lawyer and banker - 1937 - lawyers and new deal - non-partisansip

8/13/2019 Lawyer and Banker - 1937 - Lawyers and New Deal - Non-Partisansip

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THELawyer and BankerANDCENTRAL LAW JOURNAL

CHARLES E. GEORGE EditorASSOCIATE; EDITORS

CHARLES HALL DAVIS ALBERT WOODRUFF GRAY1 Centre Hill Petersburg Va. 307 5th Ave. New York CityBENJAMIN S. DEAN NATHAN BOONE WILLIAMSFenton Building Jamestown N. Y. Washington D. C.

JOHN S. WISE R27 Cedar St. New York CityOld Series Vol. CVIIINew Series VoL. XXVII JAN-FEB. 1934 No.

Throughout the larger cities in the country comes a certain presspropaganda which has its inception with lawyers looking towards theobliteration of politics in the selection of the judiciary.It matters little what Webster or the Century Dictionary defines asnon-partisanship it is the belief of the writer that as applied to individualswho for years have been following in the trails of political paths thatthere is no such animal. A man who has been in politics for years andpossibly and very likely has been honored by one of the two great par-ties cannot in the moment change his feelings or his policies any morethan a leopard can change its spots.

Non-partisanship in politics is a farce. It always has been and italways will be. Of course if it were possible to place upon the benchmen who could not be controlled by partisan political influences thatwould be a good thing but it is absolutely impossible. So long as wehave the election of judges we find it as unsound in theory as it ismischievous in practice illogical and inexpedient the present system.

The election of a Judge whether it be to the Superior Court benchin Califomia or the Circuit Court of Wayne County Michigan meansthe selection of public servants who are supposed to represent thesentiments of the great majority of the citizenship men who are sup-posed to carry out certain definite policies and whose action should con-forr with current opinion.

Prof. Dicey in his Law of the Constitution says:


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EDITORIAL The electors in the long run can always enforce their will. Butthe courts will take no notice of the will of the electors. The judges knownothing about any will of the people except insofar as that will is ex

pressed in Acts of parliament.That is all very well to say, but is it true. The courts do take notice

of the will of the electors, the judges do know what the will of thepeople may be insofar as cases in which the public have an interest, arepending for discussion and decision.

True ,it is, that the sole test of a candidate's fitness for the benchshould be his merits as a jurist and not his good fellowship and candi-date's popularity. While there ought to be no such thing as a popularjudge in the political sense of the word, yet, there is and there is nouse in beating around the bush.

A candidate for judicial honors in appealing to the average voter,finds that the citizens know little of the processes of law, he knows noth-ing of the education of, or the candidate's qualification excepting bygeneral reputation, which usually is propaganda from political head-quarters.

The evils of this system are greater in the larger cities than theyare in the rural districts.

The late Chief Justice aft some years since, expressed himselfthat with more than half a century's experience in the election of judgesit had not and could not be commended as a best method of selec-tion.

A late Chief Justice criticizes severely the manner of making nomi-nations and of conducting elections of judges. Candidates under prim-ary conditions must pay the expense of their own candidacy and resortto means constituting a special effort in favor of their nomination andelection. They make it themselves, they are put in the attitude of sup-plicants before the people for preferment to judicial places. The officein no sense can be said to seek the man but rather the man seeking theoffi e

The nomination and application of a Judge are now the result ofhis own activities and of fortuitous circumstances.

Newspaper prominence has played a most important part and if thepaper's candidate is elected, they look forward to their influencing his de-cisions in whole or in part.

The primary is the bane of contemporary American politics. t hascompleted the ruin of the elective methods of choosing judges. t has


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EDITORIALcarried the evils of that method to their ultimate acme. We can con-ceive of no method that could be worse. Under the old convention sys-tem effectively organized the Judge was part and parcel of the partymachine. He was subject to the normal influences of party politics. Hewas not compelled to play for personal popularity he needed only theparty label if it was a majority party in order to sweep him into office.His interests were identical with those of his party as a whole and hewent up or down with his party regardless of personal popularity orpersonal fitness.

The candidate for judicial honors today must be a joiner the moreclubs he belongs to the better it is for him; he must be a mixer withthe rank and file of the mob. He must be a hand shaker. He must dopolitical speaking and eat political pie. Generally he is obliged to showhimself at the opening of Ball Games Farmers Picnics State Fairs andthe half hundred foreign political associations. ll of which cheapensthe office confuses the public and too often brings unworthy men tothe bench and worst of all intensifies the pressure of vote-hunger uponjudges not only during campaigns but at all times while they are dis-posing of serious legal propositions.

There is no use in saying that the bench can be rescued from poli-tics through a non-partisan election for the same old voice of consciencethat put the Judge upon the bench either by the Democratic or Repub-lican party will still be there subject to control as it may be exercisedfrom time to time. Non-partisanship does not mean the popular choicebetween candidates which would become a principle which leads to palliative devices and would work more harm than good.

The makeshift from one of the great parties selected by public cau-cuses gives a false sense of improvement it keeps the basic evils aliveand it does not make genuine reform.

The evils of non-partisanship lies in the fact not in the time ormanner of the election but in the fundamental idea of making popularitywith the crowd a test of judicial fitness. Holding separate judicial elec-tions and printing the names of candidates without party designation is apartial substitution of personal politics for party politics and either sortis a damning and pernicious influence.

Both of these should be taken into consideration in the appointingof judges say for a long term or for life or during good behavior andthen where are you going to vest that appointing power. Must the ap-pointment be vitalized by confirmation by a legislative body or even bythe people themselves? There is a failure in the present system. The


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EDITORIAL COMMENTaverage voter knows nothing of the qualified lawyers among the judi-ci l candidates. One thing is manifestly true and that is that non-parti-sanship means nothing, is not even a means to an end for the selectionof the best material in men to fill judicial offices.

Editorial CommentLAWYERS AND THE NEW DEAL

In days long gone, but which some of us remember, when lawyers gottogether to consider the state of the nation and their own health, some onewas sure to propose a toast: To the man who writes his own will.

In 1934 on similar occasions, I rather think that a new toast will be pro-posed: To the men who write their own codes.

There are some who will at least mentally toast Congress for writingthe Recovery Acts; some in realization and appreciation that these laws haveand will develop new legal problems; others in silent accord and gratifica-tion at the virility of the American people to carry on and successfully workout of the problems which have so sorely beset them.

Thoughtful lawyers will know that the present passing phase of expect-ing professorial clerks in Washington to attend upon and give advice on themanifold problems of industry and commerce will end; that business menwill discover that counsel is advisable, and that lawyers have been chastenedby hard times and are willing to work and give good and sound advice andcounsel for modest compensation.

Business men may even come to heed the paraphrased advice of Amosand Andy and use their lawyer every day, and thus avoid courts every year. Some hundreds of codes applicable to industries some basic, and someonly embracing some rather split infinitive branch of trade or manufacture,have h d executive approval, and may be obtained from the governmentPrinting Office at an average price of about seven cents each.

These codes, which together with the recovery acts: NRA, National Industrial Recovery Act; and AAA Agricultural Adjustment Act; constitutethe law merchant of these industries, and, in addition, reach into the fieldof labor relations as well, discussed by me in an article in the previousnumber of this journal.

That these codes and these laws bristle with legal questions of the high-st import no lawyer will fail to perceive. That they constitute the most interesting legal experiment ever undertaken by an enterprising people, nonecan deny. What of social and economic good may be their residue, will de-pend, in great measure, upon the facility of the bar to catch their new con-cepts and to mould their development into sound legal principles of generalapplication in consonance with the genius of our system of government, and


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EDITORIAL COMMENT 5in accord with the fundamental concepts of that Constitution. Our Consti-tution is not, has not, and will not be scrapped. Its principles are too firmlyembedded in the concepts of our people Its fundamental limitations andguaranties are too vital to ordered existence to be waived or set aside.

That these laws, in the main, are constitutional, have no doubt. Butthat many things attempted to be accomplished under their aegis, and themanner of doing many other acts in the attempt to carry into executiontheir provisions, are in direct violation of the rights of the citizen underthe Constitution, Is equally clear. That many, perhaps most, of the acts fall-ing in this category have been of good intention is readily admitted. A num-ber of such have been carried through In a spirit of bluff on the theory andassumption that granted the worthwhileness of the end, never mind themethod- John Doe would rather surrender and comply than fight. But thisdoes not take into account the new resurgence of independence and virilitynow developing in the minds of the millions of young men now taking theirplace in industry, trade, and the professions, and who aTe determined tomake their way and their success in the upward surge of a new America.

