On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County.
Shebell, Skillman and D'Annunzio. The opinion of the court was delivered by Shebell, J.A.D.
The opinion of the court was delivered by
In this case we address the question of the liability of a title insurance company for the theft by a purchaser's attorney of the monies intended to be used for satisfaction of an outstanding mortgage on the premises being purchased where the title policy commitment expressly imposes as a requirement of feetitle coverage that the outstanding mortgage be paid and canceled of record and where no closing-protection letter has been issued by the title insurance company.
On September 13, 1985, Michael Rose purchased a residential condominium unit located in Leonia, New Jersey. On the same day, Rose mortgaged the premises to the extent of $107,950 to Allstate Enterprises Mortgage Corporation (now known as Sears Mortgage Corporation or Sears).
On August 3, 1987, Rose entered into a contract to sell the premises to defendant third-party plaintiff, Emery Kaiser, for a purchase price of $165,000. Kaiser retained Joseph F. Gillen, Esq. to represent him in the purchase of the premises. At the time Kaiser had retained Gillen, and at the time of closing,
Gillen was a duly-licensed attorney-at-law of the State of New Jersey, with extensive experience in real estate.
The "Rose to Kaiser" contract of sale did not contain a mortgage contingency clause because Kaiser did not require mortgage financing for the transaction and the closing took place without Kaiser using any mortgage financing. Gillen applied in writing to Commonwealth Land Title Insurance Company (Commonwealth) for a title commitment for his client, Kaiser. The application designated Kaiser as purchaser and requested a fee policy in the amount of $165,000 insuring Kaiser's ownership in the property.
Commonwealth issued its title commitment letter, dated August 2, 1987. The title commitment referred to "Applicant: Joseph F. Gillen, Esq.," and named Emery Kaiser as proposed fee insured. Commonwealth mailed the title commitment to Gillen as Kaiser's attorney. The Sears mortgage was one of several requirements contained in that document:
The Following Requirements must be met:
Mortgage Book 6902 page 493 made by Michael Rose, unmarried, to Allstate Enterprises Mortgage Corporation, 300 Knightsbridge Parkway, # 500 Lincolnshire, Illinois 60069, dated 9/13/85, recorded 9/24/85. Secures $107,950.00. To be paid and cancelled of record. [Emphasis added].
Commonwealth's title commitment was issued and signed by an assistant vice president of Commonwealth.
Before the closing on the property, Commonwealth mailed its invoice, dated September 15, 1987, for Kaiser's title commitment charges and insurance premium, again addressed to "Joseph F. Gillen, Esq." as Kaiser's attorney. Also in advance of closing, a judgment search was forwarded to "Joseph F. Gillen, Esq." under a cover letter signed by the assistant vice president of "Commonwealth Land Title Insurance Company."
In advance of closing, Gillen wrote for and obtained a payoff statement on the Sears mortgage from Sears. The "Rose to Kaiser" closing took place on October 16, 1987 at Gillen's law office in Ridgewood. Present at the closing were Richard M. Fricke, Esq. (attorney for Rose), Kaiser, and Gillen.
In accordance with the customary real-estate-closing practice in northern New Jersey, Gillen did not request that a Commonwealth closing agent be present (although he could have had he paid a rate-approved fee). Because Kaiser had not specifically instructed Gillen to use Commonwealth as title insurer, he was unaware that Gillen had selected Commonwealth to insure title until the closing day. At no time prior to or at closing had Kaiser directly communicated with any representatives of Commonwealth. The first direct communication between Commonwealth and Kaiser was a letter to Kaiser dated December 1, 1987, from Commonwealth's vice president and counsel referring to the fact that the Sears mortgage remained open of record.
On the morning of October 16, 1987, a closing of title had taken place at which Kaiser sold the house in which he had been living, took back a one-year $140,000 purchase-money mortgage from the purchasers, and received a net-proceeds check for approximately $127,000. Kaiser endorsed that $127,000 check to Gillen. Neither Commonwealth, Rose, nor Rose's attorney, Fricke, was involved in the morning closing. The amount that Kaiser had delivered to Gillen from the morning house closing was more than sufficient to cover the outstanding balance of the Sears mortgage.
At the October 16, 1987 "Rose to Kaiser" closing, Kaiser was given a credit against the purchase price in the amount of the outstanding balance on the Sears mortgage. Fricke (Rose's attorney), Kaiser, and Gillen agreed that Gillen would promptly pay and satisfy the Sears mortgage so that Kaiser's title would be good and marketable as provided for in the contract of sale. Gillen, however, did not forward any funds to Sears. Instead,
Gillen misappropriated those funds. He was later criminally convicted and disbarred.
On October 20, 1987, Gillen paid Commonwealth's invoice of $704.25 for title charges and premiums. At the time of that payment, Gillen had requested that Commonwealth issue its fee-title-insurance policy to Kaiser, free of the Sears mortgage exception. The Sears mortgage remains open and unpaid at this time. Payments were not made on the ...