a proper consideration, agreeing to insure the plaintiff against any loss or damage by reason of defects in that particular interest or claim of title which he had presented to the company; that is, against any outstanding claim which would reduce his interest below that which he claimed it to be. * * * The fact that an application is made for title insurance by one who, at the time, claims to be the owner, is sufficient of itself to put the insurance company on its guard, and ought to be regarded by it as notice that unusual care should be taken in the examination of the title." (Italics supplied.)

§ 110. Record Title Only Insured. Where the policy of title insurance excepted the tenure of present occupants and incumbrances not shown by any public record, the company was not liable because of a claim of title by adverse possession, or because of a deed of trust recorded by the party in possession, as such record was not in the chain of title. It was said in the opinion. that:

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"It was left to the appellant to determine, by an inspection and examination of the property, whether there was adverse occupancy or not, to determine for himself by actual measurement, survey, or examination of the premises whether he was getting what he contracted to purchase, or whether there was an adverse claim of title of any character by the occupants of the whole or any portion of the premises. Necessarily the record title is all that a title insurance company can safely or judiciously insure.”

14. Bothin v. California Title Ins. & Trust Co. (1908), 153 Cal. 718, 96 Pac. 500, Ann. Cas. 1914 D. 634. So when a policy refers to a survey, copy of which is attached, the title company will not be liable for encroachment not shown by the survey. Broadway Realty Co. v. Lawyers' Title Ins. & Trust Co. (1916), 157 N. Y. Supp. 1088, reversing 91 N. Y. Misc. 137, 154 N. Y. Supp. 1024.

§ 111. Policy of Title Insurance construed to be one of Indemnity though Guarantee added. In a Pennsylvania case,15 a policy of title insurance to protect a mortgage contained the addition of a guaranty to complete certain buildings according to plans. After foreclosure of the mortgage at a loss, suit was brought on the title policy, and evidence was offered to show that the buildings were not constructed as agreed. The Pennsylvania Supreme Court upheld a non-suit on the ground that the policy must be taken as a whole, and as such it was one of indemnity. That in order to recover thereon, plaintiff must show a loss on the mortgage, a mere breach of the guaranty was not sufficient. The opinion states:

"The note, although inaptly worded, is intended to signify if the buildings should not be completed in accordance with the specifications, then if any loss be sustained thereby by plaintiff, such loss should come under the indemnification covenant of the policy. But the contract is not intended by its terms to be severed. into two-one to indemnify against loss from defects of title, and one to guaranty that the buildings shall be finished in accordance with certain plans and specifications. If the contract were one of guaranty, then the plaintiff, although she may have lost nothing on her collateral, instead may really have largely profited by the sale of it, would have a right to recover; on the other hand, if the contract were one of indemnity alone, she could not recover unless she proved a loss on the mortgage."

§ 112. Provision for Subrogation of Company. Effect on Right to Recover on Policy. Where the insured put it out of their power to subrogate the trust

15. Wheeler v. Equitable Trust Co. (1903), 206 Penn. 428, 55 Atl. 1065.

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company to their rights, they cannot recover on the policy according to a Pennsylvania decision. "Plaintiffs were the owners of second mortgages, and the policy insured the erection of buildings on the premises according to certain plans and specifications within a certain time. Plaintiffs foreclosed their mortgages, became the purchasers at the sale for a part of the amount of their mortgages, and subsequently conveyed them without consideration to the first mortgagees." On appeal, the court said:

"By the terms of the policy the trust company was entitled to subrogation to all the rights and remedies of the insured. As the plaintiffs, by voluntarily conveying the properties to the owner of the first mortgage, put it out of their power to comply with their agreement, they were not entitled to recover."

§ 113. Voidance of Policy by False Answer in Application. An application for title insurance contained this provision:

"It is agreed that the following statements are correct and true, to the best of the applicant's knowledge and belief, and that any false statement or any suppression of material information shall avoid the policy."

In answer to the question: "Last price paid for the property?" The applicant said "$11,000." A policy was issued referring to the application. Recovery upon the policy was denied on proof that the last price paid was $3,000, and mining stock of $15,000 par, but of negligible actual value." The Appellate Court said:

16. Seymour et al. v. Tradesmen's Trust & Saving Fund Co. (1902), 203 Penn. 151, 52 Atl. 125.

17. Stensgaard v. St. Paul Real Estate Title Ins. Co. (1892), 50 Minn. 429, 52 N. W. 910, 17 L. R. A. 575.

"The court below determined, in effect, as a matter of law, that the above answer was material, and that if plaintiff knew it to be false, it avoided the policy. The plaintiff insists that it was not material, and that at any rate its materiality was a question of fact to be determined by the jury. In the first place the answer to the question, 'Last price paid?' was a statement of fact, and not the expression of an opinion, as a statement of value generally is. In the second place the effect of falsity in the statements on the validity of the contract is not made to depend on the intent with which the statement is made, as that the intent shall be fraudulent, but on whether true or false, to the best of the applicant's knowledge and belief. Where the contract itself does not stipulate the effect that a particular false statement or representation shall have on the contract, or where it stipulates merely that the misrepresentation or suppression of a material fact shall avoid it, the fact misrepresented or suppressed must have been material, as an inducement to enter into the contract; and as the materiality must be shown by matters outside the terms of the contract, it is a quesion of fact. But the parties may by their contract determine the materiality for themselves, as where they stipulate that if a statement of fact made by one of them, and set forth in the contract, be false, it shall avoid the contract. In such case the statement is in effect a warranty. Whether they have made the statement material, and in effect a warranty, is a question for the court, to be determined by an interpretation of the contract."

§ 114. Construction of Policy. Exceptions and Conditions. An exception in a title policy of "Tenancy of the present occupants" was not sufficiently broad to

cover the claim of a person who, asserting ownership in fee as against the title insured, is in actual adverse possession at the time the policy is issued. The court applied the principle that where an expression in an insurance policy is ambiguous, the ambiguity is to be construed against the insurer.18

§ 115. Rights against Grantor not affected by fact that Grantee has Title Insured. Where a purchaser took out a title policy and the insurer paid a tax assessment under it, the purchaser was still entitled to recover this tax against the sellers of the property, as the terms of sale provided that all taxes, assessments, etc., would be allowed out of the purchase money and the property conveyed clear." The court said:

"That the assessment was compromised and paid by the Title Guarantee & Trust Company is not material, nor is it material whether or not the company had insured the title to plaintiff, and so, as between it and him, had become liable to pay the assessment. If any such contract of insurance or indemnity existed, it was not made for defendants' benefit; they were not privy to it and can gain no advantage from it. Even assuming that the company had insured the title and had in fact paid the assessment in fulfillment of its policy, the plaintiff is bound to give it the benefit of all rights and remedies within his reach to make its loss as small as possible. Even if it sued the defendants for the return of the money paid to satisfy this assessment, it would have to do so, not in its own right, but in plaintiff's right, and as equitable assignee of his cause of action. It

18. Place v. St. Paul Title Insurance & Trust Co. (1897), 67 Minn. 126, 69 N. W. 706, 64 Am. St. Rep. 404. See also Broadway Realty Co. v. Lawyers' Title Ins. & Trust Co. (1915), 91 N. Y. Misc. 137.

19. Alexander v. Greacen (1901), 36 N. Y. Misc, 526.