Nor has much consideration been given to the fact that by the new lawsand the development and administration of codes of particular industries, anew confidence and spirit has been promoted and given to the trade or in-dustry association. As these associations grow in experience and courage,they are likely to remember the admonition of de Tocqueville, who an hun-dred years ago, wrote:

Am association for commercial or manufacturing purposes is apowerful and enlightened member of the community, wrich cannot be disposedof at. pleasure, or oppressed without remonstrance; and which, by defendingits own rights against the encroachments of the government, saves the common liberties of the country.Such associations now given power and authority may well be expected

to take up cudgels in defense of the weakest of their members, and by so doing lyrotect not only him but themselves as well. Only by the development ofcompetence and the assertion of strength and determination coupled with dueregard for all concerned can industrial self government succeed and the rig-idity of governmental prohibitions be avoided.

Some of the legal shortcomings of many codes, which may give rise toserious study, and ultimately reach the courts, will now be Teviewed.

Very few of the approved codes carry any internal evidence that theywere submitted or developed in conformity with the requirements of the law.The National Industrial Recovery Act, Section 3 requires that the code offaiT competition be presented by a trade,, industrial association, or group;that such is representative of such industry or trade that such associationimposes no inequitable restrictions on admission to membership therein;that such code is not designed to promote monopolies, or to eliminate or op-press small enterprises, and will not operate to discriminate against them;and that such code shall not permit monopolies or monopolistio practices. Ona finding by the President of these several requirements, he is authorized toapprove such code, when it becomes the law of the industry, carrying with it


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EDITORIAL COMMENTcertain obligations and certain rights and immunities, among which are ex-emption from the provisions of the anti-trust laws.

These provisions are Jurisdictional requirements to a valid code. Mostcodes content themselves, as does the Executive Order of approval, by sayingthat the law has been complied with, but without the President specificallymaking the findings mentioned in the statute. n other words they complywith the law and are legal and binding by presumption that the law has beencomplied with. Doubtless the law has been met in most codes, but If chal-lenged in court, most of these codes will have to be defended upon and bypresumption, and lawyers know what a slender reed that rule is when count-ed upon in a well contested case. Proof will probably have to be taken, ex-pensive and time consuming, and when you are seeking immediate and ade-quate relief and protection for your client against some chiseler who is vio-lating the provisions of the code, this may prove hazardous .It would seemthat the better practice would be to carefully follow the provisions of thebasic statute and have the code as and when approved carry full and com-plete Internal evidence that the provisions of the law have been fully ob-served and not leave these questions to presumption that all is well, or toextraneous proof.

Recent weeks have seen much discussion as to conflicts of opinion grow-ing out of the question as to how and in what manner codes affecting agri-cultural or food industries, as well as those many other industries whichhave for raw material the products of agriculture. As I write (December 30no final decision has yet been made.

Although, the NRA Act has certain mandatory labor provisions, whichare absent from the AAA Act, and while certain forces are anxious to caloyover into the AAA administration these features, the problem seems of easysolution, albeit, certain pride of opinion and action might come a croppern the process

Under the terms of the two Acts-AAA and NRA-any limitation or at-tempted transfer of the jurisdiction of the AAA to NRA seriously Imperils thelegal status of what may be done, and thus opens the way for successful le-gal attacks, which may readily grow so serious as to jeopardize the entireprogram.

By section 8- 2) and 3), of the AAA Act, approved May 12 it is pro-vided that that act applies to any agricultural commodity or product there-of. This definition, of necessity, includes textiles of most kinds, food forman and beast, vegetable fats, oils, leather, etc., etc.

By the terms of NRA, section 8 (a) it is provided that this act, whichwas approved June 16, may not modify or repeal any of the provisions of theAgricultural Act. However, by section 8 b) it is provided that:

The President may, in his discretion, in order to avoid conflicts Inthe administration of the Agricultural Adjustment Act and this titledelegate any of his functions and powers under this title with respectto trades, industries, or subdivisions thereof which are engaged in thehandling of any agricultural commodity or product thereof, to the Sec-retary of Agricultuxe.


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EDITORIAL COMMENTIt thus will be observed that this power of transfer is a one-way street.

Transfers of the provisions of NRA may be sent to the Secretary o Agricul-ture, but there appears no statutory warrant for the sending of Agricul-tural jurisdiction to the NRA administration.

It is quite fundamental that without proper jurisdiction, action takenor had, or codes developed, or approved, are without legal status or sanction,and hence will encounter extreme difficulty when met with serious questionsof enforcement or opposition.

This question could be met with a simple Executive Order making theSecretary of Agriculture an agency of administration of the provisions ofNRA to those industries already under his jurisdiction at the time of the ap-proval of NRA, and which by the provisions of NRA were not repealed ormodified. It may be that befoTe this is printed, a solution of this jurisdic-tional problem will be worked out, but it is difficult to see how it can bemet in any other than in this manner and be safe from successful legal attack.

Machinery for the enforcement of the codes is set up in most of themby the creation of a body denominated the Code Authority, with usually rather well defined powers. Many of these code authorities, however, representrather small segments of industry, and are likely for a time at least to feelthat they can bring their problems growing out of the enforcement o codeprovisions to NRA Administration.

That administration following usual precedent and history will not beloath to assure all comers that government is ready, able and willing to dothe job. We shall have all over again the early experiences of the FedqralTrade Commission when the idea was abroad that the government will bearall the expense and do all the work of enforcing that law. If industry andtrade is to become what this new law contemplates, quite self sufficient andresponsible under this legislation and codes enacted and approved thereunder,it had best approach this subject of code enfqrcement after being well ad-vised in the premises.

Very broad powers of enforcement lie in the basic act for the enforce-ment of the act and of the codes lawfully made thereunder.

Violations of the act and of the codes may be prosecuted qriminally byUnited States District Attorneys under the direction of the Attorney Gen-eral. Such United States Attorneys may also under direction of the Attor-ney General proceed by injunction to restrain violations of the act and ofthe provisions of the codes.

Again, the violation of the provisions of legal codes are made unfairmethods o competition to be proceeded against by the Federal Trade Com-mission.

But the most important provision of all for quick and ready enforce-ment is that provided by section c) which reads:

The several district courts of the United States are hereby invested withjurisdiction to prevent and restrain violations of any code of fair competi-tion approved under this title;Here we have ready at hand full authority for any unit of an industry

to sue out injunction against any unit of the industry which is violating the


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8 EDITORIAL COMMENTprovisions of the code of that industry without waiting for any action orconclusions advice or suggestions from any one any where.

This authority also is available for the code authority which s admin-istering the code and likewise extends both as to the individual businessand the code authority for violations of the code of any other industry wheredamage can e shown to exist or threaten.

As proceedings of this character can be made swift and effective we mayexpect them to be used. Small industrles do not have to wait upon Washington nor upon the code authority. n fact small industries have ready meansof protecting their rights never before so conveniently at hand. From ex-perience and court decisions will develop a new body of law merchant andwhile these acts are in a measure temporary in character from them willcome that considered opinion which will write a new basis for business con-duct less rigid than the anti-trust laws but carrying whatever element ofgovernmental supervision in the public interest may seem wise. The extentof this supervision will largely depend upon the restraint and wisdom withwhich industry measures up to its present opportunities and responsibilities.

Though slow to change and conservative y habit lawyers will not befound unresponsive to these newer conditions.


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Law of Title nsuranceBy Romaine H Crosby of the New York Bar

Continued from the last number)Exceptions: We have seen that, in the absence of exceptions, the

policy of insurance is not limited to insurance of the record title only.This brings us to a study of the exceptions. As a rule exceptions arecontained in Schedule B of the policy. And these exceptoins clearly

state just what defects, liens and encumbrances the insurer declines toinsure against. The fact that the insurer does not except any defect orlien does not necessarily mean that such lien or defect does not exist,but only that if it does exist, the insurer is willing to insure against it.Fidelity Iusurance Trust and Safe Deposit Co. v. Earle, 23 Pa. Co.Rep. 449 454.

An examination of the insuring portions of the two policies quotedsupra shows that after each policy has provided for the insurance orguaranty of the insured against loss from any defect in title or from theunmarketability of the same (depending upon whether unmarketabilityis insured against or not) and from liens and encumbrances, there is aphrase limiting this liability. This limitation of liability is expressed inone of these policies as follows: Saving all loss by reason of the es-tates, interests, defects, objections, liens and encumbrances excepted inSchedule B . In the other policy it is expressed as follows: Sav-ing the defects, objections, liens or encumbrances excepted in ScheduleB *

In reality the exceptions constitute the most important part of thepolicy.

