure expired. Shortly thereafter, Brown’s Tie and the buyer entered into a consensual cure agreement, and the buyer was required to remove unauthorized encumbrances on the motel property. Chicago Title erroneously reported that there were no unauthorized encumbrances and failed to identify a subsequent deed issued by the buyer for $880,000. Relying on the report of clean title, Brown’s Tie did not move forward with the foreclosure and allowed the buyer to cure. Later that year, the buyer defaulted again, and Brown’s Tie reinitiated foreclosure proceedings. Three months after the proceedings were reinitiated, Chicago Title discovered the $880,000 deed and notified Brown’s Tie of its existence. Brown’s Tie wrote a letter seeking damages for the resulting postponement of the foreclosure sale, and Chicago Title responded that if the sale were not postponed, the title policy would contain an exception for the $880,000 deed. Having no viable alternative, Brown’s Tie allowed the postponement of the sale. Concurrently, the buyer was going through bankruptcy proceedings and was adjudged bankrupt prior to the foreclosure, and the foreclosure sale was vacated. Brown’s Tie entered into a settlement with the bankruptcy trustee, allowing the foreclosure to proceed and granting the buyer an option to purchase. Brown’s Title entered into a new purchase agreement for $2.8 million and sought damages from Chicago Title for its failure to discover the $880,000 deed. Brown’s Title then filed suit alleging a number of claims, including breach of contract and negligent misrepresentation. Brown’s Title sought losses for the operating costs incurred by the delayed sale and submitted an affidavit that had the sale been allowed to proceed on time, title would have passed by October 1981. The district court held that Brown’s Tie had an action in contract, but not in tort, and dismissed the remaining claims. Brown’s Tie asserted that the dismissal was in error and challenged the court’s exclusion of evidence of lost operating expenses and losses. Chicago Title asserted that the claims were properly dismissed and stated that the contracts for title insurance were the sources of the duty between the parties.