Lydia Degueyter v. First American Title Company

• Court: Louisiana Court of Appeal
• Decided: October 25, 2017
• Docket: CA-0017-0078
• Status: Unknown

Opinion

STATE OF LOUISIANA COURT OF APPEAL, THIRD CIRCUIT

17-78

LYDIA DEGUEYTER

VERSUS

FIRST AMERICAN TITLE COMPANY

********** APPEAL FROM THE SIXTEENTH JUDICIAL DISTRICT COURT PARISH OF ST. MARTIN, DOCKET NO. 83328 HONORABLE KEITH R. J. COMEAUX, PRESIDING **********

SYLVIA R. COOKS JUDGE

**********

Court composed of Sylvia R. Cooks, Shannon J. Gremillion, and Van H. Kyzar, Judges.

REVERSED, RENDERED, AND REMANDED.

Gremillion, J., concurs and assigns written reasons.

Jonathan R. Villien William W. Stagg Durio, McGoffin, Stagg & Ackermann, P.C. 220 Heymann Boulevard Lafayette, LA 70503 (337) 233-0300 ATTORNEY FOR PLAINTIFF/APPELLANT Lydia Degueyter

Steven W. Copley Phillip J. Antis, Jr. Alex B. Rothenberg Michael J. Fussell, Jr. Gordon, Arata, Montgomery, Barnett, McCollam, Duplantis & Eagan, LLC 201 St. Charles Ave., 40th Floor New Orleans, LA 70170-4000 (504) 582-1111 ATTORNEY FOR DEFENDANT/APPELLEE First American Title Insurance Company of Louisiana COOKS, Judge. On August 1, 2014, Lydia Degueyter and her brother-in-law, Charles Faul,

acquired through a cash sale a one hundred percent undivided interest in a tract of

land located on Snapper Road in New Iberia, Louisiana. The act of cash sale listed

Nationwide Mortgage, LLC as the seller, and Lydia and Charles as the buyers.

The listed price was $143,325.00. The act of cash sale was signed and notarized

on August 1, 2014, although it was not filed into the Iberia Parish conveyance

records until September 3, 2014, at 4:09 p.m.

In connection with the cash sale, on September 3, 2014, Lydia and Charles

purchased a title insurance from First American Title Insurance Company. The

policy specified that “[t]itle is vested in” Lydia and Charles. According to the

record, the policy was effective “09/03/2014 @ 04:09 p.m. or the date of

recording, whichever is later.” Lydia and Charles were both listed as insureds

under the policy.

Charles also transferred his entire undivided interest to Lydia by a donation

inter vivos, which according to the donation was “done and passed in Lafayette

Parish, Louisiana, on the 2nd day September, 2014.” The donation was properly

recorded with the Iberia Parish Clerk of Court on September 3, 2014 at 4:09 p.m.

at the same exact time the act of cash sale was recorded and the First American

policy went into effect.

In April of 2015, Lydia attempted to obtain financing from Farmers

Merchants Bank & Trust Company (hereafter FM Bank), using the property on

Snapper Road as collateral. However, her application for financing was denied by

FM Bank due to the presence of multiple judgments attached to the property.

Upon further investigation, Lydia discovered the recordation of ten judgments or

tax liens in favor of third parties against Charles and his various business entities,

which attached to the property upon his acquiring an interest therein.

2 Shortly after discovering the judgments on the property, Lydia contacted

First American seeking coverage through the title policy. First American denied

the claim. On November 13, 2015, Lydia filed suit against First American seeking

coverage under the title insurance policy purchased on September 3, 2014. In

conjunction with the filing of suit, Lydia filed a Motion for Summary Judgment,

arguing there was no genuine issue of material fact as to coverage in her favor

under the policy. Lydia argued she has never held marketable title to the property

due to the encumbrances on the property and this was an insurable risk under the

plain language of the policy.

First American responded and filed a Cross Motion for Summary Judgment.

It argued, as a matter of law, that Lydia had no claim against First American under

the title insurance policy because the policy insured Lydia as to her interest as co-

owner, and the judgments against Charles did not encumber and had no effect on

her ownership interest.