The insured is advised beforehand in the title report, issued beforethe sale or mortgage transaction is consummated, as to what the excep-tions will be. And it is upon this report in title, containing what thepolicy will not insure against, that he determines whether the sale willbe made or the money loaned. Of course some of the exceptions con-tained in the report are cancelled as the vendor or mortgagor may causethe defects to be cured or the liens or encumbrances to be discharged.But those not cured or discharged will constitute what will not be in-sured against.


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LAWYER AND BANKERIn the study of this topic we may divide exceptions into two classes:

(1.) specific exceptions, and (2.) general exceptions.Specific exceptions are, as the name implies, those specifically de-scribed in Schedule B. For example, a specific exception would be a de-

fect in the form of acknowledgment of a specified deed, a certain de-fect in a foreclosure proceeding, a specified mortgage or tax lien.

We need say nothing further as to this kind of exception. Eachspecified exception should be so described in Schedule B that it can bereadily examined and its validity ascertained. Also its scope should beso stated in the schedule that an examination of the schedule itself wouldexactly define the liability excepted.

The need of certainty in the wording of an exception is well il-lustrated in Whitaker v Title Insurance Trust Co. 186 Cal. 432. Thetitle policy in that case, after reciting the examination of the various of-ficial records, stated The Title Insurance Trust Company herebyguarantees that said title as appears in said records is vested, in Carru-thers Building Company, a corporation, subject to the matters set forthin note following description. The note stated that a suit had been com-menced by one Reid against C. B. Williams and others for the purposeof having a deed made by Reid declared to be a mortgage and to quietthe title to the lands, covered by the policy, in the plaintiff. The notegave the progress of the suit. It stated that a trial was had which re-sulted in favor of the plaintiff and that a motion for a new trial wasgranted and that no new trial was had. The note then stated that a judg-ment was entered by consent of the parties decreeing that C. B. Wil-liams was the owner of the lands and that Reid took nothing by the ac-tion. Williams was an intermediate grantor in the chain of title of theproperty insured. Reid, after the first trial of the action and before themotion for a new trial was granted, conveyed the land to one Hunter,who executed a trust deed to the Union Trust Realty Company tosecure a note. The latter then delivered a deed to the land to Parley M.Johnson, which deed recited the default of Hunter and the sale underthe deed of trust.

The note we are considering then stated In the opinion of the at-torneys for said company said Parley M. Johnson obtained no title tosaid lands by reason of sale and deed to him.

The land covered by this title policy was mortgaged by CarruthersBuilding Company to C. B. Williams as security for a note, which noteand mortgage thereafter were assigned to the plaintiff. T h title to themortgaged land failed. Defendant claimed that it excepted the defect in


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LAW OF TITLE INSURANCEtitle through which the loss occurred, which contention was sustained.The court construed this note as an exception to the policy. Sloane, Jin the course of his opinion, said at Page 435:

To put the matter more simply, the title company in effect says: Weguarantee that your title to this property is good, subject to the validityof certain legal proceedings determined in your favor and which in theopinion of our attorneys confirms your title, but the conclusiveness ofwhich we do not vouch for.' Is it not plain that the only representation as to the effect of this liti-gation the defendant could be held for would be the truthfulness of thestatement that such was the opinion of their attorneys? There could havebeen no purpose in qualifying this general guaranty of title by makingit subject to the proceeding set out in the note other than as a reserva-tion to the guaranty of any failure of title that might arise under thislitigation. At best, all the plaintiff has to rely upon here is the opinionof the abstract company or its attorneys and there is no showing thatsuch opinion was not held and given in good faith.And again, at Page 436, he said:

It may be conceded that a layman acting without legal advice mighteasily be and in this instance doubtless was mistaken as to the legal ef-fect of such an expression, but the language is not ambiguous or mis-leading and does not impose upon the defendant, in the absence of proofthat the plaintiff was deceived by fraudulent misrepresentation, the re-sponsibility of an insurer or guarantdr of title.General exceptions, on the other hand, except loss from certain clas-

sified defects or encumbrances.While it is impossible to specify every class of defect which mightbe covered by general exceptions, we may divide them into four classes:1.) Possession of occupants.(2.) Survey.(3.) Possibility of Mechanics liens.(4.) Bed of streets adjoining the premises.Before considering these four classes of exceptions, we would state

that the wording of the exception is most important and that any doubtor ambiguity is resolved in favor of the insured. Minnesota Title In-surance Trust Co v Drexel, 70 Fed. 194, 198; Place v. St. Paul Ti-tle Insurance Trust Co., 67 Minn. 126; Marandino v. Lawyers TitleCorporation,156 Va. 696, 700).

We will now consider the first class of exceptions, namely, posses-sion of occupants. It must be remembered that adverse possession givesgood title. Also it must be remembered that possession under an unre-corded instrument, such as a deed or lease, constitutes notice to the sameextent as the instrument itself would if recorded. For this reason a ti-


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LAWYER AND BANKERtie insurer, unless perfectly certain that none of these defects or encum-brances are present, will except them.

As instances of the need of care in wording this exception attentionis called to two cases, Bothin v. California Title Insurance Trust Co.,153 Cal. 718, and Place v. St. Paul Title Trust Co. 67 Minn. 126. Inthe Bothin case plaintiff sued upon a policy of title insurance. The de-fect in the title was adverse possession of a third party in actual posses-sion of a portion of the premises. Defendant relied upon an exception inthe policy reading Tenure of present occupants .

As against a possible contention that the word tenure might beonly equivalent to tenancy and so rendering the exception inapplicable totitle in fee by adverse possession, Lorigan, J., said, at Page 722:

Tenure is a term of extensive signification. While it means the modeby which one holds an estate In land it implies any kind of holding frommere possession to the owning of an inheritance.The complaint in the Place case alleged a cause of action upon a

policy of title insurance covering a mortgage issued to plaintiffs, whichmortgage was later foreclosed by plaintiffs and the property bid in bythem at the foreclosure sale. Later plaintiffs discovered that a portionof the premises was in the adverse possession of a third party. The de-murrer interposed to plaintiff's complaint was overruled. In deliveringthe opinion of the court, Collins, J. said, Page 129:

It is the position of defendant's counsel that from the allegations ofthis complaint it appears that the case in hand was expressly exceptedfrom the policy because of the words in the schedule 'Tenancy of thepresent occupants'. Ifwe are to give these words their broadest significance and construethem without regard to the object or purpose of the contract, or the lan-guage used elsewhere, the position would be quite easily sustained, forthe broad definition of a 'tenant' Is one who holds or -possesses lands ortenements by any kind of right or title whether in fee for life, for years,at will or otherwise. The persons mentioned in the complaint as havingbeen, and as still continuing in adverse possession, are certainly ten-ants within this comprehensive definition. But, when we read the entire policy, and construe its object and al-leged purpose, that it purported to be a contract to indemnify plain-tiffs as mortgagees, against loss or damage sustained by reason of de-fects In the mortgagors title; that if the construction contended for bycounsel for the defendant should prevail, it would apply in cases wherethe entire premises were in the adverse possession of another, as well asthose, like the present, where only a part Is held adversely, leaving thepolicy holder remediless when he has actually bought and paid for p1ro-tection; that if the design of the defendant was to exclude from its policy all liability as to the title 'of the present occupants' it could have s iso by simply changing one word of the phrase 'tenancy of the presentoccupants', which at most is ambiguous only; that, where an expression


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LAW OF TITLE INSURANCEin an insurance policy is of such character, the ambiguity is to e con-strued against the insurer and in favqr of the insured; that the word'tenant' is generally used in a popular sense, and as mentioned in thissense, according to Webster 'one who has the occupation or temporarypossession of lands or tenements whose title is in another; correlativeto landlord'; and also that without a provision of this import, the in-surer would probably incur a liability if there were outstanding leases,and the insured could not obtain possession at any moment, we aredecidedly of the opinion that the tenancy mentioned in the schedule wasthat which has arisen through the occupation or temporary possession of-part or all of the premises by those who were tenants in the popularsense in which that word is used.What one word could have been changed in the exception to give it

a broader meaning as suggested y the court? The word tenure couldhave been substituted for tenancy so that the exception would haveread Tenure of the present occupants . Then the exception would havebeen similar to that in the Bothin case.

Survey: Most policies except any state of facts which an accuratesurvey would show. This is a reasonable exception. The record title toa piece of land might show that the dimensions of the piece were abso-lutely correct. Still bearing in mind the principle of adverse possession,the absolute ownership of a portion of this piece of land might be in anadjoining owner, because of encroaching fences or walls.

