Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of Los Angeles County, No. TC017408, Rose Hom, Judge.
John A. Bunnett for Cross-defendants and Appellants.
The Dreyfuss Firm and Lawrence J. Dreyfuss for Cross-complainant and Respondent.
KRIEGLER, J.
Cross-defendants and appellants Leonard E. Stanhope, Rena Stanhope, and the Stanhope Family Retirement Trust (collectively the Stanhopes) appeal from a judgment in favor of cross-complainant and respondent RMC Realty. This action arises out of a purchase agreement for real property the Stanhopes purported to sell to Pacific Communication Products, Inc. At the time of the sale, a judgment existed that required the Stanhopes to transfer the property to Earline Dennis. Pacific sold the property to RMC. Dennis filed a quiet title action and RMC filed a cross-complaint. Pacific and RMC settled Dennis’s claims largely through a payment from their title insurer. Pacific assigned its claims to RMC and the title insurer pursued its right to subrogation in RMC’s name. The trial court found RMC was entitled to rescission of the purchase agreement between Pacific and the Trust and awarded restitution and consequential damages
The Stanhopes may be referred to by their first names, when necessary for clarity, throughout this opinion.
On appeal, the Stanhopes contend: 1) the statutes of limitations for contracts and fraud barred Dennis’s claim to the property; 2) the statute of limitations for enforcement of a judgment under Code of Civil Procedure section 683.020 barred Dennis’s claim to the property; 3) Dennis lost her right to purchase the property, because she failed to perform in accordance with the terms of the parties’ escrow agreement; 4) the damages awarded by the trial court are unjust and not supported by substantial evidence, because they place RMC in a better position than simply returning to the status quo and include money paid by the title insurer without evidence of a valid subrogation claim; and 5) the statement of decision omitted findings on critical issues in controversy that were requested by the Stanhopes.
We conclude substantial evidence supports the trial court’s finding that the Stanhopes breached their duty to convey marketable title to Pacific. Restitution is not available under the facts of this case, but the trial court’s finding that the Stanhopes are equally liable for breach of contract damages is supported by substantial evidence and the title insurer was entitled to assert its subrogation claims. Therefore, we modify the judgment as to the amount of prejudgment interest, and as modified, we affirm.
FACTS AND PROCEDURAL BACKGROUND
Dennis Purchases the Property
In 1969, the Stanhopes owned property in Compton that they placed on the market for sale. In June 1969, Dennis entered into a lease agreement with an option to purchase the property. The total purchase price was $19,500, at an interest rate of 8 percent. Dennis paid a deposit of $900 and agreed to make monthly payments of $175. A portion of her monthly payment was applied to interest, a portion was applied to the principal balance of the purchase price, and a portion was withheld as rent. Dennis made the monthly payments until the property was damaged by fire. She moved out and the Stanhopes used proceeds from a fire insurance policy to pay for repairs.
On January 19, 1988, the Stanhopes filed an unlawful detainer action against Dennis. On January 28, 1988, Dennis filed an action for specific performance and recorded a notice of the pending action on May 12, 1988. The notice stated that Dennis was seeking to have title transferred into her name, because she had complied with all of the terms of a purchase agreement. The cases were consolidated and judgment was entered in favor of Dennis in March 1989. The judgment allowed Dennis to purchase the property by paying the amount necessary to complete the sale, with a deduction for the cost of repairing the residence in compliance with local building codes, or alternatively, to recover $59,000 in general damages and $39,000 in punitive damages. The Stanhopes appealed the judgment.
Dennis was unable to obtain financing to purchase the property. The Stanhopes and Dennis, with their respective attorneys, participated in a settlement conference and entered into an agreement modifying the judgment. The Stanhopes agreed to transfer the property to Dennis through escrow in exchange for a promissory note in the amount of $21,000, at an interest rate of 12 percent, secured by a deed of trust on the property. Dennis would make monthly payments of $252 for 15 years. The effective date of the settlement was December 1, 1990. Property taxes and insurance premium payments would be prorated as of that date. The taxes, insurance premiums, and interest that accumulated from December 1, 1990, to the closing date of escrow would be paid by Dennis in cash at the time of closing. Any insurance contracts would be transferred to Dennis as the named insured at the time escrow closed. The cost of escrow and transfer taxes would be shared equally by the parties. The attorneys signed the agreement on behalf of their clients. On April 12, 1991, the appellate court dismissed the appeal and remanded the matter to the trial court to enter judgment in accordance with the terms and conditions of the settlement agreement.