Both motions for summary judgment were set for hearing on August 1,

2016. Following the hearing, the trial court granted First American’s motion for

summary judgment and denied Lydia’s motion for summary judgment. In its

written reasons for judgment, the trial court found Charles’ “judicial mortgages

and liens attached only to his one-half interest in the Snapper property because that

is all he owned.” The trial court further found “Lydia has clear and unencumbered

title on her undivided one-half interest in the Snapper immovable property that she

originally obtained when she purchased the property with Charl[es] . . . [and] title

on her undivided one-half interest in the Snapper property was the interest first

insured by First American.” The trial court then concluded “any judgment

granting Lydia relief as requested would force [First American] to pay a claim that

did not exist at the date of the policy.”

3 Lydia has appealed the trial court’s judgment, asserting the following

assignments of error:

1. The trial court manifestly erred in finding that [Charles’] outstanding judgments and liens which attached to the immovable property subject to the title insurance policy at issue did not cause the title to the property to be unmarketable as of the date of the policy, an insurable risk under the policy, and therefore that there was no coverage for [Lydia].

2. The trial court manifestly erred in finding that [Lydia’s] interpretation and construction of the applicable language of the title insurance policy at issue was not reasonable.

ANALYSIS

Summary judgments are reviewed de novo on appeal and the reviewing

court is governed by the same criteria as the trial court in determining whether the

mover is entitled to judgment as a matter of law. Schroeder v. Board of

Supervisors, 591 So.2d 342 (La.1991). Summary judgment is appropriate when

there remains no genuine issue as to material fact and the mover is entitled to

judgment as a matter of law. La.Code Civ.P. art. 966. Summary judgments are

now favored in Louisiana and shall be construed to accomplish the ends of just,

speedy, and inexpensive determination of allowable actions. La.Code Civ.P. art.

966.

The mover bears the burden of proof. La.Code Civ.P. art. 966. Once the

mover has made a prima facie showing that the motion shall be granted, the burden

shifts to the adverse party to present evidence demonstrating that material factual

issues remain. Luther v. IOM Company, LLC, 13-353 (La. 10/15/13), 130 So.3d

817. If the adverse party fails to do so, there is no genuine issue of material fact

and summary judgment will be granted. Id.

The parties largely agree on the facts of this case. The issue herein is the

interpretation and application of the title insurance policy issued by First

American. “Interpretation of an insurance policy usually involves a legal question

4 that can be properly resolved in the framework of a motion for summary

judgment.” Kirby v. Ashford, 15-1852, p. 5 (La.App. 1 Cir. 12/22/16), 208 So.3d

932, 936-37 (citing Bonin v. Westport Ins. Corp., 05-886 (La. 5/17/06), 930 So.2d

906).

In interpreting an insurance contract, we are mindful “that an insurance

policy is a contract between the parties and should be construed using the general

rules of interpretation of contracts set forth in the Civil Code.” Sims v. Mulhearn

Funeral Home, Inc., 07-54, p. 7 (La. 5/22/07), 956 So.2d 583, 588-89. Under

La.Civ.Code art. 2046, “[w]hen the words of a contract are clear and explicit and

lead to no absurd consequences, no further interpretation may be made in search of

the parties’ intent.”

Courts must determine the intent of the parties when interpreting an

insurance policy. La.Civ.Code art. 2045. Insurance policies should be interpreted

to effect coverage, not deny coverage. Yount v. Maisano, 627 So.2d 148

(La.1993). An exclusion from coverage should be narrowly construed. Breland v.

Schilling, 550 So.2d 609 (La.1989). An insurance policy should not be interpreted

unreasonably or in a strained manner in an attempt to enlarge or restrict its

provisions beyond what is reasonably contemplated by its terms or so as to achieve

an absurd result. Bernard v. Ellis, 11-2377 (La. 7/2/12), 111 So.3d 995; Graphia

v. Schmitt, 08-613 (La.App. 5 Cir. 1/13/09), 7 So.3d 716.

