Lawyers' Title Guaranty Fund v. Sanders

1977 OK 210, 571 P.2d 454, 48 O.B.A.J. 2505, 1977 Okla. LEXIS 770

• Court: Supreme Court of Oklahoma
• Decided: November 8, 1977
• Docket: 50221
• Status: Published

Opinions

PER CURIAM:

Tulsa residents, David H. and Mary E. Sanders (sellers), appellees, sold some out of state real property. After completion of the sale, including a conveyance of the property that contained a warranty, buyers discovered there was an unsatisfied lien against the property. In his title examination and opinion, buyers’ out of state attorney failed to advise, or make a requirement, as to this unsatisfied lien. In settlement of a resulting malpractice claim, the attorney’s malpractice insurers, Lawyers’ Title Guaranty Fund and the St. Paul Insurance Companies (insurers), appellants, furnished the monies used by the buyers to satisfy the outstanding lien.

Insurers brought suit against sellers for breach of warranty contained in the real estate conveyance caused by the unsatisfied lien, claiming subrogation to buyers’ cause of action. Subrogation was based on satisfaction of the outstanding lien realized by the buyers in settlement of the buyers’ malpractice claim. Trial court sustained a general demurrer to the petition and dismissed.¹ Insurers appeal.

Sellers argue (1) insurers’ subrogation is limited to claims of their own insured, the title attorney, which are non-existent against sellers; and (2) no privity, or contract, as between insurers and buyers for subrogation of buyers’ claim against sellers.

There are two kinds of subrogation, (1) legal or equitable; and (2) conventional. Conventional subrogation comes from a contract or agreement, expressed or implied. Jorski Mill & Elevator Co. v. Farmers Elevator Mut. Ins. Co., 10th Cir., 404 F.2d 143, 147 (1968).² Legal subrogation is a creature of equity, not depending upon contract, but upon the equities of the parties. It is not dependent upon assignment, privity, or strict suretyship. General Creditors of Estate of Harris v. Cornett, Okl., 416 P.2d 398, 400 (1966). This principle is a fluid concept depending upon the particular facts and circumstances based on natural justice of placing the burden of bearing a loss where it ought to be, and without the form of a rigid rule of law. Sutton v. Jondahl, Okl.App., 532 P.2d 478, 482 (1975).³

Here, insurers do not seek conventional subrogation to the claims of their insured through their insurance contract, but legal subrogation to the claims of the buyers based on the equities of the parties. In sustaining the general demurrer, the trial court found lack of superior equity in the insurers as over the sellers. We disagree.

Sellers breached the contractual duties encompassed by the provisions of the warranty deed and for that reason buyers suffered a loss. The burden of the loss buyers sustained was shifted to insurers when it became apparent their insured breached his duty of care to the buyers. In honoring the contractual obligation to indemnify their insured, insurers are not, as to the payment of the lien obligation, mere volunteers. Their interest is real, pecuniary and obligatory. The question is, therefore, as between these parties, insurers and sellers, which in equity should bear the greater responsibility for the loss? Sellers sold the property without applying the proceeds of the sale to the outstanding lien obligation. Sellers of necessity received more net proceeds from the real estate sale than that to which they were entitled. Implicit in the foregoing is the conclusion that sellers received an unjust enrichment as a result of their breach of warranty.

Under the circumstances in this particular case, and as between the two parties here, natural justice places the burden of bearing the loss where it ought to be, on the sellers, who breached their warranty and were unjustly enriched. The trial court erred in sustaining the general demurrer and dismissing.

REVERSED AND REMANDED FOR FURTHER PROCEEDING.

HODGES, C. J., LAVENDER, V. C. J. and DAVISON, WILLIAMS, IRWIN, BERRY, BARNES and SIMMS, JJ., concur. DOOLIN, J., dissents.

1 . Although argued in sellers’ brief, the trial court did not rule on the statute of limitations problem raised by sellers through a special demurrer filed with the general demurrer. Trial court’s order sustaining the general demurrer reflects the ruling was based on the existence of superior equity as between the parties rather than the limitation problem. Without the trial court having ruled on that issue, we do not have it before us on this appeal.

2 . At p. 147, the opinion discusses the kinds of subrogation and reads in part:

“ * * * Indeed, there are two kinds of subrogation, (1) legal or equitable, and (2) conventional. Conventional subrogation arises only by reason of an express or implied agreement. The statements in Hartford Accident & Indemnity Co. v. First Nat. Bank & Trust Co., 10 Cir., 287 F.2d 69, 71; Pearlman v. Reliance Ins. Co., 371 U.S. 132, 137, 83 S.Ct. 232, 9 L.Ed.2d 190 and Memphis & Little Rock R. R. Co. v. Dow, 120 U.S. 287, 301-302, 7 S.Ct. 482, 30 L.Ed. 595, all refer to legal or equitable subrogation and do not deny that conventional subrogation exists by contract. Subrogation is the substitution of one person in the place of another with reference to a lawful claim, demand, or right. The substitution may occur through the invocation of the ‘doctrine’ of sub-rogation or it may be confirmed and acquiesced in by contract. Neither method is exclusive.” (Footnote omitted.)

3 . At pages 481, 482, the opinion reads in part:

“The principle of subrogation was begotten of a union between equity and her beloved— the natural justice of placing the burden of bearing a loss where it ought to be. Being so sired this child of justice is without the form of a rigid rule of law. On the contrary it is a fluid concept depending upon the particular facts and circumstances of a given case for its applicability. To some facts subrogation will adhere — to others it will not. Home Owners’ Loan Corporation v. Parker, 181 Okl. 234, 73 P.2d 170 (1937).”