The Stanhopes opened escrow on April 26, 1991. The anticipated closing date was June 1, 1991. The escrow instructions listed the terms of the note and deed of trust, including that Dennis would make payments of $252.05 or more beginning 30 days after the close of escrow.
On July 2, 1991, Dennis provided the escrow company with an executed promissory note for $21,500 and a deed of trust secured by the property. On July 10, 1991, Dennis’s attorney informed the Stanhopes’ attorney that the Stanhopes needed to clear a lien on the property. The Stanhopes had paid off a mortgage, but the trust deed had not been reconveyed. Dennis’s attorney explained that Dennis would continue to pay $175 per month until the close of escrow, at which time the balance of the payments could be adjusted. However, he noted that “as time passes, the adjusted monthly payment gets larger and at some point it will be very difficult for Ms. Dennis to make the payments.”
The Stanhopes had the lien on the property removed. The Stanhopes’ attorney wrote a detailed letter to the escrow company on March 23, 1993. He set forth the amount of the monthly payments that Dennis had made to the Stanhopes, and the amounts that the Stanhopes had paid for property taxes and insurance on the property. He calculated the amount that Dennis owed for taxes, insurance, and interest. He stated that Dennis should execute a promissory note in the amount of $24,357.54, requiring monthly payments of $319.82, for a term of 12 years from December 31, 1992. He told the escrow company that Dennis would appear at the escrow office on April 1, 1993, to sign the documents, and escrow should close before the next payment was due at the end of April. Dennis began making monthly payments of $320 to the Stanhopes. The Stanhopes continued to pay the property taxes and insurance on the property.
Dennis and her attorney met with the escrow agent in early April 1993 to finalize the escrow documents. An issue was raised about transferring the fire insurance policy. The Stanhopes spoke with their insurance agent and confirmed that their policy could be assigned. The agent visited the property and spoke with Dennis. The agent told Dennis that before the insurer would agree to accept an assignment of the policy, a board had to be placed at the bottom of the garage door and screens needed to be placed on two openings on the side of the house. Dennis did not respond at the time.
On May 7, 1993, the Stanhopes’ attorney sent a letter to Dennis’s attorney asking why escrow had not closed. He noted the status of the fire insurance policy issue. The insurance agent said he had been unable to contact Dennis again. The escrow company had been unable to contact Dennis’s attorney. The next insurance payment was due May 22, 1993. The Stanhopes did not wish to advance the funds unnecessarily, since Dennis wanted to close escrow. He stated, “If your client does not wish to obtain the insurance through the Stanhope’s agent and assign that policy, then please arrange for fire insurance through another source so escrow can close. If, however, she wishes to do so, then please have her advise the agent that these conditions will be corrected so that he can process an assignment of the policy into her name.”
Dennis’s attorney sent the May 7, 1993 letter to Dennis and recommended that she have the items repaired, because they were minor. He did not hear from Dennis again until the instant dispute.
Dennis placed a board on the garage door. No screens were ever put in place. Rena stated in deposition that the screens were the Stanhopes’ responsibility and she thought her husband told her that he put them up, but she never visited the property. The assignment of the fire insurance was not completed.
On July 19, 1993, the Stanhopes attorney reminded Dennis’s attorney that the matter had not been resolved, because Dennis had not completed the two items to close escrow. He wrote that it seemed like a small matter to have to take to court to resolve and asked Dennis’s attorney to contact him to finalize the matter.