Lydia maintains that the trial court manifestly erred in this case because title

to the immovable property was unmarketable from the inception of the issuance of

the title insurance policy by First American. She argues the encumbrances of the

property due to the judgments against Charles rendered the property unmarketable

under the policy, which is a risk insured under the language of the policy.

5 The First American policy listed the following under the heading

“COVERED RISKS:”

1. Title being vested other than stated in Schedule A. 2. Any defect in or lien or encumbrance on the Title. This Covered Risk includes but is not limited to insurance against loss from (a) A defect in the Title caused by (i) forgery, fraud, undue influence, duress, incompetency, incapacity, or impersonation; (ii) failure of any person or Entity to have authorized a transfer or conveyance; (iii) a document affecting Title not properly created, executed, witnessed, sealed, acknowledged, notarized, or delivered; (iv) failure to perform those acts necessary to create a document by electronic means authorized by law; (v) a document executed under a falsified, expired, or otherwise invalid power of attorney; (vi) a document not properly filed, recorded, or indexed in the Public Records including failure to perform those acts by electronic means authorized by law; or (vii) a defective judicial or administrative proceeding. (b) The lien of real estate taxes or assessments imposed on the Title by a governmental authority due or payable, but unpaid. (c) Any encroachment, encumbrance, violation, variation, or adverse circumstance affecting the Title that would be disclosed by an accurate and complete survey of the Land. The term “encroachment” includes encroachments of existing improvements located on the Land onto adjoining land, and encroachments onto the Land of existing improvements located on adjoining land. 3. Unmarketable Title. 4. No right of access to and from the Land.

(Emphasis added.)

Black’s Law Dictionary defines “merchantable” as “fit for sale in the usual

course of trade at the usual selling prices” and further indicates marketable as the

predominant term for “merchantable.” “Property has a merchantable title when it

can be readily sold or mortgaged in the ordinary course of business by reasonable

persons familiar with the facts and questions involved.” Young v. Stevens, 209

So.2d 25, 27 (La. 1967). This court in Vallery v. Belgard, 379 So.2d 1201, 1204

(La.App. 3 Cir. 1980), cited with approval the court’s discussion of merchantable

title in Young, 209 So.2d at 27:

6 Property has a merchantable title when it can be readily sold or mortgaged in the ordinary course of business by reasonable persons familiar with the facts and questions involved. Roberts v. Medlock, 148 So. 474 (La.App.1933). “[O]ne should not be made to accept a title tendered as good, valid and binding unless it is entirely legal from every point of view.” Bodcaw Lumber v. White, 121 La. 715, 721, 46 So. 782, 784 (1908). The promisee in a contract to sell is not called upon to accept a title which may reasonably suggest litigation. Marsh v. Lorimer, 164 La. 175, 113 So. 808 (1927). And while the amount involved may be small, “it cannot be said that because of this fact the danger of litigation is not serious. No one can be forced to buy a lawsuit . . .” Rodriguez v. Schroder, 77 So.2d 216, 224 (La.App.1955).

As Lydia notes, Louisiana law only requires that a plaintiff seeking to

recover on the basis of unmerchantable title “must show that third persons (not

parties to the action) might thereafter make claims of a substantial nature against

the property, and thereby subject the vendee to serious litigation.” Langford Land

Co. v. Dietzgen Corp., 352 So.2d 386, 388-389 (La.App. 4 Cir. 1977) (citing Kay

v. Carter, 243 La. 1095, 150 So.2d 27, 29 (1963) and Pesson Plumbing and

Heating Co., Inc. v. Hammonds, 160 So.2d 769 (La.App. 3 Cir. 1964)).

The record showed that the judicial mortgages and liens adverse to Charles

preexisted his acquisition of the property in question, and were certainly attached

to the subject property on September 3, 2014 at 4:09 p.m., which was the effective

date of the policy. It is also clear from the record that Charles’ judicial mortgages

and liens attached to the property as far back as August 1, 2014, when the cash sale

was signed by the parties and notarized. While the consent of all co-owners is

required for the establishment of a conventional mortgage, a judicial mortgage,

such as burdened the property in question here, attaches without consent.

