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Breck v. Moore (2/2/96), 910 P 2d 599
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THE SUPREME COURT OF THE STATE OF ALASKA
WILLIAM H. BRECK, )
) Supreme Court No. S-5435
) Superior Court No.
FRANK H. MOORE and ) 3AN-87-10598 Civil
SANDRA MOORE, )
FRANK H. MOORE and )
SANDRA MOORE, )
Cross-Appellants, ) Supreme Court No. S-5445
WILLIAM H. BRECK and SAFECO )
TITLE AGENCY, INC., ) O P I N I O N
______________________________) [No. 4318 - February 2, 1996]
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Joan M. Woodward, Judge.
Appearances: William H. Breck, pro se,
Vallejo, California. Gregory L. Youngmun and
John T. Robertson, Staley, DeLisio & Cook,
Anchorage, for Appellees/Cross-Appellants.
Michael G. Mitchell and Frederick H. Boness,
Preston, Thorgrimson, Shidler, Gates & Ellis,
Anchorage, for Cross-Appellee Safeco Title
Before: Moore, Chief Justice, Rabinowitz,
Matthews and Compton, Justices, and Bryner,
Justice pro tem.*
MOORE, Chief Justice, concurring.
Frank Moore and Sandra Moore sued William H. Breck, an
attorney, and Safeco Title Agency, Inc. (Safeco) for failing to
adequately warn them of building and sewage disposal restrictions
on land they eventually purchased. They filed suit promptly
after discovery of the restrictions, but many years after
closing. The trial court granted summary judgment for Safeco,
based on the statute of limitations. After a bench trial, the
court granted judgment in favor of the Moores against Breck, but
awarded only partial damages and no attorney's fees or costs
against Breck. Breck appeals the determination of liability.
The Moores appeal the judgment for Safeco and the limited award
of damages. We affirm the judgment for Safeco and the
determination that Breck was liable to the Moores, but remand for
a redetermination of damages against Breck.
I. FACTS AND PROCEEDINGS
A. Factual History
Breck represented the Moores in a number of legal
matters prior to 1981, including the incorporation of Frank
Moore's medical practice and the lease of the Moores' Anchorage
home. In the summer of 1981, the Moores, with the assistance of
various real estate agents, decided to purchase a duplex in Eagle
River owned by Robert and Bonnie Krall. The Moores retained
Breck, requesting that he assist them in closing the transaction.
They employed Safeco and Alaska Title Guaranty (ATG) to provide
On November 9, 1981, ATG sent a letter to Breck
requesting that he prepare the warranty deed and deed of trust
package needed for a closing scheduled for the following day.
The letter included a "Preliminary Commitment for Title
Insurance" from Safeco, which stated that the Kralls had fee
simple title, subject to restrictions "as recited in the script
of the plat of LAKE RIDGE TERRACE SUBD., substantially as hereto
attached." However, the plat was not attached to the letter.
Breck completed the documents and sent them to Safeco. He never
asked for or obtained a copy of the plat. He never advised the
Moores that there might be significant title restrictions on the
property.1 The plat contained the following restrictions:
1. The subdivision at the time of filing is
not served by public water and sewer
facilities. No onsite water and/or sewage
disposal facilities may be constructed
[without] prior approval of the Health
2. No dwelling shall be constructed or
placed upon this lot.
On November 10 the Moores closed the transaction.
Although the deed of trust also refers to the plat, the plat was
not attached to it at the time of closing. Breck did not attend
The Moores moved into the duplex shortly after closing.
Three to four weeks later, the Moores received a complete title
insurance policy from Safeco. The plat, which contained the
sewer and building restrictions, was attached to the policy.
Frank Moore placed the policy in his files without reading it.
Sandra Moore never saw the policy. The Moores moved out in early
1983 because of extensive problems with the septic system and
resulting water damage.
