Closuit v. Mitby, 35835

• Citation: 238 Minn. 274,56 N.W.2d 428
• Decision Date: 09 January 1953
• Docket Number: No. 35835,35835
• Parties: CLOSUIT v. MITBY.
• Court: Supreme Court of Minnesota (US)

Page 428

56 N.W.2d 428

238 Minn. 274

CLOSUIT v. MITBY.

No. 35835.

Supreme Court of Minnesota.

Jan. 9, 1953.

Syllabus by the Court.

1. Whether change of ownership of a firm would make a policy of insurance carried on the firm property void or voidable at the election of the insurer is purely academic in this case as the insurer paid the full amount of the policy to one of the partners.

2. It is the general rule that an insurable interest exists in both the partnership and the partners and that a partner has an insurable interest in the firm property which will support a policy taken out thereon for his own benefit.

3. Insurance policies are merely personal contracts between the insurer and the insured. They appertain to the person or party to the contract, and not to the thing which is subjected to the risk against which the owner is protected.

4. In the absence of assignment or express stipulation of the parties to such an effect, contracts or policies of insurance do not attach to or run with the property insured, whether the property is real or personal.

5. Whatever is necessarily implied in a contract is as much a part thereof as if expressly stated therein, but the implication must result from the language employed in the instrument or be indispensable to carrying the intention of the parties into effect.

6. Where defendant sold a half interest in his medical practice to plaintiff, and where at the time of the transaction defendant carried fire insurance coverage on his office equipment, and where at the same time the plaintiff asked defendant, and this was the only conversation about insurance, 'Is this equipment covered by insurance?' and received the reply that defendant thought there was five or six thousand dollars on it, and where the partnership equipment was totally destroyed by fire and the defendant received the full amount of the policy; Held that the policy under all the facts of the case was not an asset of the partnership and that, therefore, plaintiff was not entitled to receive one-half of the proceeds of the policy.

Sullivan & Swenson, Brainerd, for appellant.

Joseph W. Ryan, Aitkin, for respondent.

MAGNEY, Justice.

Plaintiff and defendant are physicians and surgeons. Both practiced at Aitkin. On July 1, 1948, they entered into an oral partnership agreement. Defendant sold to plaintiff a one-half interest in his medical practice, including equipment and property used in the practice and owned by him and excepting his accounts receivable on July 1, 1948, which would be paid within one year and his own personal medical kit. After one year anything that was collected on the old accounts was to be partnership income. Plaintiff paid defendant $3,000 for the one-half interest. Any new equipment or supplies purchased after July 1, 1948, were paid for out of the partnership funds and treated as being owned by the parties jointly in equal shares.

On December 25, 1949, all of the property, records, and equipment of the partnership, having a claimed value of about $10,000, was totally destroyed by fire.

On February 23, 1945, defendant had purchased fire insurance coverage of $4,000 on all of his office equipment and supplies. The policy was for a term of five years. On February 1, 1950, the insurance company paid defendant the full $4,000 on the loss under the policy. Plaintiff claims that a one-half interest in said insurance policy was included in the sale to plaintiff and that, therefore, he is entitled to a one-half interest in the proceeds from such insurance, and he brings this action to recover that amount.

Plaintiff takes the position that the insurance policy here involved was an asset of the partnership, so that, if this policy had been cancelled and a new policy taken out on the partnership property, he would have been entitled to one-half of the unearned premium returned to the insured upon such cancellation. The sole question here is whether the partnership agreement included the insurance policy as an asset of the partnership. Defendant denies that any interest in the policy was sold to, or otherwise acquired by, the plaintiff. The findings of the court were in favor of the plaintiff, and defendant appeals from the order denying his motion for a new trial.

Some additional facts should be stated. At the time plaintiff purchased the said interest in the practice on July 1, 1948, nothing was said about fire insurance coverage. On July 6, plaintiff delivered the $3,000 check to defendant. Plaintiff testified: 'At the time I gave the check to Dr. Mitby I said, 'Is this equipment covered by insurance?', and he said, 'Yes, I think there is five or six thousand dollars on it." This testimony was later reiterated. Defendant denies any such conversation. A view of the evidence in a light favorable to plaintiff requires a holding that such conversation did take place. It is the only evidence in the record of any conversations between the parties concerning insurance coverage during the negotiations which led up to the consummation of the deal. Plaintiff never saw the policy of insurance. There was no other insurance coverage on the property. The building in which their office was located was supposed to be fireproof. This probably accounts for the fact that so little attention was paid by the parties to fire insurance coverage. Immediately after the fire, defendant called up plaintiff, who was absent from Aitkin, and informed him of the fire and that the loss was total. Defendant said he thought he had some insurance but was not sure of the amount or whether the policy had lapsed. Plaintiff made no claim to a share of the insurance proceeds at that time. Later on, plaintiff asked defendant if he had heard from the insurance company. Defendant said he would write them. On or about February 1, 1950, the insurance company paid defendant the amount called for by the policy. On January 7 or 8, 1950, plaintiff gave notice that the partnership was terminated on that day, but the parties continued to practice on a 50--50 basis until May 31, 1950. After the partnership had been dissolved, plaintiff continued to collect amounts due the partnership and paid defendant one-half of the amount so collected. After August 1, 1950, plaintiff retained defendant's share of the collections and applied it on his claimed interest in the insurance fund. Defendant throughout contended that plaintiff had no interest in the policy or its proceeds.

In the income tax return of the partnership for 1949, the ordinary loss from the fire was fixed at $2,906.40 book value for each partner, with the ordinary net income for each partner, $7,997.65. Since defendant received the $4,000 insurance, he reported a nontaxable gain of $1,093.60, being the difference between his share of the fire loss and the $4,000 he received. Plaintiff's net income was reported as $5,091.25, being the difference between the ordinary net income of each partner and his loss from fire in the amount of $2,906.40. In a notation on the return, it is stated that the $4,000 of insurance received by defendant was placed in a temporary savings account to be used in the immediate future for replacing equipment. This was done in order to receive certain advantages under the federal income tax law.

Plaintiff contends that the income return of the partnership for 1949 indicates an intent that the insurance policy be a part of the assets of the partnership. Defendant contends to the contrary. It would seem that, if such return indicates anything one way or the other, it would be that the policy was not included in the assets of the partnership as plaintiff took his full loss on his one-half interest. The fact that the $4,000 received by defendant was placed in a temporary savings account to be used in the immediate future for replacing equipment does not indicate that plaintiff had a share in it but that the money would be spent by defendant for new equipment, either for his own use or his share in a partnership. At that time plaintiff had already served notice terminating the partnership.

The court found that a half interest in the insurance policy was included in the sale and that the policy was an asset of the partnership. In its memorandum the court said that the sole issue in the case is the determination of what the agreement was between the parties relative to the question as to whether or not the insurance policy was an asset of the partnership. It quoted 2 Dunnell, Dig. & Supp. § 1827, where it is stated:

'* * * A contract includes not only the promises set forth in express words, but, in addition, all such implied provisions as are indispensable to effectuate the intention of the parties and such as arise from the language of the contract and the circumstances under which it was...