On March 31, 1994, Dennis’s attorney wrote to a legal aid society as to the status of the matter. He stated, “In order to close escrow and have title transferred to her, Ms. Dennis had to obtain fire insurance on the property and pay the taxes assessed for 1993. We are still waiting on these terms to wrap up the case. I have sent a letter to Ms. Dennis regarding the status this week. [¶] I anticipate closing this case very shortly[,] unless Ms. Dennis has some problems in completing the work.”
In August 1995, Leonard asked the escrow company to prepare an amendment to the escrow instructions to cancel the escrow. The amendment stated that the escrow held $1,000, of which the escrow company should retain $250 as the cancellation fee and disburse $500 to the Stanhopes and $250 to Dennis. The amendment was never signed and the escrow company told Leonard and Rena that they could not unilaterally cancel the escrow. None of the funds were returned and the escrow company eventually went out of business.
The Stanhopes created the Trust in 1996 and transferred the property to the Trust. In 2003, the Stanhopes received a solicitation in the mail from Pacific to purchase the property. The Stanhopes’ daughter replied to the solicitation on their behalf. She said Dennis was a tenant who originally had a lease agreement with an option to purchase and had tried to exercise the option, but the paperwork had never been completed. Pacific obtained a preliminary title report on the property. The title report did not find the lis pendens and showed the title to be clean. Pacific offered to purchase the property for $119,854.21.
Pacific entered into a purchase agreement with the Trust on April 30, 2003. Pacific obtained a title policy from Stewart Title Company. RMC assisted Pacific with the financing, intending to purchase the property from Pacific. The Trust received payment in full and a grant deed was recorded from the Trust to Pacific. At the time, Dennis had 20 payments remaining to complete her purchase of the property under the settlement agreement for a total of $6,500.
On May 14, 2003, Pacific sold the property to RMC for a purchase price of $139,000. Pacific did not inform RMC that the tenant on the property held an expired option or had attempted to purchase it. RMC obtained a title policy from Stewart Title Company.
In July 2003, Rena returned two of Dennis’s payments to her with a note stating that the Stanhopes no longer had an interest in the property and Dennis should make her payments to Pacific. She told Dennis not to contact them and instead to call their lawyer.
The Instant Action
RMC filed an unlawful detainer action against Dennis. On September 22, 2003, Dennis filed an action against the Stanhopes, the Trust, Pacific, and RMC for specific performance, breach of contract, fraud and deceit, quiet title, conversion, damages, and declaratory and injunctive relief. RMC filed a cross-complaint for rescission of the purchase contract between RMC and Pacific, breach of contract against Pacific, fraud and deceit against the Stanhopes, and quiet title against Pacific, the Stanhopes, and Dennis.
In early 2004, Leonard and Dennis passed away.
The parties attended a mandatory settlement conference. In June 2004, Pacific and RMC entered into a settlement agreement with the administrator of Dennis’s estate. The estate would receive $13,000 from Pacific, $13,000 from RMC and $139,000 from Stewart Title Company. The estate waived any claim to the property, and all parties agreed that the grant deed from Pacific to RMC would be fully enforceable. The administrator of Dennis’s estate agreed to execute a quitclaim deed to RMC of all interests the estate had in the property and record a withdrawal of the lis pendens. In addition, the estate assigned its claims against Rena and the Trust to Pacific, RMC, and Stewart. The estate agreed that Stewart could pursue the estate’s claims against Rena and the Trust, either directly or through subrogation rights concerning RMC and Pacific. The estate agreed to dismiss the complaint against Pacific and RMC, as well as the entire causes of action for specific performance, quiet title, setting aside the sale, declaratory relief, and injunction.
On July 1, 2004, the trial court confirmed the settlement between Dennis’s estate, Pacific, and RMC was a good faith settlement pursuant to Code of Civil Procedure section 877.6. Dennis’s estate received $13,000 from RMC, $13,000 from Pacific, and $139,000 from Stewart as the title insurer for RMC and Pacific. Dennis’s estate waived all further claims to ownership and assigned all its rights and causes of action to RMC. Pacific also assigned its rights and causes of action to RMC. RMC spent between $20,000 and $40,000 to complete repairs on the property and sold it for $300,000 on October 2, 2004.