B. Procedural History
In October 1987 the Moores filed suit against the
Kralls and the real estate agents involved in the transaction,
alleging misrepresentation relating to the septic system. In
September 1989 the Moores' attorney in the suit against the
Kralls discovered the plat restrictions. In August 1990 the
Moores amended their complaint to add Breck and Safeco, alleging
breach of contract and negligence for failing to warn of the
restrictions. The Moores settled with the Kralls2 and agreed to
dismiss the claims against the real estate agents. In February
of 1992 Safeco moved for summary judgment, which the Moores
opposed. Breck answered the Moores' complaint against him,
alleging in part that he was working for Safeco, not the Moores,
in preparing the deeds. The trial court granted summary judgment
for Safeco, based on the statute of limitations.
[The Moores] were on inquiry notice and
reasonably should have known of the existence
of the plat restriction from the time the
preliminary commitment referencing that
restriction was furnished to [the Moores] and
their attorney. The court finds that there
is no genuine issue of material fact in this
regard. This notice was sufficient to
commence the running of the statute of
limitations for the tort causes of action.
The six year statute of limitations for the
contract cause of action began to run upon
issuance of the preliminary commitment as
well, since that is when the "breach" is
alleged to have occurred.
Safeco was awarded attorney's fees and costs against
the Moores in the amount of $14,910.71.
After a bench trial, the court entered findings of fact
and conclusions of law holding that the statute of limitations
did not require dismissal of the suit against Breck. Regarding
tolling of the statute of limitations under the discovery rule,
the court stated:
The court finds as a factual matter that Dr.
Moore acted reasonably in not reading the
policy. The policy arrived after the
transaction was closed; Dr. Moore's testimony
regarding his reliance on professionals in
the field was credible and reasonable. There
was no evidence to suggest that a reasonable
person in Dr. Moore's circumstances would
have read the policy.
The court limited the Moores' damages to closing costs,
and ordered each party to bear their own litigation costs and
A. The Nature of the Professional Malpractice Action
An action against a real estate attorney and a title
agency for negligent title research and disclosure is a
professional negligence or malpractice action. A professional
malpractice action involves "a professional's alleged breach of a
duty of due care which was implied by law as a result of a
contractual undertaking." Lee Houston & Assocs., Ltd. v. Racine,
806 P.2d 848, 853 (Alaska 1991). Like other professionals, real
estate attorneys and title agencies must use due care to discover
and disclose to their clients significant restrictions on real
title. See Bank of California v. First Am. Title Ins. Co., 826
P.2d 1126, 1129 (Alaska 1992). The hybrid nature of a
professional malpractice action has led to some confusion about
whether common law contract or tort rules apply. This case
raises questions about the statute of limitations, the discovery
rule, and the measure of damages. We address all three questions
at the outset.
First, the statute of limitations on the claims in this
case is six years. AS 9.10.050. In Van Horn Lodge, Inc. v.
White, 627 P.2d 641, 643 (Alaska 1981), we held that the
limitation period depends on whether the gravamen of the
plaintiff's complaint lies in contract or tort. Application of
this analysis proved difficult over the next decade. See Jones
v. Wadsworth, 791 P.2d 1013, 1016-17 (Alaska 1990); Bibo v.
Jeffrey's Restaurant, 770 P.2d 290 (Alaska 1989). We have
recently modified the Van Horn 'gravamen' analysis. Rather than
attempting to characterize the source of the plaintiff's rights
in terms of the common law distinctions between tort and
contract, we now look to the nature of the injury. The six-year
statute of limitations generally applies to professional
malpractice actions claiming economic loss. Lee Houston, 806
P.2d at 855. The two-year statute of limitations applies to
malpractice causing personal or reputational injury. Pedersen v.
Flannery, 863 P.2d 856, 858 (Alaska 1993); AS 9.10.070. Because
the Moores have suffered principally economic injuries, the six-
year statute of limitations applies.