In such cases it is needless to say, the size of the piece of land mightbe very much decreased. Also the fences or walls of the piece of prop-erty might enroach upon the land adjoining or upon the highway. Thisof course would, in the absence of title y adverse possession, entail con-siderable expense in removing such encumbrances, varying from a fewdollars, in the case of farm fences, to that of thousands, as was ex-pended by plaintiff in the case of Broadway Realty Co. v. Lawyers Title Insurance Trust Co., 226 N. Y. 335. Consequently the title in-surer, in the absence of a survey, would undertake an unknown and pos-sibly a large liability. For this reason this exception is inserted whenevera survey is not attached to the policy. It is needless to say that this sur-vey, of course, is paid for y the insured.

In this connection we must look t the wording of such an excep-tion.

In the exception A state of facts an accurate survey would showthe important words are those italicized. They are present in all surveyexceptions. The question always is, would an accurate survey have shownthe state of facts complained of. If it would, and no survey was attachedto the policy, the insurer would not be liable. If on the other hand, such


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LAW OF TITLE INSURANCEEven such an exception is not available if the defect was known to

the insurer before the policy was issued. In Kentucky Title Co. v Hail219 Ky. 256, it was held, that where the title company admitted that itdiscovered a mis-description in a deed which included land already sold,and that through mistake it carried such mis-description into the policyit could not defend upon the ground that under its policy it was not lia-ble for the deficiency in land in the absence of a survey. Drury, Com-missioner, said, in the opinion of the court, at Page 266:

The title company did investigate this title and did find this error,without a surfare survey being made, and what we have said above aboutthe law not compelling one to do a vain or useless thing applies here. hyshould Hail have a surface survey made when the title companyunder its employment to investigate this title, without the survey, dis-covered the error and all that a surface survey could have possibly dis-closed.Analogous to this survey exception is an exception covering varia-

tions between the location of the fences and stoops and Lthe record line.It was held in Glynn v. Title Guarantee Trust Co., 132 App. Div.

N. Y., 859), that doorcaps and pilasters were not covered by such anexception unless specifically mentioned in the exception.

Possibility of rnechanics liens: In those States in which the filingof a mechanics lien relates back to the date of furnishing the materialor performing the labor, it is important that such mechanics liens shouldbe excepted from the operation of the policy. Otherwise the insurermight be liable upon a lien, the existence of which would be very diffi-cult to ascertain. In Wheeler v. Real Estate Title Insurance Trust Co.160 Pa. St. 408, the action was to recover the amount of a municipal lienfiled against the property, the title to which had been insured by the de-fendant. Judgment for the plaintiff was reversed by the Supreme Court,Mitchell, J., in the course of the opinion said, Page 409:

The policy was upon a mortgage and the covenant in it was to indemnifythe holder against 'all loss by reason of defects or unmarketablenessof the title to the esate or interest insured or because of liens or en-cumbrances, charging the same at the date of this policy'. A building wasthen in process of erection on the mortgaged premises and it is so setforth in the, policy. While it was in progress and for six months after-wards the possibility of filing mechanics liens which would relate backto the commencement of the building and thus antedate the mortgagecreated a two fold danger. First, it was a defect in the title which mightmake it unmarketable as a first encumbrance, and if the holder was com-pelled to sell it he could only do so at P4 loss; and secondly, in case ofa sale of the property the mechanics liens would have priority in thedistribution of the proceeds and the mortgage might have to bear the de-ficiency. The covenant already quoted insured against both these losses,


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LAWYER AND BANKERbut as the insurer was not willing to undertake the indefinite liability ofthe first, a clause was added, 'saving the defects, liens or encumbrancesexcepted in Schedule B . This was clearly a restriction of the liabilitypreviously assured, and was not intended to create any new liability ofts own.The court then referred to Schedule B. So much thereof as affects

this question was as follows: Unmarketability by reason of the possibility of mechanics and munici-pal liens is excepted from this insurance, but actual losses by reason ofsuch liens are hereby inured against.The court then continued, Page 410:

The main covenant includes several classes of liability; Schedule ex-cepts one class, unmarketability by reason of possibility of liens; but y an exceptioli to the exception, prevents the exclusion of actual lossesby such liens. That is, should a mechanics lien Intervene, the insurer willnot indemnify for the loss or unmarketability of the mortgage therebycaused, but will make goo the actual loss, such as the deficiency of thefund to satisfy the mortgage after payment of the lien.However, as the policy was issued in 1888 and paving work for

which the municipal lien was filed in 1891, the court held that such claimwas not a charge upon the property at the date of the policy nor withinthe period specified in Schedule.B, namely, six months, and so was notwithin the policy.

Exception as to title to the bed .of any street adjoining the premises: No title is insured to any land lying in a street, road or avenue adjoin-ing the premises described in Schedule A. This is a common form ofexception, especially when the description of the property runs to thecenter of the adjacent highway.

It would be difficult enough to investigate and pass upon the rightof the public to use the surface of the street, whether or not such rightarose y virtue of a written and recorded easement or y virtue of user,but it would be still more difficult to investigate and pass upon any sub-surface rights such as the right to lay and maintain water and gas mains,sewer pipes and wire conduits. The benefit to the insured in return forsuch labor would be very slight. His only practical right to the highwayas land would be in case it were closed to the public y action of the pub-lic authorities. Then, and only then, would he have any private interestin the existence of pipes, mains or wires beneath the bed of the street.

Date as of which the policy speaks: We have now considered thenature of the title insured and of the exceptions in relation thereto andthe important matter now is to consider as of what date the policy speaks,that is, as of what date does the policy insure.


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LAW OF TITLE INSURANCEIn fact this is specifically provided for in the policy itself, either

in the issuing part of the policy or in both the issuing part and in theconditions.

In policies in which there are no conditions defining the date as ofwhich the title and freedom from encumbrances is insured, the insuringportion of the policy sometimes fixes this date as the date hereof or the date of this policy . Sometimes in such policies while the title to theland is insured as of the date of the record of the deed or mortgage, thedate of the policy is the same as the date of record. This is shown byinsuring the title to the estate, mortgage or interest described in Sched-ule A hereto annexed . Schedule A, in addition to describing the land,specifies the estate, mortgage or interest insured, and also the date ofthe record of the instrument creating it. Also in such policies the date asof which the policy is insured to be free from liens and encumbrances isstated as because of liens or encumbrances charging the same at thedate of this policy . Consequently the date of the policy if all parts ofthe policy are to be consistent one with the other, must be the date of therecord of the instrument creating the estate, mortgage or interest.

As a rule, in the policies in which there are conditions fixing thedate of the policy as the date as of which the title is insured, there is areference in the insuring portion of the policy to the estate, mortgageor interest described in Schedule A . This schedule, read in connectionwith the condition of the policy, shows that the date of the policy is thedate of the record of the instrument.

This is logical To date a policy of title insurance before the recordof the instrument creating the estate, mortgage or interest insured wouldbe to insure before there was anything to insure or to put upon theshoulders of the insured any conveyances or encumbrances recorded be-tween the date of the policy and the date of record of the instrumentcreating the estate, mortgage or interest insured. On the other hand thepolicy should not bear a date subsequent to the record of the instrumentof creation, as the insurer should not be liable for conveyances or lienssubsequent to the date of record of this instrument. This leaves as theonly logical date the date of record of the instrument.

The question of the date of which the policy speaks was raised inTrenton Potteries Co. v. Title Guarantee Trust Co., 76 N Y. 65

In that case a policy of title insurance covering five pieces of prop-erty was not issued at the time deeds for four pieces were delivered, butits issuance was postponed until after title to the fifth had been per-fected and the deed delivered. The evident intention, as shown by the


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LAWYER AND BANKERevidence was that none of the titles were insured beyond the date whenthey became the property of the plaintiff. By agreement all the titleswere covered by one policy with no thought of changing the date as ofwhen the insurer would be liable for each title from the date of convey-ance of each piece to the date of the policy. One of the pieces of prop-erty was deeded in July 1892. The deed of the fifth piece of propertywas recorded April 24th, 1893, an on that date the policy covering thetitle to all the five pieces was issued. An assessment for street openingbecame a lien on October 12th, 1892, upon the piece of property deededin July, 1892. It was held that the plaintiff could not recover as defend-ant insured the property as of July, 1892, the date of the record of theee th r for

Conditions: We have so far examined title insurance as an expressagreement in the nature of insurance made by the insurer with the in-sured whereby the insurer agrees for a valuable consideration, usuallycalled the premium, to indemnify the insured in a specific amount,against loss which may be sustained by the insured by reason of defectsin or the unmarketability of the title to the real property therein de-scribed in which the insured has an insurable interest, or by reason ofany liens or encumbrances thereon in existence at the date of the agree-ment and not expressly excepted therefrom. This leaves only the elementof the conditions of the agreement subject to which the insured's rightto indemnity is limited. We will now consider the legal effect of theseconditions. These conditions always form a separate part of the policyand are referred to in the insuring portion thereof. In the insuring por-tion of each of the policies quoted by us supra the reference to the con-ditions follows the reference to the exceptions contained in Schedule Band reads as follows in each policy:

Saving liens and incumbrances excepted in Schedule B of the con-ditions of this policy (guaranty) hereto annexed and hereby incorpor-ated into this contract, the loss and the amount to lie ascertained in themanner provided in said conditions and to be payable upon compliance y the insured (party guaranteed) with the stipulations of said condi-tions, and not otherwise.In other words the insured will not be entitled to indemnity for

defects in title or encumbrances unless he on his part complies with theconditions of the policy. However, it must be remembered that the in-sured need not comply with any condition when such compliance wouldbe only a useless form or a needless ceremonial. While upon the subjectof indemnity we considered this question of useless compliance but wewill again briefly refer to two cases as illustrations of this principle.