Therefore, we find that the property was burdened with Charles’ judicial

mortgages and liens well in advance of the issuance of the First American policy.

It is pertinent to note that the act of cash sale signed and notarized on August

1, 2014, listed Delta Title Corporation as the preparer of the form and the returnee

on the act of cash sale. We glean from the face of the policy that Delta Title was

7 also the issuing agent for First American on the policy in question issued to Lydia.

Therefore, it is clear that Delta Title was aware of the purchase of the property

from August 1, 2014.

Our review of the record convinces us that the encumbrances on the property

rendered Lydia’s title, from its inception, unmarketable. This was clearly an

insurable risk under the language of the First American policy with Lydia. The

policy clearly states that unmarketability and encumbrances on the title as of the

date of the policy are insured risks. The record establishes as of the date of the

policy, the property had been acquired by Charles and donated to Lydia. The

donation was executed the day before the issuance of the policy, and filed

contemporaneously with the issuance of the policy.

First American argues it is not required to pay under its policy because

Lydia has clear and unencumbered title on her undivided one-half interest in the

Snapper Road property and this title on her undivided one-half interest was the

interest that was first insured by First American. In support of this argument it

cites the case of McSwain v. Bryant, 503 So.2d 605 (La.App. 1 Cir. 1987). In that

case, a divorcing couple chose not to partition their immovable community

property and became co-owners in indivision. The husband later executed a

collateral mortgage on properties that he still co-owned with his ex-wife. The

husband became delinquent on the mortgage payments and judgments attached.

The McSwain court noted that an “owner in indivision can grant a mortgage over

his undivided interest in property and that this interest can be seized and sold to

satisfy the mortgage.” Id. at 607. The court did note “[t]o the extent that the

collateral mortgage purported to extend over [the ex-wife’s] undivided interest in

the property it was ineffective. However, as to [the husband’s] interest, the

mortgage was valid and enforceable.” Id.

8 We find McSwain distinguishable in the present case, as it does not involve

title insurance or judicial mortgages and in no way addresses the key issue of the

marketability of the Snapper Road property. It merely discusses the rights of

owners in indivision, noting an owner in indivision can grant a conventional

mortgage over his or her undivided interest in the property.

Moreover, we find First American’s argument that the encumbrances only

affected Charles’ interest in the property and his title ignores the stark reality that

third parties possess outstanding rights of a “substantial nature against the

property,” which effectively renders title in the property unmarketable. See Bart v.

Wysocki, 558 So.2d 1326 (La.App. 4 Cir. 1990). Lydia’s title to the property in

reality was unmarketable as of the time the policy went into effect. As Lydia

notes, the rights of the judgment creditors against the property are substantial,

irrespective of First American’s contention that the encumbrances only affected

Charles’ interest in the property and his title. We note nothing in the policy

distinguishes between Lydia’s title and Charles’ title and only one premium was

charged. The policy states that it “insures, as of Date of Policy. . . against loss or

damage. . . sustained or incurred by the Insured by reason of: . . . 3. Unmarketable

Title.” The policy then defines “Unmarketable Title” as follows:

Title affected by an alleged or apparent matter that would permit a prospective purchaser or lessee of the Title or lender on the Title to be released from the obligation to purchase, lease or lend if there is a contractual condition requiring the delivery of marketable title.

Clearly, as of the date of the policy, there were multiple

encumbrances on the property (Charles’ judicial mortgages and liens), which

would allow for a prospective purchaser, lessor or lender to be released from

any obligation to purchase, lease or lend, as there was not marketable title on

the property. This was evidenced when FM Bank refused to approve

Lydia’s request for financing due to the encumbrances. Thus, it is clear the

9 property could not “be readily sold or mortgaged in the ordinary course of

business.” See Young, 209 So.2d at 27. We agree with Lydia that the

concept of marketability as addressed in the jurisprudence is consistent with

the policy’s definition of “unmarketable title,” and is thus an insurable risk

under the plain terms of the First American policy. We note the trial court’s

written reasons for judgment do not address the issue of marketability of the

property. As the policy clearly lists marketability of the property as a

covered risk, it was error for the trial court not to address that issue.