On October 12, 2004, RMC filed an assignment of claim stating that Stewart had paid $139,000 of the settlement amount to Dennis’s estate pursuant to title policies naming Pacific and RMC as insureds. The policies included subrogation rights and Stewart intended to pursue recovery from Rena and the Trust for the settlement amount that had been paid to Dennis’s estate by means of a cross-complaint brought in the name of RMC. Pacific assigned all claims against Rena and the Trust to RMC on behalf of Stewart. Any amount collected in excess of $139,000, plus attorney fees and costs incurred, up to $26,000, would be divided equally between Pacific and RMC.
RMC filed an amended cross-complaint stating that all disputes between RMC and Pacific had been settled, and Pacific and Dennis’s estate had assigned all of their claims against the Stanhopes to RMC. The first cause of action sought rescission and restitution based on the purchase agreement between the Trust and Pacific. The complaint alleged that at the time Pacific entered into the agreement, Dennis was either the owner of the property or had the sole right to purchase the property. Therefore, the Stanhopes did not hold clear title to the property when they purported to sell it to Pacific. Since the Stanhopes could not convey clear and valid title, there was a total failure of consideration and RMC sought restitution of $119,854.21. The second cause of action for breach of contract alleged the Stanhopes breached the terms of the purchase agreement by failing to deliver clear and valid title to Pacific. RMC alleged breach of contract damages of $119,854.21, plus general damages according to proof. The cross-complaint also included causes of action for fraud, indemnity, and negligence, seeking compensatory damages of $165,000.
The case was tried to the court based on briefs, excerpts of deposition testimony and exhibits. On April 25, 2006, in response to the trial court’s request for further briefing on the measure of damages, the Stanhopes submitted evidence showing that they had paid $13,011.62 in taxes and insurance premiums on the property for which they would have been entitled to receive reimbursement from Dennis at the close of escrow. On June 15, 2006, the Stanhopes submitted a request for a statement of decision as to 30 issues. The trial court took the matter under submission on August 7, 2006.
The trial court issued a statement of decision on November 3, 2006. The court noted Dennis’s history of taking measures to protect her interest in the property and concluded the Stanhopes should have realized Dennis would not have simply agreed to be a renter of the property. The court set forth the requirements for recovery under a claim for rescission. The court determined that RMC was entitled to rescission, on the ground the Stanhopes did not have title to the property at the time they entered into the purchase agreement with Pacific, because they had sold the property to Dennis pursuant to the 1991 court order. The court concluded that RMC was entitled to recover $113,454.21, which was the amount of the purchase price that Pacific paid of $119,854.21, offset by the balance owed to the Stanhopes from Dennis of $6,500. The court sustained RMC’s objections to the Stanhopes’ evidence of taxes and insurance, because the evidence had not been presented at trial. The court found RMC was entitled to recover consequential damages caused by the Stanhopes’ breach; namely, the amount paid to the Dennis estate to purchase the property again and transfer title to RMC. The court concluded the amount paid to ensure good title was $45,145.79, which represented the amount of the settlement payment to Dennis of $165,000, after subtracting the amount received by the Stanhopes of $119,854.21. Therefore, the court awarded $113,454.21 to RMC against the Stanhopes, with prejudgment interest of $39,600.18 from May 9, 2003, to November 3, 2006, plus consequential damages of $45,145.79, with prejudgment interest of $10,055.76 from August 12, 2004, to November 3, 2006, for a total award of $208,255.94.
The trial court found RMC was also entitled to recover under its causes of action for breach of contract, indemnity, and negligence. However, because RMC had recovered all of its damages from the rescission action, no additional damages were awarded. The court found the Stanhopes had not intentionally misrepresented their legal claim to the property in representations to Pacific, and therefore, RMC had not proven the fraud claim. The Stanhopes were ordered to pay a total of $208,255.94 to RMC. Judgment was entered in favor of RMC on January 3, 2007. The Stanhopes filed motions to set aside the judgment and for new trial. The motions were denied, and the Stanhopes filed a timely notice of appeal.