In Kentucky Title Co. v. Hail 219 Ky, 256, the title company is-


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LAW OF TITLE INSURANCEsued a policy of title insurance, erroneously describing the premises cov-ered by the contract of sale between the plaintiff and another. The policycontained a clause reading as follows:

No claims shall arise under this policy except where there has been afinal judgment in a court of competent JuTisdiction under which the in-sured may be dispossessed or evicted from the premises covered by thispolicy or some part thereof.A part of the land described belonged to a third party, not a party

to the contract of sale. Upon demurrer to plaintiff s petition, it wasurged by the insurer that plaintiff should have brought an action againsthis grantor and against the third party to obtain a decision from a courtof competent jurisdiction as to whether plaintiff was entitled to the landas described in the policy or to any damages. The demurrer was over-ruled on the ground that as the land clearly belonged to the third party,it would be a vain and useless proceeding to bring suit for its recoveryand that the law will not require the performance of vain or useless acts.

In Place v St Paul Title Insurance Trust Co., 67 Minn. 126, itwas held that a condition precedent to a right of action upon a policyprohibiting a recovery unless the insured had contracted to sell the es-tate of interest covered by the policy and the title had been declared bya court of last resort of competent jurisdiction defective or encumberedby reason of a defect or encumbrance for which the company would beliable under the policy, has no application to a case where the land isheld by a third party in actual adverse possession and the insured haslost it absolutely by reason of a defect in the insured s title.

Title insurance differs from other kinds of insurance, as for in-stance fire insurance, in that the statutes of no State prescribe any stand-ard form of title insurance policy. The form of policy is as a rule a mat-ter of private agreement. We say as a rule, because in three States theform of policy is subject to the approval of the insurance authorities ofthe State, and r thers there are certain statutory provisions applicableto policies of insurance.

The three States in which the form of title insurance is subject tothe approval of the insurance authorities are Arkansas, Nebraska andTexas. In Arkansas the policy must be approved by the Insurance Com-missioner 1927 Supplement to C. M. Digest, Section 5975k . In Ne-braska it must be approved by the Department of Trade and Commerce(Compiled Statutes, 1929, 44-1103). And in Texas it must be approvedby the Board of Insurance Commissioners of Texas (Vernon s An-notated Statutes, Article 1302A, Subdivision 3).

In certain other States the statutory limitations upon title insurance


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LAWYER AND BANKERpolicies are those prescribed by the General Insurance Laws of the Stateand applicable to all kinds of insurance policies. These statutory provi-sions may be roughly stated as follows: I.) No policy shall contain any provision requiring the policy to be con-strued according to the laws of any other state than those of thestate in question. The states whose statutes make this provisionare, Arizona Code 1928, Section 1810), Massachusetts GeneralStatutes 1932, Chapter 175, Section 22 , Nebraska Compiled Stat-utes 1929, 44-320), Oregon Code 1930, 46-130).2.) That no policy shall by its terms deprive the courts of the state inquestloh of jurisdiction. This is provided for In Arizona Code 1928,Section 1800), Hawaii Revised Laws 1925, Section 3434, Subdivi-sion 22), Massachusetts General Statutes 1932, Chapter 175, Sec-

tion 2 , Wisconsin Statutes 1931, 201-19).3.) That no policy shall prescribe any period within which an actionupon the policy can be commenced less than the period prescribedby statute. Arizona Code 1928, Section 1810) provides that no pol-icy is valid which forbids the insured from suing upon the policywithin six months from the date of the accrual of the cause of ac-tion or from bringing such action after two years from such date.Massachusetts General Laws 1932, Chapter 175, Section 22) pro-hibits any policy, of insurance to prescribe a limitation of less thantwo years from the date of accrual of the cause of aotion beforecommencing suit upon the policy. Nebraska Compiled Statutes1929, 44-320) and Wisconsin Statutes 1931, 201-19) prohibit anypolicy to provide any shorter period within which suit may bebrought than the Statutes of Limitations of such state.4.) That no policy of insurance shall contain anything not fully setforth either in the policy or In the application, or in any rider tothe policy .This is provided for in Hawaii Revised Laws 1928, Sec-tion 3434), Oregon Code 1930, 46-130), Wisconsin Statutes 1929,201-19, Subdivision 2 . In Oregon It is specifically provided Code1930, 46-120) that matters stated in the application for insuranceshall be representations and not warranties.

Except for these statutory limitations, the whole subject of the con-tents and the wording of a title insurance policy is a matter of individualcontract. Nevertheless an examination of the conditions of title insur-ance policies in use in the United States shows a remarkable similarityin substance, if not in wording, especially so far as the policy conditionsare concerned. These conditions cover the following principle subjects:

1.) Indemnity.2.) False statements and concealment of material facts in the applica-tion for Insurance.3.) Date as of which the policy speaks.4.) Effect of payments made to the insured under the policy.5.) Subrogation.6.) Limitation as to commencement of actions.In addition to the foregoing there are other conditions inserted by

the individual title companies, which have been inserted by these corn-


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LAW OF TITLE INSURANCEpanies for their individual needs. It would be impossible to consider allof such conditions. As a rule they are simply worded and their construc-tion has not been passed upon by any reported cases. We will now con-sider briefly each of the principal conditions above referred to.

Indemnity: When considering the question of indemnity, we werenecessarily obliged to refer to the policy conditions of various companiesas affecting the insured s rights in that regard. We quoted extensivelyfrom the policies of various representative companies so as to show theconditions upon the subject existing in various parts of the UnitedStates. We will now re-state the conclusions we drew from an examina-tion of these policies and from the reported decisions bearing thereon.

In the case of an owner s policy, that is a policy issued to the own-er, the insured is entitled to indemnity for loss sustained (but not in ex-cess of the amount specified in the policy if evicted from the propertydescribed in the policy by reason of a final judgment of a court of com-petent jurisdiction, founded upon a claim of title or encumbrances in-sured against; provided the insured has given to the insurer due noticeof the commencement of the arction resulting in the eviction, and in whichaction the insurer has the right to represent the insured.

Likewise the insured in an owner s policy is entitled to indemnityfor loss sustained (but not in excess of the amount specified in the pol-icy if title is rejected by a proposed purchaser on the ground that thetitle is defective; or subject to encumbrances as insured against, and adecree of specific performance against the purchaser is denied by finaljudgment of a court of competent jurisdiction, in an action brought bythe insurer in the name of the insured.

In the case of a mortgagee s policy, that is a policy issued to amortgagee, the insured is entitled to indemnity for loss sustained (butnot in excess of the amount specified in the policy if the mortgage cov-ered by the policy has been adjudged by a final judgment of a court ofcompetent jurisdiction, to be invalid or ineffective to charge the premisesdescribed in the policy or to be subject to prior liens or encumbrances,as insured against, provided the insured had given to the insurer duenotice of any such action, and in which action the insurer has the rightto represent the insured.

We will refer the reader to the following decisions as bearing uponpolicy conditions as to indemnity: Atlanta Title Trust Co. v. Inman42 Ga. App. 191; Jones v. Southern Surety Co. 210 Ia. 61; MinnesotaTitle Guarantee Trust Co v. Drexel 70 Fed. 194; Barton v. West Jer-sey Title GuarantyCo. 64 N. J. L. 24; Ocean View Land Co. v. West


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LAWYER AND BANKERJersey Title GuarantyCo., 71 N. J. L. 604; Taylor v. New Jersey Ti-tle Guarantee Trust Co., 68 N. J. L. 74 and 70 N. J. L. 24; EmpireDevelopment Co. v. Title Guarantee Trust Co. 225 N. Y. 53 59; Pal-liser v. Title Insurance Company of New York 61 Misc 490 (N. Y.);Marandino v. Lawyers Title Corporation 156 Va. 696 700; Title In-surance Company of Richmond v. Industrial Bank of Richmond 156 Va.322.