Second, the discovery rule applies to the claims in
this case. We have consistently held that the discovery rule
applies to professional malpractice. Lee Houston, 806 P.2d at
851 (malpractice by real estate agents); Gudenau & Co. v. Sweeney
Ins. Co., 736 P.2d 763, 766 (Alaska 1987) (malpractice by
insurance agents); Sharrow v. Archer, 658 P.2d 1331, 1334 (Alaska
1983) (malpractice by physician); Greater Area Inc. v. Bookman,
657 P.2d 828, 829-30 (Alaska 1982) (malpractice by attorney).
This is true even in professional malpractice actions where the
contract elements of the action appear to predominate over the
tort elements. See Gudenau, 736 P.2d at 766 n.4, 767. The
discovery rule has been applied to actions relating to title
research in other jurisdictions by decision and by statute. See
Zurick v. First Am. Title Ins. Co., 833 F.2d 233 (10th Cir. 1987)
(applying Colorado law); Pioneer Nat'l Ins. Co. v. Sabo, 382 A.2d
265 (Del. Super. 1978); Cal. Civ. Proc. Code ' 339(1) (West
1982). As in other malpractice actions, the fact of negligent
title research and the resulting harm are difficult for a lay
person to discover. See Bookman, 657 P.2d at 830. Nevertheless,
Safeco characterizes the claim against it as a contract action
and argues that the discovery rule should not apply. We recently
held that the discovery rule does apply to some contract actions.
Bauman v. Day, 892 P.2d 817, 828 (Alaska 1995). Even were that
not so, we reaffirm the principle that the discovery rule applies
to professional malpractice actions.
Third, the tort measure of damages applies to this
Like those of any other action for
negligence, the elements of a cause of action
in tort for professional negligence are: (1)
the duty of the professional to use such
skill, prudence, and diligence as other
members of the profession commonly possess
and exercise; (2) a breach of that duty; (3)
a proximate causal connection between the
negligent conduct and the resulting injury;
and (4) actual loss or damage resulting from
the professional's negligence.
Linck v. Barokas & Martin, 667 P.2d 171, 174 n.4 (Alaska 1983).
Because the Moores sued for malpractice under both
contract and tort theories, the trial court analyzed damages
under both contract and tort measures. While the professional
services contract gives rise to the duty of due care, the
professional's negligence gives rise to the damage. The damage
generally should be measured according to traditional tort
B. The Trial Court Correctly Applied the Discovery
As discussed, the Moores were required to bring suit
within six years of the time they knew or reasonably should have
known of all the elements of their cause of action.4 Lee
Houston, 806 P.2d at 855; Bookman, 657 P.2d at 829. The trial
court held that the Moores had notice of the claims against
Safeco in 1981 as a matter of law, but that the Moores did not
have notice of the claims against Breck until 1989. The Moores
amended their complaint to add Safeco and Breck in 1990. Because
both claims arise from the same set of facts, these holdings
present an apparent conflict on the date of discovery. The
conflict is more apparent than real. What a plaintiff should
have known about her cause of action depends upon all of the
surrounding circumstances. 1. Moore v. Safeco
In suits against third parties, "the plaintiff is
generally charged with the lapses of attorneys acting in his
behalf." Pedersen v. Zielski, 822 P.2d 903, 907 n.5 (Alaska
1991) (quoting Gutierrez v. Mofid, 705 P.2d 886, 907 (Cal.
1985)). If Breck should have discovered the Moores' cause of
action against Safeco in 1981, then the Moores are charged with
this constructive discovery. The trial court properly
distinguished between what Breck reasonably should have known and
what the Moores reasonably should have known. Breck was retained
as an attorney with expertise in real estate law. One of his
principal duties in the transaction was to confirm that the
seller's title was free of significant restrictions. He received
the preliminary commitment referencing restrictions in an
unattached plat. As Breck testified at trial, one of the primary
purposes of a preliminary commitment letter is to allow the
purchaser's title agent to examine and evaluate significant title
restrictions. "The date of discovery is a question of fact which
cannot ordinarily be determined by the superior court on a motion
for summary judgment." Gudenau, 736 P.2d at 767. Nevertheless,
we conclude that the notice to Breck was sufficient as a matter
of law. This notice is charged to the Moores in their suit
The Moores assert that there is a genuine issue of fact
about Breck's role in the purchase. In his answer, Breck
asserted that he worked for Safeco, not the Moores.5 The Moores
interpret this to mean that Breck "switched his allegiance" at
some point in the transaction and that Breck was no longer the
Moores' agent at closing for purposes of the discovery rule. If
Breck was not the Moores' agent, then the Moores would not be
charged with Breck's negligence. We conclude that the Moores'
argument mischaracterizes Breck's statements. Breck was
attempting to recast the legal relationships in order to shift
responsibility to Safeco. He does not contend that he changed
allegiance from one master to the other. Rather, he asks that
the court view the entire transaction through a different legal
prism. The trial court properly rejected Breck's argument.