DISCUSSION
Standard of Review
Whether title is rendered unmarketable is a question for the trier of fact. (Mellinger v. Ticor Title Ins. Co. of California (2001) 93 Cal.App.4th 691, 695.) On appeal, we review “whether there is any substantial evidence which will support the findings, and all reasonable inferences must be indulged to uphold them.” (Post v. Palpar, Inc. (1960) 184 Cal.App.2d 676, 679.)
Breach of Duty to Transfer Marketable Title
The trial court’s finding that the Stanhopes breached their contract with Pacific by failing to deliver clear title to the property is supported by substantial evidence.
Unless a contract for the sale of land expressly states otherwise, the seller is under a duty to transfer a good and marketable title to the purchaser. (Dennis v. Overholtzer (1960) 178 Cal.App.2d 766, 775-779, disapproved on other grounds in Ellis v. Mihelis (1963) 60 Cal.2d 206, 220; see Mellinger v. Ticor Title Ins. Co. of California, supra, 93 Cal.App.4th at p. 695.) “‘“‘A marketable title . . . means a title which a reasonable purchaser, well informed as to the facts and their legal bearings, willing and anxious to perform his contract, would, in the exercise of that prudence which business men ordinarily bring to bear on such transactions, be willing and ought to accept.’”’ (Hocking v. Title Ins. & Trust Co. (1951) 37 Cal.2d 644, 649-650.) Marketable title ‘must be so far free from defects as to enable the holder, not only to retain the land, but possess it in peace, and, if he wishes to sell it, to be reasonably sure that no flaw or doubt will arise to disturb its market value.’ (Mertens v. Berendsen (1931) 213 Cal. 111, 113 (Mertens).) A mere suspicion or speculative possibility of a future defect in title does not render a title unmarketable. (Ibid.)” (Mellinger v. Ticor Title Ins. Co. of California, supra, 93 Cal.App.4th at p. 695.)
“It is the condition of the title at the time fixed for performance which determines the rights of the parties to the agreement to sell. [Citations] When it is said that reasonable doubt or probable litigation are sufficient to make a title not marketable that expression refers to dubious defects, encumbrances, outstanding claims or color of title in others, which if upheld would prove the title defective at the time of performance.” (Lansburgh v. Market Street Ry. Co. (1950) 98 Cal.App.2d 426, 430.)
The trial court’s finding that the Stanhopes did not transfer good and marketable title to Pacific is supported by substantial evidence. When the Stanhopes sold the property to Pacific, they were still receiving current, regular payments from Dennis and were required to transfer the property to Dennis pursuant to the judgment based on the settlement agreement. The Stanhopes knew the escrow had never been cancelled. When escrow failed to close, they continued to accept Dennis’s monthly payments. They did not attempt to reduce the payment amount to reflect the fair rental value of the property. Dennis had already asserted her right to purchase the property once with success. Based on these facts, the Stanhopes should have known that Dennis would assert her claim to an interest in the property. Rather than take legal action to ensure they could provide clear title, the Stanhopes simply sold the property to Pacific. Whether the Stanhopes could have had terminated Dennis’s right to purchase the property or asserted defenses to her claims based on the statutes of limitations, laches, or her failure to perform is irrelevant to the instant action. Pacific was not “obliged to buy a lawsuit.” (Dennis v. Overholtzer, supra, 178 Cal.App.2d at p. 779.) The trial court’s finding that the Stanhopes breached their duty to transfer clear title under their contract with Pacific is supported by substantial evidence.
Remedy
The trial court ordered the purchase contract between the Trust and Pacific rescinded and awarded restitution and consequential damages to RMC. We hold that rescission is not an appropriate remedy under the circumstances of this case. However, breach of contract damages are adequate, and the court’s finding that RMC is entitled to an equivalent amount for breach of contract damages is supported by substantial evidence.