Upon the question of the measure of damages, we refer to the fol-lowing cases: Kentucky Title Co. v. Hail 219 Ky. 256; Volunteer StateLife Insurance Co. v. Union Title Guaranty Co. 75 La. 183 and 143So. Rep. 43; Quigley v. St. Paul Title Co. 60 Minn. 275 and 64 Minn.149; Glynn v. Title Guarantee Trust Co. 132 App. Div. 859 (N. Y.);Murphy v. United States Title Guaranty Co., 104 Misc. 607 (N. Y. Ap-pellate Term) ; De Wyckoff v. Fidelity Union Trust Co. 97 N. J. L. 233;Flockhart Foundry Co. v. Fidelity Union Trust Co., 102 N. J. L. 405;Fox Chase Bank v. Wayne Junction Trust Co., 258 Pa. St. 272; Gaulerv. Solicitors Loan Trust Co., 9 Pa. Co. Ct. Rep. 634; German Ameri-can Title Trust Co. v. Citzens Trust Surety Co. 190 Pa. St. 247;Pennsylvania Laundry Co. v. Land Title Trust Co. 74 Pa. Super329 337 338; Whiteman v. Merion Title Trust Co. 25 Pa. Super.320; Wilson.v. Bryn Mawr Trust Co., 24 Montgomery County Reporter202 210; Title Insurance Company of Richmond v. IndustrialBank ofRichmond 156 Va. 322 at 333.

False statements and concealment of material facts in the applica-tion for insurance: In most title insurance policies there are conditionsvariously worded denying indemnity in case of the false statements orconcealment of material facts on the part of tho insured. This breachof condition is often committed y the insured in making untrue an-swers t questions set out in the application. for title insurance or sup-pressing facts known to him relative to the invalidity of a title. Somepolicies provide that the insurer is not liable if the insured has anyknowledge concerning the instrument creating the interest or the estateinsured, which would if asserted against it, render it void or depreciateits value Other policies provide that Any untrue statements made ythe insured with respect to any material fact; any suppression of orfailure to disclose any material fact; any untrue answer, y the insured,to material inquiries before the issuing of this policy shall void thepolicy . Under either of these provisions an insured who obtained yfraud a deed for property, the title to which was insured y the policy,could not claim indemnity from the insurer if the deed weret set aside,for fraud.


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LAW OF TITLE INSURANCEIn Rosenblatt v Louisville Title Co. 218 Ky 714 plaintiff ob-

tained a deed from one Jennie Hicks, an old and infirm negro, who waslater adjudged insane, and obtained a title policy from the defendant.The deed was later set aside for fraud. In an action upon the policyone of the conditions of the policy was Any untrue statement by theinsured or his agent affecting this insurance or any suppression of anymaterial fact or any untrue answer to written questions signed by theinsured or his agent before the issue of the policy shall void the policy.Under the above facts plaintiff was not entitled to recover. The courtsaid that it was evident that in applying for the policy plaintiff sup-pressed the fact of Nellie Hicks's mental condition and plaintiff's fraud-ulent conduct in obtaining the deed.

Sometimes the insured has been denied indemnity even when hehas not been guilty of any wrong-doing but has been the victim of falseimpersonation of a grantor when the insurer had no opportunity to passupon such identity. This question arose in Union Trust Co v. RealEstate Title Insurance Trust Co 27 Pa. Co. Ct. 187 . The actionwas upon a policy of title insurance issued by defendant to plaintiff in-suring the title to property in which plaintiff was interested as the sup-posed assignee of a mortgage made by one List to one John Charles.Plaintiff made a loan and received as security what purported to be anassignment of the List mortgage and a declaration of no setoff by themortgagor. These instruments were prepared by the plaintiff. A mancalling himself John Charles came to plaintiff's office and executed anassignment of the mortgage before an officer of the plaintiff, and de-livered what purported to be a declaration of no setoff executed byList and exhibited what purported to be the original List mortgage.Thereupon the loan transaction was completed. It turned out, how-ever, that there was a false impersonation of John Chaxles. That JohnCharles never executed the assignmnt of the mortgage, that List did notexecute the no setoff and that the mortgage exhibited as the List mort-gage was a forgery. It also appeared that in reality there was a Listmortgage made to John Charles, but that John Charles had never as-signed his interest in the mortgage. The court directed a verdict infavor of the defendant. In the opinion on appeal Willson, J., said, atPage 189:

The so-called mortgage was a forged instrument and the assignmentof it which had been executed before the plaintiff's officer, was alsoforged. The same may be said of no setoff. The plaintiff, however,must be regarded, in our opinion, by its representations to the defend-ant as having assumed the responsibility of these papers being genuine,and what occurred between the representatives of the two companies, to


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LAW OF TITLE INSURANCEgage was declared y the courts to be invalid as being in effect given y Shaw who- had no such power. In the action upon thq title policy,the trial court found that the defendant when issuing the policy had ac-tual knowledge of the transaction between Shaw and Hamilton and wasnot induced y fraud or concealment of any material facts to issue thepolicy. It was held on appeal y the defendant to the Supreme Courtof Connecticut that plaintiff could recover and that the fact that defend-ant's vice-president had been in the room when the conveyance of Shawto Hamilton was made had great weight.

In the course of his opinion, Beach, J. said that in view of thefacts it was unnecessary to discuss the legal proposition as to the dutyof an applicant to make a full and true disclosure of the risk and of theright of the insurer to rely on such representations. The court said,Page 144:

Our determination is based on the findings of the trial court thatthe Insurer had actual knowledge of the material facts before the policywas issued and was not induced to issue it y the suppression of anymaterial fact y the insured, from which it follows that the defense offraudulent misrepresentation or concealment can not prevail.On the other hand Clarke v Massachusetts Title Insurance Co. 227

Mass. 155, was a case in which the defendant insurer did not have anyknowledge. The facts in this case were as follows: Plaintiff pur-chased from certain heirs for 100.00 a piece of land in Lynn, Massa-chusetts, of which neither they nor their ancestors ever has possession.Plaintiff considered this piece of land to be worth 4,000.00. Later, atplaintiff's suggestion, one Scaplen, a tenant of his and of no financialrespc-isibility, took from defendant a deed and delivered to plaintiff anote for 4,000.00, secured by a mortgage. Immediately thereafter thisplaintiff obtained from defendant a title policy insuring his title asmortgagee. 'Later it was decided in Scaplen v Blanchard (187 Mass.731) that no title to the land passed to plaintiff. The policy of titleinsurance contained the following provision:

Any untrue statement or suppression of a material fact affecting thetitle x failure to disclose any known liens upon or adverse claims tothe estate, y the insured or his agent, shall avoid this policy exceptingas against a mortgagee not privileged thereto, holding with assent ofthis company.At the trial of the action the following instruction was requested by

th defendant7. If the jury find that both the plaintiff's deed to Scaplen andthe mortgage back to the plaintiff were shams executed to enable theplaintiff to offer to the defendant for insurance what purported to be a


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LAWYER AND BANKERreal mortgage but what was in fact nothing more than a pretended mort-gage, the jury will be justified in returning a verdict for the defendant.An excerption was taken to refusal to charge to this effect. Pierce,J., said, at Page 160, in writing the opinion of the court:

Therefore we have searched the charge with care to ascertainwhether in substance the jury were told that they should find for thedefendant if they found the plaintiff made the conveyance to Scaplen andtook back the mortgage from Scaplen in bad faith and in fraud of therights of all persons who thereafter should have occasion to deal withthe plaintiff in the capacity of mortgagees of the premises. The exami-nation discloses that the request was not given in form or In substance,and it infe rentially makes plain the attitude of the judge, which wasthat such a defense would not avail the defendant unless a revelation ofthe title to the mortgage would have aroused such suspicion of the titlethat it (the defendant) would have issued the policy. And in this re-gard he instructed the jury that There is no evidence on the part ofanybody representing the Massachusetts Title Insurance Company thatif such a fact had been revealed, that they would not have issued thepolicy.' The fraud to which the request relates is actual fraud and itput in issue by th eanswer. In these circumstances we think justicerequires the exception should be sustained.It has been held that a mis-statement even though unconnected with

the cause of the defect in title vitiates the title.In Stensgaardv. St Paul Real Estate Title Insurance Co. 50 Minn.