First American argues that the “policy does not cover defects, liens,

encumbrances, adverse claims, or other matters attaching or created

subsequent to the Date of Policy.” We agree with Lydia that the record

establishes the judicial mortgages and liens adverse to Charles preexisted his

acquisition of the subject property and, thus, attached to the property prior to

the date and time of the policy’s issuance. As set forth earlier, there is

nothing in the record to indicate Lydia was aware of the encumbrances on

the subject property prior to her application for financing with FM Bank.

Thus, we find the exclusion cited by First American inapplicable as the

encumbrances and liens were not created “subsequent to the Date of the

Policy.”

First American also argues that coverage is excluded under the policy

because the judicial mortgages which attached to the property were “created,

suffered, assumed, or agreed to by the Insured Claimant.” First American

offered no evidence to establish that Lydia “created, suffered, assumed, or

agreed” to the establishment of Charles’ judicial mortgages, nor did it offer

any evidence that she agreed to their attachment to the property. Moreover,

as Lydia notes, since “Insured Claimant” refers to the insured claimant who

actually claims loss or damages, Charles would not be considered the

10 “Insured Claimant” here as he is not claiming loss or damage. We find this

exclusion is not applicable herein.

CONCLUSION

As set forth above, we find the Snapper Road property was

unmarketable as of the effective date of the First American policy. As this

was a covered risk under the language of the policy, we reverse the

judgment of the trial court granting First American’s motion for summary

judgment denying coverage under its policy. Judgment is hereby rendered

granting Lydia Degueyter’s motion for summary judgment that there is

coverage under the First American policy. The matter is hereby remanded to

the trial court for further proceedings consistent herewith. Costs of this

appeal are assessed against defendant, First American Title Insurance

Company.

11 STATE OF LOUISIANA

COURT OF APPEAL, THIRD CIRCUIT

Gremillion, J., concurs for the following reasons:

I am not swayed by First American’s arguments regarding timing. It did not

issue this title policy after considering when and how Charles’s various liens and

judgments would attach to the subject property; it simply was unaware of their

existence. It was First American’s obligation to discover the liens and judgments

that affect the property to which they are insuring marketable title.

Similarly, I am not sympathetic to First American’s technical arguments that

attempt to obviate the reality that this property is not marketable. A title insurance

policy exists to cover the risk that the insured property owner does not have an

unmarketable title, subject to the encumbrances of its former owners.

Accordingly, I must agree with the majority.

That having been said, I can only concur with my colleagues for two

reasons. First, the majority finds that:

‘…since “Insured Claimant” refers to the insured claimant who actually claims loss or damages, Charles would not be considered the “Insured Claimant” here as he is not claiming loss or damage. We find this exclusion is not applicable herein.’ This finding creates an incentive for abuse of the donative process between

co-buyers. An encumbered co-buyer simply donates his portion of the property to

other co-buyers, allowing for a convenient insurance claim for the remaining

"insured claimant."

Secondly, and specifically to this case, had Lydia bought this property

without Charles, she would be the only owner as she is today. But, because

Charles stepped in as co-buyer and then stepped out almost immediately as donor,

Lydia gets the same ownership of the same property at the same price, and gets to

make a claim on this insurance policy. I can see no good reason for this

contrivance.

The majority points out in the first line of the opinion that Charles and Lydia

are part of the same family, but proceeds as though that fact was irrelevant. I

cannot conclude that Lydia was unaware of the existence of not one or two, but

ten, encumbrances against Charles. And, if she did not know, she could have

simply asked her brother-in-law about his fitness to be a co-owner of immoveable

property.

Nevertheless, it is true that First American failed to offer any proof of

Lydia’s knowledge of Charles’s indebtedness. Thus, even though Lydia was

better-positioned to avoid this problem, I am constrained by the policy language

and the record before me. Therefore, I concur.