Breck was the Moores' attorney at all relevant times. The fact
that he exchanged documents with the title insurer and that his
fee was channelled through the title insurer does not change his
relationship to the Moores. In their complaint against both
Safeco and Breck, the Moores asserted that Breck was their
attorney at the time of closing. In the trial against Breck, the
Moores proved that Breck was their attorney at the time of
closing. There was no genuine issue of material fact precluding
the court from granting summary judgment for Safeco.
2. Moore v. Breck
In their suit against Breck, the Moores are responsible
only for their own knowledge and lack of diligence. Breck argues
that because Dr. Moore is educated and speaks English, the
receipt of the closing documents in 1981 put him on notice of the
restrictions. The discovery rule takes into account the
sophistication of the plaintiff in the particular area of
knowledge. See Pedersen, 822 P.2d at 907 (medical terminology);
Johnson v. Haberman & Kassoy, 247 Cal. Rptr. 614, 619 (Cal. App.
1988) (complicated lease); Long v. Abbott Mortgage Corp., 459 F.
Supp. 108, 116-17 & n.6 (D. Conn. 1978) (sophisticated investor).
In Gudenau, we held that it might be reasonable for an insured to
rely on an insurance broker's statements about the scope of
coverage, rather than reading and interpreting the detailed
language of the exclusionary clauses. 736 P.2d at 767. This
court reviews the underlying factual determinations for clear
error, but does not defer to the trial court's application of the
legal doctrine of reasonableness to the established facts.
Alaska R. Civ. P. 52(a); Luedtke v. Nabors Alaska Drilling, Inc.,
834 P.2d 1220, 1223 (Alaska 1992). The trial court found that
Dr. Moore acted reasonably in relying on Breck and the real
estate agents to review the documents and identify problems. We
C. The Trial Court Erred in Limiting the Moores'
Damages to Closing Costs
This court reviews an award of damages for an abuse of
discretion and independently reviews the law applied by the trial
court. Johnson v. Alaska Dep't of Fish & Game, 836 P.2d 896, 910
(Alaska 1991). The Moores moved into the duplex in late 1981,
moved out because of the septic problems in early 1983, and were
relieved of their obligations to make mortgage payments by
settlement with the Kralls in late 1992. They seek all out-of-
pocket expenses.6 The trial court awarded only closing costs.
Additionally, because the trial court found the amount recovered
by the Moores was negligible "in relation to the amount sought in
the litigation," it held that there was not a prevailing party
for the purpose of attorney's fees and costs.
1. The Moores were damaged by Breck's
negligence and made proper efforts to mitigate
Breck argues that the no dwelling plat restriction is
invalid as a matter of law and therefore the Moores have suffered
no damage because of it.7 In Belland v. O.K. Lumber Co., 797
P.2d 638 (Alaska 1990), we held that a lender suffered no damage
when the lender's attorney failed to discover a prior federal tax
lien on the mortgaged property. Because a purchase money
mortgage takes precedence over all prior liens, the lender was
not harmed by the attorney's negligence. Id. at 641-42. The
value of the loan was not diminished at all by the presence of
the tax lien. In the present case, it is arguable that the no
dwelling restriction is not enforceable against the Moores.8
However, the restriction is not facially void. Thus, the cloud
on the Moores' title is sufficient damage to maintain the action.
The trial court correctly concluded that the Moores had alleged
sufficient damage to state a cause of action for malpractice.
