Brickell v. Atlas Assurance Co.

The object of this action is to recover the sum of $5,000 on a policy of insurance for the loss by fire of a two-story frame building, situated in the city of San Francisco, said building, it is alleged, being the property of plaintiff.

The court sustained the defendant’s demurrer to the amended complaint, and the plaintiff declining to further amend the same, judgment was entered dismissing the action.

From said judgment this appeal is taken.

The policy or contract of insurance declared upon is set forth in the complaint in haec verba. The following conditions are contained in said policy: “This entire policy, unless otherwise provided by agreement indorsed hereon or added hereto shall be void ... if the interest of the assured

It will be observed that the appellant entered into the agreement to sell the premises to Phillips, and gave the latter full and exclusive possession of the same under said agreement within less than a month after the policy of insurance was issued to him by the respondent.

There is nothing in the averments of the complaint showing that the defendant assented to the agreement of sale or to Phillips’ possession and occupancy of the premises, or had any knowledge of the transaction.

The claim of the defendant is that, as the policy of insurance contains provisions that if any change should take place in the interest in the subject of insurance by the voluntary act of the insured, or any change effected in the title to the subject of insurance by the voluntary act of the insured, or if any change should occur in the possession of the subject of the insurance, then, in either event, the policy becomes void, and that such changes having taken place, the plaintiff cannot recover.

Per contra, the plaintiff contends and undertakes to show that there has been neither change of interest, nor of title or possession. In support of this position, counsel for appellant argue—1. That the agreement between the plaintiff and Phillips amounts to nothing more than an option by which the latter is given the right to buy the premises within a certain- specified time, and that, therefore, the plaintiff was not thereby divested of the legal or any title; that, in any event, Phillips acquired only an equitable interest, and that, in order to render the contract of insurance void by reason of change of title, the insured must part with more than a mere equitable estate in the subject of the insurance; 2. That, assuming this to be the correct view, the possession of the premises by Phillips was the plaintiff’s possession; and 3. That the plaintiff, notwithstanding the agreement with Phillips, still retained an insurable interest in the property, and that before the policy can be avoided for this reason, the whole interest

The demurrer was properly sustained. We have no doubt that the agreement entered into by the plaintiff'and Phillips constituted a contract of sale and purchase, and not an option.

“The distinction between a contract to purchase or sell real estate and an option to purchase is that the contract to purchase or sell creates a mutual obligation on the one party to sell and on the other to purchase, while an option merely gives the right to purchase within a limited time without imposing any obligation to purchase.” (29 Am. & Bug. Ency. of Law, 2d ed., 606; Menzel v. Primm, 6 Cal. App. 204 , [ 91 Pac. 756 ].) In other words, an option is a right “acquired by contract to accept or reject a present offer within a limited or reasonable time in the future.” (21 Am. & Eng. Ency. of Law, 924.)

There is no ambiguity or obscurity in the language of the agreement between the plaintiff and Phillips, and its meaning cannot be misunderstood. By its terms, the plaintiff agreed to sell and Phillips agreed t'o buy the premises for the sum of $10,000, of which the latter, upon taking possession, paid the sum of $3,000. It is stipulated therein that the balance shall be paid, in monthly installments, by the 1st of November of the year following that of its execution, and in case of default in the payments so stipulated, or for the violation of certain other of its vital covenants, the plaintiff could reenter and resume possession, or enforce payment of the balance due, etc. The test, in determining whether it was a contract of sale and purchase or a mere option, is, Could the agreement be specifically enforced? It is, of course, unnecessary to suggest that no one will for a moment question' the proposition that had Phillips completed the payment of the balance due under the agreement he could have enforced the execution of a deed to the premises, and e converso, if the plaintiff had so elected, he could have enforced a performance of the agreement by Phillips. The fact that the agreement contains a provision authorizing the plaintiff, upon default by Phillips to comply with the conditions of the sale and purchase, to re-enter and take possession and treat' as compensation for occupation and use of the premises all payments already made, does not make the agreement any the less a

