On appeal from the Superior Court of New Jersey, Law Division, Essex County.
Approved for Publication January 21, 1997.
Before Judges Michels, Muir, Jr. and Kleiner. The opinion of the court was delivered by Michels, P.j.a.d.
The opinion of the court was delivered by: Michels
The opinion of the court was delivered by
Defendant and third-party plaintiff Stewart Title Guaranty Co. (Stewart Title) appeal from a judgment of the Law Division entered in favor of third-party defendants Janice M. Newman, Esq. (Newman) and R.C. Search Co., Inc. (R.C.) following a bench trial arising out of a foreclosure action in which Stewart Title sought to recover damages, including counsel fees and costs, against Newman on the theory of legal malpractice and against R.C. on the theory of breach of contract.
The factual background and the procedural history giving rise to this complex matter is summarized as follows: On June 22, 1981, Stewart Title and R.C. executed a Title Insurance Underwriting Agreement wherein R.C. became an agent for Stewart Title. Section 5 of the Underwriting Agreement set forth how losses were to be divided between the two companies. Section 5(A) specified that R.C. would be liable to Stewart Title for the first $500 of each loss under a title policy not due to R.C.'s negligence or fraud. Section 5(A) provides:
On each loss under a title policy issued pursuant to this AGREEMENT not due to [R.C.'s] negligence or fraud, [R.C.] shall be liable to [Stewart Title] for the first $500.00 of such loss. The term loss shall include the amount paid to or for the benefit of the insured as well as loss adjustment expense including any cost of defending the claim resulting in the loss.
Section 5(B) provided that R.C. was liable to Stewart Title for the entire amount of each loss due to negligence, fraud, or the intentional act or omission of R.C., its employees, representatives, or agents. Section 5(B) provides:
On each such loss due to the negligence, fraud or intentional act or omission of [R.C.] or it's [sic] employees, representatives or agents, [R.C.] shall be liable to [Stewart Title] for the entire amount of such loss. Negligence, as the term is used herein, includes, but is not limited to the failure of the title plant, failure to discover or report any instrument of record affecting title, violation of escrow instructions and the failure to prepare a title policy in a manner that properly reflects any such instrument contained in the search of title.
Section 5(C) provided that: "On each loss suffered by [Stewart Title] by reason of it's [sic] Indemnity Letter issued pursuant to Clause 2E of this AGREEMENT, [R.C.] shall be liable to [Stewart Title] for the entire amount of such loss." Clause 2(E), in turn, provided: "[Stewart Title] shall furnish it's [sic] usual form of indemnity letter to each of [R.C.]'s customers that request such a letter."
The issues in this appeal arose from a real estate transaction occurring on or about July 9, 1990. Defendant Leroy Bailey and Veleria Bailey (the Baileys) were the fee title owners of real property located at Lot 14, Block 258, otherwise known as 104 Mt. Vernon Avenue (the property), in the Township of Irvington, New Jersey. The Baileys retained the services of Newman, an attorney, to close a loan of $80,000.00 to be made by defendant Citicorp Mortgage, Inc. (Citicorp). The Citicorp loan was to refinance the existing debt secured by the property.
At the time the property was encumbered by two existing mortgages: a purchase money mortgage of Forman Mortgage Co. in the amount of $26,000.00, assigned to Talman Home Mortgage Corporation (Talman) and a second mortgage of plaintiff Chemical Bank of New Jersey, National Association (Chemical), in the amount of $50,000.00. Citicorp required that the mortgage securing its loan be a first lien on the property. The loan commitment issued by Citicorp further required that the Baileys obtain a title insurance policy insuring the Citicorp mortgage as a first lien.
Newman, on behalf of the Baileys, contacted R.C. to obtain the requisite title insurance for the Citicorp mortgage. A commitment for title insurance, effective February 5, 1990, was issued by R.C. The policy to be issued was a loan policy insuring the Citicorp mortgage of $80,000.00 as a first lien. The requirements of the commitment issued by R.C. included the execution, delivery, and recording of all instruments necessary to create the interest to be insured.
Newman received closing instructions from Citicorp's review attorneys. One of the identified conditions to be met ...