In a related argument, Breck claims that the Moores
failed to mitigate their damages by declining to pay him an
additional fee to quiet title on the property. After the no
dwelling restriction was discovered, Breck wrote to the Moores:
I would estimate that the total cost of the
Quiet Title Action would likely be in the
$5,000 to $7,000 range. In view of my
arguable exposure to a possible professional
negligence claim . . . I would be willing to
undertake the Quiet Title Action on behalf of
the Moores at one-half of my standard hourly
rate (i.e. at $75.00 per hour instead of
$150.00 per hour) for time expended, plus
reimbursement for my out-of-pocket expenses
and costs, should the Moores desire to
consider this course.
The Moores did not in fact pursue this course. Instead the
Moores settled with the Kralls and filed suit against Breck for
the difference. The Moores acted reasonably. They had a duty to
mitigate their damages and, while it might have been unreasonable
for them to refuse to allow Breck to attempt to quiet title at
Breck's expense, the Moores were under no obligation to pay an
attorney to cure his initial error.
The lack of clear proof by the Moores understandably
gave the trial court difficulty in determining whether Breck's
negligence was a "substantial factor" in bringing about the
Moores' losses, or whether the losses were "reasonably
foreseeable." However, the trial court was able to determine
that "Breck's negligence was a legal cause of the Moores'
purchase of the duplex."
The finding that the Moores had not met their burden of
proving proximate cause on several damage allegations is a
factual one. Dura Corp. v. Harned, 703 P.2d 396, 406 (Alaska
1985). Factual determinations are reviewed for clear error.
Alaska R. Civ. P. 52. Clear error exists when this court is left
with "a definite and firm conviction on the entire record that a
mistake has been made, although there may be evidence to support
the finding." Mathis v. Meyeres, 574 P.2d 447, 449 (Alaska
1978). In making this determination, this court views the
evidence in the light most favorable to the prevailing party.
Id. Our review of the record shows no clear error in the trial
court's determination on this point.
The next step is to determine the appropriate method of
measuring the damages. A purchaser employs title agents to
assure that she has adequate information about significant title
restrictions before closing. The no dwelling restriction was
shown to be a "deal stopper" at trial. However, the trial court
found that the Moores "failed to carry their burden of proving
the nature of their damages and their relation to defendant's
negligence/breach of contract." Therefore, the damage done to
the Moores by entering into the contract could not be measured
with any certainty. The court also found that the "Moores failed
to introduce evidence . . . regarding . . . any connection
between the plat restrictions at issue and the septic system
problems." Therefore, the issue of whether an award of all out-
of-pocket costs would be appropriate is not before this court, as
we find no clear error on these factual determinations of the
trial court. However, damages relating to the no dwelling
restriction can be measured with sufficient certainty by using a
Although there is apparently no Alaska case discussing
the measure of damages to be applied in a malpractice case
involving restrictions on real property negligently overlooked,
several cases provide close analogies. In Advanced, Inc. v.
Wilks, 711 P.2d 524 (Alaska 1985), we noted that two theories of
damages were possible in a damage to real property case:
diminution in value and cost of cure.9 Advanced at 527. In
Hancock v. Northcutt, 808 P.2d 251 (Alaska 1991), we again noted
these two alternate methods in a damage to property case.
Hancock at 255. Also, in City of Kenai v. Burnett, 860 P.2d 1233
(Alaska 1993), an inverse condemnation case, we stated that the
diminution in value measure was a proper one on which to instruct
the jury, and noted that the cost of cure measure could be
appropriate if the diminution test were shown to be inadequate.
Burnett at 1241-42. The Restatement of Torts, in discussing harm
to chattels, indicates that these two measures of damages are
applicable in an appropriate case. Restatement (Second) of Torts
' 928 (1979).
Cases from other jurisdictions with similar facts,
although not involving attorney malpractice, generally hold that
a diminution in value approach is the appropriate measure.10
However, if the property owner can be made whole by curing the
defect, and this cost is less than the diminished value, the cure
approach should be used. Using a higher measure would result in
unjust enrichment, for the property owner could spend part of the
award curing the defect and retain the rest of the award. We
note the guiding principal in these cases is making good the
injury or loss. Using the lesser of the cost of cure or the
diminution in value satisfies this criterion.