When a seller will not or cannot convey the property in accordance with the terms of the purchase contract, the purchaser may sue for damages for the breach, sue in equity for specific performance, or treat the contract as rescinded and recover damages resulting from the rescission; i.e., damages that restore the purchaser to the position that he or she would have been in if the contract had not been entered. (Akin v. Certain Underwriters At Lloyd’s London (2006) 140 Cal.App.4th 291, 296; Kempton v. Floribel Land & Imp. Co. (1920) 46 Cal.App. 456, 458-459.)
A. Rescission
A party to a contract may rescind the contract if the consideration for the rescinding party’s obligation fails through the fault of the other party. (Civ. Code, § 1689.) Rescission extinguishes the contract. (Id., § 1688.) To effect a rescission, a party to a contract must give notice of rescission and offer to restore the benefits received under the contract. (Id., § 1691.) After a contract has been rescinded, “[t]he aggrieved party shall be awarded complete relief, including restitution of benefits, if any, conferred by him as a result of the transaction and any consequential damages to which he is entitled; but such relief shall not include duplicate or inconsistent items of recovery.” (Id., § 1692.) In addition, “the court may require the party to whom such relief is granted to make any compensation to the other which justice may require and may otherwise in its judgment adjust the equities between the parties.” (Ibid.)
“It is the purpose of rescission ‘to restore both parties to their former position as far as possible’ [citations] and ‘to bring about substantial justice by adjusting the equities between the parties’ despite the fact that ‘the status quo cannot be exactly reproduced.’ [Citations.]” (Runyan v. Pacific Air Industries, Inc. (1970) 2 Cal.3d 304, 316.)
“Rescission is not allowable where the party demanding it cannot or does not restore the other party to the condition he would have been in but for the contract.” (Joshua Tree T. Co. v. Joshua Tree L. Co. (1950) 100 Cal.App.2d 590, 596 (Joshua Tree).) “[O]ne cannot retain the portions of the contract which he deems desirable and repudiate the remainder [citation].” (Farina v. Bevilacqua (1961) 192 Cal.App.2d 681, 684-685 (Farina).)
When the purchaser of real property has conveyed the interest to a third party, rescission of the original purchase agreement is not an appropriate remedy. In Joshua Tree, the court denied rescission of a real estate contract, because it would have required rescission of other agreements concerning subdivision lots and many of the lots had been conveyed to third parties. “[I]t would be impossible to return the parties to anything approximating a status quo.” (Joshua Tree, supra, 100 Cal.App.2d at p. 596.)
In Farina, plaintiffs sold a 20-foot strip to defendants to be used for a road, but defendants conveyed only 18 feet to the county for the road. The two feet that were not deeded to the county adjoined plaintiffs’ land and prevented them from accessing the road. The court granted plaintiffs’ request for rescission as to the 2-foot strip only and directed plaintiffs to repay a proportionate amount of the original price to defendants. (Farina, supra, 192 Cal.App.2d at pp. 684-685.)
In this case, at the time the Stanhopes entered into the purchase contract with Pacific, they held the legal title to the property and the right to receive payments totaling $6,500, plus reimbursement of taxes and insurance premiums, secured by a deed of trust on the property. Pacific sold the property to RMC, who in turn sold it to a third party. In the settlement agreement among Dennis’s estate, Pacific, and RMC, the settling parties agreed to affirm the grant deed transferring the property from Pacific to RMC. Dennis’s estate quitclaimed all interests in the property and recorded a withdrawal of the lis pendens. Pacific cannot quitclaim the interest that it received back to the Trust. Rescission of the purchase agreement between the Trust and Pacific, as if the transfer never took place, would create uncertainty and a gap in the chain of title. In addition, although the trial court attempted to adjust the equities between the parties by deducting $6,500 from the amount owed to Pacific in restitution, RMC never offered to restore, and the trial court made no adjustment for, the amount the Stanhopes were entitled to recoup for taxes and insurance premiums. In light of the fact that RMC has an adequate remedy in breach of contract damages, rescission is not necessary or appropriate in this case.