It is clear that, by virtue of the terms of said agreement and its execution to the extent of transferring possession to Phillips, upon his payment of the $3,000 stipulated therein, a change of possession was effected, and that Phillips became at least the equitable or beneficial owner of the premises. The plaintiff could have enforced the performance of the agreement or recovered for the breach of its terms, notwithstanding the destruction of the building. The covenant by which the vendee obligated himself to maintain insurance upon the property, the same to be paid, in case of loss, to the vendor, was a part of the consideration of t'he agreement of sale, the effect of which was, merely, to provide the latter with additional security for the unpaid balance of the purchase price. The vendor, therefore, by the transaction lost' all “insurable interest” in the property, by which it is to be understood that he had parted with all such dominion over and ownership of the premises as to render the contract of insurance between himself and the defendant of no further personal interest to him than that of a mere creditor, or as if he were no more than a mortgagee of the premises, and the insurance on the same, maintained, by the terms of the agreement,

It necessarily follows, from the construction we have given the effect of the agreement between the plaintiff and Phillips, that there can be no merit in the argument, upon the question of the change of title, that', in order to divest the vendor of all insurable interest in the property insured, both the legal and the equitable title to the premises must have joined or been vested in the vendee. Neither the vendor nor vendee had an absolute title; but the equitable title as such of the vendee was as absolute as the legal title as such of the vendor, both being defeasible—the one by the forfeiture prescribed in the agreement for the nonperformance of the conditions therein specified, the other by the full performance of said conditions. In other words, plaintiff’s interest in the insured property was not, to use the language of the policy itself, that “of unconditional and sole ownership.’’

Obviously, the policy of insurance upon which recovery is here sought constituted a personal contract between t'he defendant and the plaintiff, and the change of title to and possession of the subject of insurance, without the knowledge or consent of the insurer, divested, ipso facto, the plaintiff of all insurable interest in the insured premises, thus vitiating the contract and rendering it void. (Brighton Beach etc. Assn. v. Home etc. Co., 113 App. Div. 728 , [ 99 N. Y. Supp. 219 ], affirmed by the court of appeals, 189 N. Y. 30 , [ 82 N. E. 1124 ].) In that case the policy of insurance, as to the conditions with regard to a change of title, possession and interest, contained a clause similar to that embraced in the policy here,

‘‘ The decisions of courts of sister states unite in the proposition that one in possession of real property under a valid contract of purchase is the sole and unconditional owner thereof subject only to the enforcement' of payment of the price agreed upon by the holders of the legal title; while the courts of this state have held such a vendee to be the equitable owner of the premises, vendible as his, chargeable as his, capable of being encumbered as his. They may be devised as his. They may be assets. They would descend to his heir, and while he was living be insurable as his. It' can hardly be maintained that there can be two sole and unconditional owners of the same property, or two owners legally entitled to exercise the same sole and exclusive rights therein at the same time, and it is clear that such a change of title was effected by possession given the appellant under the contract of sale as to have avoided the policy of insurance.

“Again, it appears beyond reasonable contention that a change in the ‘interest’ and ‘possession’ of Dunne in the insured property accomplished the same legal result. The word ‘interest’ is broader and more comprehensive than the word ‘title.’ It embraces both legal and equitable rights. The doctrine contended for by appellant that when the condition is against a change in the ‘title’ there is no breach unless there is a change in the legal title, and that as long as the insured retains the legal title, the policy is not avoided by a transfer of the equitable title, cannot be applied to a condition against a change of ‘interest. ’ The terms are not synonymous. The true test is whether the vendor has parted with the absolute control and dominion over the property insured. If he has, a change in ‘interest’ has been effected and the policy is void. I am of the opinion also that there was a change in ‘possession’ within the meaning of that word as used in the policy. While it is true that the agreement designates the occupancy of the vendee as that of a tenant of the vendor without pay or rent, it is apparent that the contract gave and secured to him more than the rights and interest of a tenant. He was charged with the liabilities of and entitled