The Moores are entitled to receive at least the
property as they expected to receive it. Therefore, the measure
of damages is the lesser of (1) the cost of removing the no
dwelling restriction, and (2) the diminution of the property
value as measured by the value of the property with and without
We remand the determination of damages to the trial
court for application of these criteria.
D. The Trial Court Correctly Rejected Breck's
Proposed Cost and Supersedeas Bond
The parties vigorously contest Breck's innovative cost
and supersedeas bond strategies. Breck attempted to support his
motion for a stay of execution of judgment with a supersedeas
bond, listing himself as the principal and his professional
corporation as the surety. The trial court rejected this bond,
instead requiring "a surety completely independent of defendant
Breck." Breck then attempted to "collateralize" the bond with a
deed to Anchorage land, which he valued at the tax assessment
rate. The trial court rejected the collateral and noted that the
amount was $1,000 short. Breck sent a check for $1,000, which
was apparently intended to make up the deficit in his supersedeas
bond. The clerk treated the check as a cost bond submitted to
avoid dismissal of Breck's appeal. The trial court has never
approved a supersedeas bond and no stay of the judgment against
Breck has been entered. We conclude that the trial court acted
Breck frequently makes the compound allegation that the
trial court "erred (or abused its discretion), as a matter of
law" on the supersedeas bond issues. The Moores interpret this
to mean that Breck is asserting an abuse-of-discretion standard
of review. They contend that this court should instead
independently review the rejection of Breck's bonds. In fact,
the two actions by the trial court are reviewed under two
different standards of review.
The trial court's determination that an attorney's
professional corporation may not act as surety for the attorney's
personal appeal involves an interpretation of the Rules of Civil
Procedure. We independently review this decision. Ford v.
Municipality of Anchorage, 813 P.2d 654, 655 n.2 (Alaska 1991).
The trial court correctly concluded that a professional
corporation is not sufficiently independent from the professional
to act as a surety. In addition, we note that under Civil Rule
80(b)(1), "[n]o attorney at law . . . is qualified to be a
surety." We see no principled distinction that would allow an
attorney's professional corporation to act as a surety. An
attorney should not be able to bootstrap his or her way around
the surety requirement or Rule 80(b)(1).
Breck claims that this result unreasonably prevents
corporations that carry the name of the appellant from acting as
a surety. "[A] very substantial class of people (including the
Fords, the Rothschilds, the Merrills, the Lynchs, the Deans, the
Witters . . .) [will] be discriminated against . . . without
precedent in the common law, logical necessity or social
utility." At some point on the continuum from sole ownership of
one's own professional corporation to the status of founder and
shareholder in a large multinational corporation, there may be
sufficient independence for the corporation to act as a surety
for the individual. In this case, the trial court was correct as
a matter of law. An attorney appellant may not use his or her
professional corporation as a surety.
The trial court rejected Breck's proffer of real
property as collateral for the bond. We review the trial court's
determination that a surety is inadequate for an abuse of
discretion. Appellate Rule 204(d) provides that the supersedeas
bond is subject to the approval of the court and "shall have such
surety or sureties as the court requires." "Rule 204(d) allows
the superior court discretion to set the security required for a
stay." City of Nome v. Catholic Bishop of N. Alaska, 707 P.2d
870, 878 (Alaska 1985). The rules allow a cash substitute for a
bond. Alaska R. Civ. P. 80(g). There is no comparable rule
allowing the use of title to real property as a surety. While
real or personal property may be adequate surety in some cases,
the trial court did not abuse its discretion in this case.
Summary judgment for Safeco and the award of costs and
attorney's fees are AFFIRMED. The determination that Breck is
liable to the Moores for professional malpractice is AFFIRMED.
The award of damages is REVERSED and REMANDED for recalculation.
The decision on attorney's fees and costs is VACATED. The court
should reconsider attorney's fees and costs in light of the
revised award of damages.
MOORE, Chief Justice, concurring.