B. Damages
In an action based on breach of an agreement to convey property, the purchaser may recover consequential damages caused by the seller’s breach. (Civ. Code, § 3306.) Consequential damages are those damages which, in view of all facts known by the parties at the time that they entered into the agreement, may reasonably be supposed to have been considered as a likely consequence of a breach. (Stevens Group Fund IV v. Sobrato Development Co. (1991) 1 Cal.App.4th 886, 892.)
Civil Code section 3306 provides, “The detriment caused by the breach of an agreement to convey an estate in real property, is deemed to be the price paid, and the expenses properly incurred in examining the title and preparing the necessary papers, the difference between the price agreed to be paid and the value of the estate agreed to be conveyed at the time of the breach, the expenses properly incurred in preparing to enter upon the land, consequential damages according to proof, and interest.”
“Where the seller’s breach consists of a conveyance of a defective title, the purchaser can elect to accept the title rather than elect a rescission, and can recover from the seller the cost of removing the defect.” (12 Miller & Starr, Cal. Real Estate (3d ed. 2001) § 34:45, p. 160.)
In this case, RMC, Pacific and Stewart paid $165,000 to Dennis’s estate in exchange for a quitclaim deed and an assignment of Dennis’s rights in the property, which the trial court determined to be a good faith settlement. It was entirely foreseeable at the time that Pacific entered into the purchase agreement with the Stanhopes that the failure to provide marketable title would cause Pacific and its successors in interest to incur the cost of removing the cloud on title. As a direct result of the Stanhopes’ breach, Pacific and RMC had to pay $165,000 to obtain clear title to the property. Under the breach of contract cause of action, RMC was entitled to recover the amount paid to Dennis in the settlement agreement. The trial court concluded that RMC was entitled to an award of $158,600 as full compensation for its damages. RMC has not appealed from the judgment. The trial court’s award of damages of $158,600 to RMC is supported by the evidence that more than $158,600 was paid to Dennis’s estate to settle the estate’s claims and obtain clear title to the property. The judgment must be modified to award to RMC against the Stanhopes breach of contract damages of $158,600, with prejudgment interest from August 12, 2004, to November 3, 2006.
Subrogation
The Stanhopes contend RMC cannot recover the amount paid by Stewart Title Company, because there was no evidence of a valid assignment of subrogation rights. This is incorrect.
“In the insurance context, subrogation takes the form of an insurer’s right to be put in the position of the insured for a loss that the insurer has both insured and paid. [Citations.] When an insurance company pays out a claim on a property insurance policy, the insurance company is subrogated to the rights of its insured against any wrongdoer who is liable to the insured for the insured’s damages. [Citations.] [¶] ‘Subrogation has its source in equity and arises by operation of law (legal or equitable subrogation). [Citation.] It can also arise out of the contractual language of the insurance policy (conventional subrogation). [Citation.] The subrogation provisions of most insurance contracts typically are general and add nothing to the rights of subrogation that arise as a matter of law. [Citation.]’ [Citation.]” (State Farm General Ins. Co. v. Wells Fargo Bank, N.A. (2006) 143 Cal.App.4th 1098, 1106, fn. omitted.)
“‘Subrogation places the insurer in the shoes of its insured to the extent of its payment. [Citation.]’ [Citation.] When standing in the insured’s shoes, the insurer has no greater rights than the insured would have, and for that reason is subject to the same defenses assertable against the insured. [Citation.] [¶] While the insurer by subrogation steps into the shoes of the insured, that substitute position is qualified by a number of equitable principles.” (State Farm General Ins. Co. v. Wells Fargo Bank, N.A., supra, 143 Cal.App.4th at pp. 1106-1107.)
“The most restrictive principle is the doctrine of superior equities, which prevents an insurer from recovering against a party whose equities are equal or superior to those of the insurer. [Citations.]” (State Farm General Ins. Co. v. Wells Fargo Bank, N.A., supra, 143 Cal.App.4th at p. 1107.) “Under the doctrine of superior equities, although an insurer might have a subrogation interest in the insured’s claim against the party that caused the loss, it cannot enforce its subrogation rights unless it has equities superior to those of the wrongdoer.” (Id. at p. 1108.) In some jurisdictions, “the application of the doctrine of superior equities depends on whether the source of the insurer’s right to subrogation arises by operation of law (legal or equitable subrogation) or by contract (conventional subrogation).” (Id. at p. 1109.) “California, along with other jurisdictions, has adopted the superior equities doctrine in all cases of equitable or conventional subrogation. [Citations.]” (Ibid.)