429, the facts were as follows. A stranger falsely representing theowner of land, sold it to plaintiff, who then applied to defendant for atitle policy for $10,000.00. The policy provided that statements in theapplication should be warranties. The application contained this ques-tion Q. Last price paid for the property.

A. $11,000.00.The deed to plaintiff was a forgery and action was brought upon

the title policy against the defendant. The breach of the condition ofthe policy by the insured was alleged to be the answer to the abovequestion. The court decided that as the plaintiff had been paid $3,000.00in cash and the balance in stock of little value that $11,000.00 was notpaid for the land and consequently that the answer was false and avoidedthe policy.

Gilfillan, C. J. said, at Page 434: In the second place, the effect of falsity In the statements on thevalidity of the contract is not made to depend on the intent with whichthe statement is made, s that the intent shall be fraudulent, but onwhether true ar false, to the best of the applicant's knowledge and be-lief where the contract itself does not stipulate the effect that a par-


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LAW OF TITLE INSURANCEticular false statement or representation shall have on the contract, orwhere it stipulates merely that the misrepresentation or. suppression of material fact shall avoid it the fact misrepresented or suppressedmust have-been m teri l as an inducement to enter into the contract;and as the materiality must be shown y mattgrs outside the terms ofthe contract, it is a question of fact. But the paTties may y theircontract determine the materiality for themselves, as when they stipulatethat if statement of fact made y one of them, and set f9rth in thecontract, be false it shall avoid the contract. In such case the statementis in effect, a warranty whether they have made the statement material,and in effect a warranty is a question for the court to determine y aninterpretation of the contract.In this case there are several things to be noticed. In the first'

place, the deed for the property was probably delivered to plaintiff be-fore he applied for title insurance. If that were true, then he impliedlywarranted the identity of the grantor and under the same principle asgoverned Union rust Co. v. Real Estate itle Insurance rust Co.27 Pa. Co. Ct. 187) referred to supra the defendant would have beenabsolved from liability in respect to the loss in question. This defense,however, was not raised on the appeal and probably not at the trial, onthe ground that it was unnecessary to the defense of the action.

Also it is to be observed that the untrue answer as to the price paid,even if it had not been a warranty, would probably have absolved the de-fendant. Undoubtedly it could have been shown that this false answerinduced the defendant to insure the title to the amount stated to be thepurchase price. Consequently the defendant would have relied uponthat answer and would not have been liable for loss, even though thefalse statement was not connected with such loss. This question wasnot decided, however, on the appeal, because the answers in the applica-tion for insurance were agreed to be warranties.

Conditions in policies of insurance similar to the one referred to inthe Stensgaard case undoubtedly induced the Legislature of Oregon topass the law referred to by us supra providing that matters stated in anapplication for insurance should be representations and not warranties(Oregon Code 1930, 46-120).

Date as of which the policy speaks. This matter we have consid-ered at some length supra but we will now consider it in the light ofpolicy conditions. As we said before, this date is in some policies fixed y the insuring part of the policy alone, unaffected by any separate con-ditions in reference thereto. In others, however, the date is fixed bothby the insuring part of the policy and by its conditions. We have here-tofore stated that the practical meaning of either class of policy is thatit speaks as of the date of record of the instrument evidencing the estate,mortgage or interest, the title of which is insured


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LAWYER AND BANKERIn reality the policy conditions upon this subject, while unnecessary,

are advantageous in removing any possible doubt upon the date of theeffectiveness of the policy.

These conditions vary in phraseology, some very brief but all in-clusive and others very detailed. Some of these conditions provide thatthe insurer will defend the insured at its own expense in title actionsor proceedings founded on a claim of title or encumbrance prior tothe date of the policy not excluded by the policy and consequently in-sured against. Others provide that the policy shall not cover defectsor encumbrances created subsequent to the date of the policy. Othersagain provide that defects and encumbrances arising after and assess-ments not confirmed at the date to which the guaranty indemnifies arenot covered by such guaranty. Again some of the more elaborate con-ditions are in effect that the policy does not cover suits or judicial pro-ceedings affecting the property where there has been no lis pendens no-tice thereof or judgment duly recorded, defects and incumbrances aris-ing after the date of this policy, taxes and assessments which have notbecome a lien at the date of this policy, mechanics or similar liens wheredue notice of record has not been given, or conveyances, agreements orother instruments relating to the property or interest mentioned in thepolicy, not appearing of record at the date of said policy; * *.All of these policies make the date of the policy the date of the recordof the instrument creating the estate, mortgage or interest, the title towhich is insured, as we have heretofore stated.

Effect of payments made to the insured under the policy. Mostpolicies contain a provision that payment of any sums to the insured un-der the terms of the policy shall reduce the amount of the insuranceaccordingly. This is a clause common to other kinds of insurance andrequires no comment. It is perfectly evident that regarding the con-tract of title insurance as a contract of indemnity is not exceeding acertain sum, that any sum paid as indemnity thereunder should becredited against the face of the policy.

Subrogation. Subrogation has been defined as follows: Subrogation is the substitution of another person in the place ofa creditor, so that the person in whose favor it is exercised succeeds tothe rights of the creditor in relation to the debt. It is of two kinds, iegaland conventional legal subrogation being for the purpose of this distinc-

tion regarded as subrogation which arises by operation of law and con-ventional subrogation that which arises by contract. 60 C. J 694).This right, like all other equitable rights, was created to avoid in-


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LAW OF TITLE INSURANCEjustice, and its exercise is governed by the maxims and principles ofequitable jurisdiction.

In the law of insurance, if the policy is one of indemnity to the in-sured, this right is available to the insurer 33 C. J Page 43). As thepolicy of title insurance as' universally written is one of indemnity, theinsurer is entitled to this right of subrogation.

We may paraphrase the above quoted definition as applicable totitle insurance as follows. In title insurance subrogation is the substi-tution of the insurer in the place of the insured so that the insurer succeeds to the rights of th insured against the grantor of the insured underan instrument containing covenants of warranty for breach of one ormore of such covenants, e. g. defects in title or existence of encum-brances insured against.

In this definition it will be noted that subrogation is divided into twoclasses, legal subrogation and conventional subrogation. In the formerthe right rests solely upon equitable principles without any previousagreement on the part of the insured therefor. In the latter it restsupon an agreement between the insurer and the insured. In most poli-cies of title insurance, the insurer is entitled to subrogation by agree-ment with the insured, that is to conventional subrogation. This agree-ment is contained in one of the conditions of the policy, but even apartfrom this agreement, the insurer would be entitled to legal subrogationin a proper case. The object of inserting this condition in a policy oftitle insurance is to avoid the necessity of a judicial determination as tothe right of the insured to subrogation based upon the application ofequitable principles to the facts and instead to rely upon the agreementof the insured granting this right. Of course this right, whether legalor conventional, may be defeated if its exercise would run counter toequitable principles or maxims.

In one form of policy this condition is set forth in the followingl ngu ge

Whenever this company shall have settled a claim under thispolicy it shall e entitled to all the rights and remedies, which the in-sured would have had against any other person or property in respectto such claim had this policy not been made, and the insured will trans-fer or cause to be transferred to this company such rights, and permit Itto use the name of the insured fon the recovery or defense thereof. Ifthe payment does not cover the loss of the insured, this company shallbe subrogated to such rights, in the proportion which said payment bearsto the amount of said loss not covered y said payment. And the in-sured warrants that such right of subrogation shall vest in this companyunaffected y any act of the insured.


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LAW OF TITLE INSURANCE eymour c se supra was under consideration. The facts were as follows: A title policy, containing the subrogation clause in question, wasissued by defendant in favor of plaintiff, insuring plaintiff as a secondmortgagee of premises in Philadelphia, among other things against actual loss or damage not exceeding 21,000 which said insured shallsustain by reason of non completion of premises. This mortgage waspurchased by plaintiffs from a third party. The mortgagor defaultedand after the default two of the properties covered by the mortgagewere released from the lien of the mortgage, without consent of the de-fendant insurer. The remaining properties were conveyed to a nomineeof the mortgagee. Thereafter it appeared that the buildings had not beenfully completed. The mortgagee had no right to complete the buildings.Upon the insurer's refusal to complete the buildings, the mortgagee com-pleted them and sued the defendant insurer for the loss. Defendantcontended that by the release of the two properties from the mortgagelien it had lost its rights against such properties and that the policy wasavoided thereby. There was evidence that the mortgage had depreciatedin value because of the non-completion of the buildings. The SupremeCourt held:

1). That there was no privity of contract between the mortgageeand the contractor and the mortgagee had no rights to which the defend-ant could be subrogated.