I agree with the result in this case. I write
separately because I disagree with two aspects of the majority
opinion. First, the majority holds that the six-year statute of
limitations for contracts, rather than the two-year statute for
torts, applies to this case of professional malpractice. [Op. at
6-7] The majority relies upon Lee Houston & Assocs. v. Racine,
806 P.2d 848, 855 (Alaska 1991), which held that the six-year
statute applies to professional malpractice actions claiming
economic loss. I joined Justice Burke's dissent in Lee Houston,
stating that the two-year statute should be applied because the
defendant breached a general fiduciary duty to the client, that
such duties are analogous to a general tortfeasor's duty of
reasonable care, and that therefore the two-year statute of
limitations for torts was more appropriate. Id. at 856-57
(Burke, J., dissenting); see also Scott L. Altes, The Statute of
Limitations for Professional Malpractice in Alaska after Lee
Houston & Associates, Ltd. v. Racine, 9 Alaska L. Rev. 41, 52-53
(1992) (agreeing that the tort statute of limitations is more
appropriate in such circumstances).
In this case, the Moores sued their lawyer, Breck, for
breach of contract and negligence for failing to warn of
restrictions in the plat for the property purchased by the
Moores. This cause of action is based more in tort -- for
negligence -- than in contract law. Therefore, for the same
reasoning outlined in the Lee Houston dissent and in Altes,
supra, I would apply the two-year statute of limitations to this
My other objection to the majority opinion is its
citation to Bauman v. Day, 892 P.2d 817 (Alaska 1995), in which I
also dissent. I reaffirm my opposition to the overly broad
discovery rule for contracts adopted in Bauman.
Nevertheless, I concur in the result reached today. As
the majority correctly states, "[w]e have consistently held that
the discovery rule applies to professional malpractice." [Op. 7]
The fact of negligent title research and the resulting harm are
difficult for a lay person to discover. Furthermore, as
previously discussed, this action sounds more in tort than in
contract.13 I agree with the majority's application of the
discovery rule to this case. The Moores did not actually
discover Breck's failure to find the plat restrictions until
1989. Therefore, whether the two-year or six-year statute is
applied, their suit against Breck was not time-barred.
* Sitting by assignment made pursuant to article IV, section
16 of the Alaska Constitution.
1 At trial Breck testified that he asked an ATG
representative about the absence of the plat, and that he met
with the Moores and advised them not to proceed without knowing
the restrictions. The Moores testified to the contrary. The
trial court believed the Moores, based in part on the fact that
Breck's correspondence during the pretrial negotiations never
mentions this exculpatory meeting.
2 Under the settlement reached August 31, 1992, the
Kralls agreed to take the duplex back, assume the mortgage, and
cancel the second note, attempt to clear the title, and actively
market the property. Any proceeds from the sale are to be used
to pay off the mortgage. Any remaining money, up to $25,000,
will go to the Moores. After $25,000, the parties will split the
money. The parties indicated that the property will have to sell
for $105,000 for the Moores to receive the initial $25,000.
3 In Lee Houston, we stated in dicta that "[w]hile there
is not a simple tort-contract dichotomy determining the
applicable statute of limitations, there is for determining
whether punitive damages are recoverable." Lee Houston, 806 P.2d
at 856. This suggests that the Van Horn "gravamen" analysis may
have new life in the field of malpractice damages. We express no
view as to whether a peculiar factual situation may make a
contract measure of damages appropriate.
4 This is the simplest formulation of the discovery rule.
When a plaintiff knows that she has been harmed but has
difficulty determining the cause of the harm, the discovery rule
is complicated by consideration of the date plaintiff received
inquiry notice and the reasonableness of the plaintiff's
investigation. Pedersen v. Zielski, 822 P.2d 903, 908 (Alaska
1991) These concepts do not apply to this case. Once the Moores
knew or should have known that the duplex they purchased had
significant building and sewer restrictions, they knew or should
have known that they had a potential suit against the title
agency or title researcher. They had 'discovered' their cause of
action. The date of inquiry notice is the date of discovery for
all practical purposes.