“The essential elements of an insurer’s cause of action for subrogation are as follows: ‘(a) the insured suffered a loss for which the defendant is liable, either as the wrongdoer whose act or omission caused the loss or because the defendant is legally responsible to the insured for the loss caused by the wrongdoer; (b) the claimed loss was one for which the insurer was not primarily liable; (c) the insurer has compensated the insured in whole or in part for the same loss for which the defendant is primarily liable; (d) the insurer has paid the claim of its insured to protect its own interest and not as a volunteer; (e) the insured has an existing, assignable cause of action against the defendant which the insured could have asserted for its own benefit had it not been compensated for its loss by the insurer; (f) the insurer has suffered damages caused by the act or omission upon which the liability of the defendant depends; (g) justice requires that the loss be entirely shifted from the insurer to the defendant, whose equitable position is inferior to that of the insurer; and (h) the insurer’s damages are in a liquidated sum, generally the amount paid to the insured.’ [Citation.]” (State Farm General Ins. Co. v. Wells Fargo Bank, N.A., supra, 143 Cal.App.4th at pp. 1111-1112.)
“As the elements demonstrate, the aim of equitable subrogation is to shift a loss for which the insurer has compensated its insured to one who caused the loss, or who is legally responsible for the loss caused by another and whose equitable position is inferior to the insurer’s. [Citations.] [¶] In comparing the relative positions of the parties, a court is required to determine who ultimately ought to bear the loss. [Citation.]” (State Farm General Ins. Co. v. Wells Fargo Bank, N.A., supra, 143 Cal.App.4th at p. 1112.) The insurer’s subrogation right may be asserted against a third party only if the third party is guilty of some wrongful conduct making the party’s equity inferior to that of the insurer. (Ibid.)
“In general, a subrogating insurer has two potential sources of recovery: the direct cause of the loss (e.g., a dishonest employee, burglar, or fire starter) and the indirect cause of the loss (e.g., a bank, alarm company, or contractual indemnitor). Subrogation against the direct cause of loss is straightforward. The insurer need only show a causal connection between the direct wrongdoer’s act or omission and the loss. [Citation.] The direct wrongdoer, having caused the loss, cannot be considered an innocent party. [Citation.] In this situation, an innocent insurer will always have superior equities. [Citations.]” (State Farm General Ins. Co. v. Wells Fargo Bank, N.A., supra, 143 Cal.App.4th at pp. 1112-1113.)
In this case, Stewart Title Company pursued conventional subrogation rights in the name of its insured against the direct wrongdoer who caused the loss. RMC, on behalf of Stewart, was entitled to recoup the full amount paid to settle the title issues with Dennis’s estate. Stewart had the superior equities as against the Stanhopes. The assertion of the title insurer’s subrogation rights was proper.
Statement of Decision
The Stanhopes contend that the trial court failed to make findings on critical issues involving the statute of limitations, the doctrine of laches, and Dennis’s failure to consummate the escrow agreement or comply with the terms of the settlement agreement. In addition, the Stanhopes contend there is no evidence to support the trial court’s finding that they did not own the property after it was sold to Dennis in 1991. However, none of these issues were relevant to the causes of action that were decided. It was irrelevant whether the Stanhopes had legal defenses to Dennis’s claims that they might have successfully asserted in litigation. They were aware of Dennis’s claims and sold the property to Pacific without being able to transfer clear title. The Stanhopes have failed to show the trial court omitted any relevant findings.
DISPOSITION
The judgment is modified to award $158,600 to RMC, with prejudgment interest from August 12, 2004, to November 3, 2006. Respondent RMC Realty is awarded its costs on appeal.
We concur: ARMSTRONG, Acting P. J., MOSK, J.