(2). That as between the mortgagee and the defendant insurer, thecontract was not one guaranteeing the completion of the houses, but acontract of indemnity against loss on the mortgage by reason of non-completion of the buildings covered thereby.

3). That the release of the property from the lien of the mort-gage did not render the policy void but would reduce defendant's liabil-ity, if these pieces of property had any value over and above the mort-gage.

In its opinion the court quoted the condition containing the subro-gation agreement, which as we have said, was practically identical withthe one in the Seymour case supra. In reference to the sale of thetwo pieces sold without the insurer's consent, Frazer, J., said that it didnot avoid the policies, but reduced defendant's liability. The court dis-tinguished the case from the Seymour case, on Page 328 as follows:

In that case (the eymour case) the policy contained a clause bywhich the defendant insured the completion of the houses and reservedthe right to take possession of the premises for that purpose and to besubrogated to the rights of plaintiffs against the contractor. Plaintiffsalleged a part of the work was improperly done and for that reason themortgage held by them was jeopardized. The defendant denied the


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LAW OF TITLE INSURANCEtion upon the bond, it was held that plaintiff could recover. Mitchell,J., said Page 499:

But it makes no difference whether the holder of the mortgage, Inthe first instance, paid off the liens, or whether the plaintiff paid themoff, as obligated by its policy. When the plaintiff, as insurer of thetitle, paid them off, it was entitled, as between itself and defendants,to be subrogated to the mortgagee's rights in all securities which he heldto protect his interest as mortgagee against the liens. As between themdrtgagees and the plaintiff, the latter's right of subrogation wouldhave been subject to the paramount right of the former to these securi-ties, as indemnity as against other liens; but as the holder of the mort-gage has voluntarily assigned the bond to the plaintiff, no such questionis involved in this case.In order to be entitled to subrogation, the insurer must have settled

the claim with the insured. This would hardly require any citation ofauthority, as the conditions governing subrogation always so specify.However, in Title Insurance Company of Richmond v Industrial Bankof Richmond 156 Va. 322 this question was raised. Plaintiff neglect-ed to except from its policy certain street improvement assessments.This policy was given guaranteeing land covered by Deed of Trust. TheDeed of Trust was foreclosed and as the purchaser could not make cer-tain payments, the property was again sold and purchased by the in-sured. In an action on the policy it was urged by the insurer that be-cause the property had been sold by the insured that the insured couldnot transfer any rights to the insurer and therefore, contrary to the con-ditions of the policy the insured prevented the insurer from exercisingany right of subrogation. The insurer, however, had not paid indem-nity under its policy, but contested the policy. It was held that untilthe insurer had settled with the insured, its right of subrogation hadnot arisen.

In an action brought by vendee against vendor to recover upon acovenant against encumbrances, it is not material either that a title in-surance company insured the title for the vendee or that it had paid theencumbrances to the municipality of owner thereof.

Alexander v. Greacen 36 Misc. 526 (N. Y.) is a case in point. Inthat case the defendants as executors agreed to sell to plaintiff certainlands of the estate they represented and in the contract of sale providedthat

All taxes assessments liens or incumbrances upon said prem-ises will be allowed out of the purchase money. The property is soid bya good title in fee-simple and will be conveyed by the usual executor'sdeed tree and clear from all incumbrances.Plaintiff employed the Title Guarantee Trust Company to search


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LAWYER AND BANKERthe title. The land was conveyed and a title policy issued. About fouryears after the conveyance, an unpaid assessment confirmed in 873 wasdiscovered as still outstanding. This was settled by the title companywith the city and the same duly satisfied. Thereupon this action wasbrought against the defendants by the plaintiff. The action was broughtin the name of the plaintiff by the title company as subrogee under itstitle policy. The right to recovery was based upon the terms of the con-tract of sale At a trial before a Trial Term of the City Court, a verdictin favor of the plaintiff was directed. Then an appeal was taken tothe General Term of the City Court, which reversed the judgment of theTrial Court and ordered a new trial 36 Misc. 133). An appeal wasthen taken to the Appellate Term of the Supreme Court 136 Misc. 5 6which reversed the decision of the General Term of the City Court andconfirmed the judgment of the Trial Term. The opinion of the Gen-eral Term of the City Court 36 Misc. 133) stated that the followingfacts appeared at the trial, namely that the money paid by the title com-pany in settlement of the unpaid assessment was a volunary act on itspart and was made without notice to the defendants or to plaintiff; thatthe title company never demanded repayment from the plaintiff; and thatthe plaintiff never required the title company to pay him It also ap-peared that the plaintiff never knew of the payment until afer it hadbeen made The court then said that the motion for the dismissal of thecomplaint on the ground that the action was not brought in the name ofthe real party in interest, should have been granted. In reversing thisjudgment, the Appellate Term of the Supreme Court said, by Scott, J.,Page 528:

That the assessment was compromised and paid by the Title Guar-antee Trust Company is not material nor is it material whether ornot the company had insured the title to plaintiff, and so, as betweenit and him, had become liable to pay the assessment. If any such con-tract of insurance or indemnity existed, It was not made for defend-ant's benefit; they were not privy to it and can gain no advantage fromit. Even assuming that the company had insured the title and had infact paid the assessment in fulfillment of its policy, the plaintiff is boundto give it the benefit of all rights and remedies within his reach to makeits loss as small as possible. Even if it sued the defendants for the re-turn of the money paid to satisfy this assessment, It would have to do sonot in its own right, but in plaintiff's right, and as equitable assignee ofhis cause of action. It would still be his action, based upon his contractwith the defendants. f he sees fit to sue in his own name, althoughfor the ultimate benefit of his Insurers, the defendants have no causeto complain.Limitation as to commencement of actions Some policies provide

among their conditions that the insured may not commence an action


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We Take A LookBy Nathan oone Williams of the Washington D C Bar

In the first week of March, 1934 there assembled in Washington whatunder better planning might very properly have been an INDUSTRIAL PAR-LIAMENT.

There were present some five thousand men constituting the member-ship of Code Authorities named as administrators of various codes of faircompetition developed and established under the National ndustrial Recov-ery Act; and membetrship of Code Committees of other groups which havesubmitted such codes to the NRA; all of whom were Interested to knowwhatever they could learn of administration plans and policies with respectthereto, and to the larger question as to the future outcome of this legisla-tion, which under the terms of the law is to expire y limitation in June, 1935

Substantially, one of these two years has passed since the passage of thislegislation, and only a minor numb~r of industrial and commercial groupshave their operative plans for administration of their newly found authorityand responsibility in function. Neither they nor the membership of theirindustries as yet have any very clearly defined opinion or judgment as towhether or not they have bitten off more than they can masticate. They areyet in a swirling fog of doubt as to whether or not they are to be permittedthe same liberty of trial and error test with some reliance and tolerance ofthe good intentions of their judgment as is accorded political government;or whethar they are to be ordered and commanded, and left only that im-ponderable but effective American defense of passive resistance

Already, the thought and deliberations of these men called to new testsof authority and responsibility has been clouded y the raucous voice of theradical minded Utopian, who would wreck every accomplishment for his im-mediate selfish advantage, and make merry of the misery of millions; and y the extremists on the other side of the picture, who see destruction inevery social advance and peril in every proposal.

Then there are the self-constituted representatives of Consumer's , asif we were not all in that class to the extent of our desires as affected, your income and purchasing power purchasing power, which is circum-scribed y our monetary possessions, our barter goods, and our existing orpotential credit.

These representatives are lending their voice to the babel, never re-membering that in no era of world history has it ever been so difficult toexploit the consumer. A plethora of goods and services are competing for hisdollar depreciated or not . His educated inclination to substitute andchange almost without rhyme or reason, and the variety of articles and serv-ices available for his needs or desires makes his exploitation next to impos-sible. Toll-bridges on the highways of commerce of whatever form are butsmall obstructions to his facilities of reaching almost all sources for his sup-plies. This is not to say that such unsocial or uneconomic devices do not ex-


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WE TAKE, A LOOKist or that they should not be removed or pointed out wheprever possible. Be-sides, it must be remembered that presumptively the producer or supplier hassense enough not to destroy his own markets.

Except in the most unusual instances, and as never before in history,does the consumer fix the price which he will pay. Except in rare Instances,too high a price will instantly send many into another field from that of acodified industry which even thinks of being rapacious. Even in the field ofnecessary foodstuffs, there are hundreds of items from which to choose, andall bounded by the limitations of the human stomach.

Flow we do like to tell others how their lives should be ordered How weenjoy

lawyer and banker - 1937 - lawyers and new deal - non-partisansip

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