5 In his answer, Breck claims that he only represented
the Moores on tax matters and was exclusively Safeco's agent in
the real estate transaction. In his cross-claims against Safeco,
SAFECO acting through its agents and/or
employees to [sic] retained, requested,
authorized and directed [Breck] to prepare a
Deed of conveyance . . . which Deed of
conveyance was prepared and delivered to the
offices, agents and employees of SAFECO, from
BRECK's office in accordance with the
directions and instructions received from
SAFECO; and that no retainer, request,
authorization or direction was received from
any other party.
SAFECO was acting as the "PRINCIPAL", and
BRECK was acting as the "AGENT" of SAFECO,
with regard to the preparation and delivery
of the aforesaid Deed of conveyance.
6 The Moores made a down payment of $30,000 and paid
$5,517.65 in closing costs, of which $3,952.50 went to Breck for
"document preparation." They do not claim mortgage payments or
repair expenses while they were living in the duplex. From the
time they moved out until settlement with the Kralls, they paid
$100,254.79 in mortgage payments and $46,193.66 in repairs and
other expenses, and received rents of $98,186. Thus they
incurred net out-of-pocket expenses related to the operation and
rental of the duplex of $83,780.10. In addition, they claim
entitlement to reimbursement for the award of attorney's fees and
costs of $14,910.71 paid to Safeco.
7 The "no on-site water or sewage disposal construction
without prior approval" restriction was unquestionably valid.
When the Moores purchased the house they realized that it was
served by a septic system. There was no evidence presented that
the septic system was not approved by the health department when
the house was constructed in 1972. Thus there is no evidence
that this restriction resulted in any damage. The discussion
which follows relates to possible damages resulting from the "no
dwelling" plat restriction.
8 We need not address enforceability, as Breck sought no
judicial declaration that the restriction was invalid.
9 "Diminution in value" awards damages based on the
diminution of the property value as measured by the value of the
property with and without the encumbrances. The "cost of cure"
awards damages based on the cost of removing the defect.
10 Overholtzer v. Northern Counties Title Ins. Co., 253
P.2d 116 (Cal. 1953) (failing to disclose easement on title
policy, diminution applied); Happy Canyon Inv. v. Title Ins. Co.
of Minn., 560 P.2d 839 (Colo. App. 1976) (undisclosed easement,
diminution applied); Sullivan v. Transamerica Title Ins. Co., 532
P.2d 356 (Colo. App. 1975) (failed to list easement; applied
diminution but noted cure approach); U.S. Life Title Ins. Co. v.
Hutsell, 296 S.E.2d 760 (Ga. App. 1983) (defects in plat survey,
applied diminution); Lipinski v. Title Ins. Co., 655 P.2d 970
(Mont. 1982) (undiscovered easement, cost of cure applied);
Hartman v. Shambaugh, 630 P.2d 758 (N.M. 1981) (undiscovered
title defect, diminution applied); Securities Serv., Inc. v.
Transamerica Title, 583 P.2d 1217 (Wash. App. 1978) (ordinarily,
when title clouded by lien or encumbrance, apply cost of removing
11 Diminution of value should be estimated as of the time
of the transaction. Subsequent market factors are therefore
irrelevant in estimating this diminution.
12 By their very nature, appeals of cost bond questions
arise during appeal. We therefore do not require appellants to
raise these issues in the points on appeal. See Alaska R. App.
P. 210(e); Oceanview Homeowners Ass'n v. Quadrant Constr. &
Eng'g, 680 P.2d 793, 797 (Alaska 1984) (noting generally rule and
limited exceptions). In the present case, the points on appeal
and the challenged supersedeas bond were filed on the same day.
Appellants should raise supersedeas and cost bond issues in their
13 I note that my positions regarding the proper statute of
limitations, discovery rule, and measurement of damages are
consistent -- I would apply the appropriate rule for torts to
this case. In contrast, the majority finds that the tort measure
of damages applies, yet maintains that the contract statute of
limitations applies. The tort/contract distinction would not
affect the majority's discovery rule application, in light of