to enforce the rights of a purchaser in possession and could not be ejected as a tenant regardless of such rights. The possession of the Yendee was absolute and exclusive of the vendor so long as he has performed his contract. All the rights of possession- of the insured property held and exercised solely and exclusively by Dunne' when he obtained the policy of insurance he divested himself of by executing the contract and giving plaintiff possession under it. From the time such possession was taken by plaintiff, Dunne had no possession or right of possession, while the former performed the contract provisions, and the attempted characterization in the contract of the occupancy of the vendee as that of a tenant did not' take from plaintiff its legal rights thereunder as the equitable owner in possession or having the legal effect of reserving to Dunne the sole and exclusive possession he owned and exercised when the contract of insurance was made with the respondent.

“It may also be observed that by the policy of insurance, which was a personal contract, the respondent undertook to indemnify Dunne against loss or damage by fire to his buildings as long as his ownership, interest and possession thereof remained exactly the same as they then were and no longer. This obligation cannot be extended beyond a time when Dunne voluntarily gave such right of possession to the appellant and changed his interest and the nature of his title in and to the insured property without the consent of the respondent, who never undertook to insure the buildings for the benefit of the appellant.

“It follows that the right to enforce the policy of insurance terminated with the execution of the contract and the surrender of possession of the insured buildings without the knowledge or consent of the respondent.”

See, also, Manning v. North British etc. Co., 132 Mo. App. 456 , [ 99 S. W. 1095 ], a rehearing having been denied by the supreme court; Grunauer v. Westchester etc. Co., 72 N. J. L. 289 , [ 62 Atl. 418 ]; Gibb v. Philadelphia etc. Co., 59 Minn. 267 , [ 50 Am. St. Rep. 405 , 61 N. W. 137 ]; Skinner etc. Co. v. Houghton, 92 Md. 68 , [ 84 Am. St. Rep. 485 , 48 Atl. 85 ]; Vancouver Bank v. Law etc. Co., 153 Fed. 440 ; Finkbohner v. Glenns Falls etc. Co., 6 Cal. App. 379 , [ 92 Pac. 318 ].

The case of Smith v. Phoenix Ins. Co., 91 Cal. 323 , [ 25 Am. St. Rep. 191 , 27 Pac. 738 ], cited and relied upon by the appellant, is not in point here for the reason that the facts therein are materially different from those in the case at bar. In that ease t'he contract under which Stewart, the party to whom it was contended the property was sold, took possession

The.numerous other authorities submitted by appellant in support of his several contentions may, without difficulty, be distinguished from the case at bar. But there is no reason upon principle why this judgment should not be sustained. The contract which the plaintiff made with the defendant was, as before observed, a personal one. It must be assumed that the personal character of a party whose property has been insured and its owner thus, at' least in part, indemnified against loss, is an important factor in moving an insurance company to assume the risk. In any event, the company has the right—in fact, it is a duty it owes to its other policy holders—t'o fortify itself through its agreement against assuming an improvident hazard, or any risk under such "circumstances as would make the hazard an improvident one. The insurance company is entitled to a substantial compliance, on the part of the insured, with the terms of the contract of insurance. It is well said in Finkbohner v. Glenns Falls Ins. Co., 6 Cal. App. 379 , [ 92 Pac. 318 ] : “In the construction of insurance policies great favor is shown to the insured. The rule generally recognized is to construe the covenants strictly against the insurer and liberally in favor of the insured. We need not stop to philosophize as to the reason for this rule. It is sufficient’, to say that it has been generally indorsed by the higher courts, but, of course, it is not sufficiently indulgent toward the insured as to ignore or nullify his express and unequivocal agreement. It cannot be invoked to change the nature of the contract, but only to resolve an

For the reasons set forth herein, the judgment appealed from is affirmed.

Chipman, P. J., and Burnett, J., concurred.

A petition t'o have the cause heard in the supreme court, after judgment in the district court of appeal, was denied by the supreme court on April 5, 1909.