Long v. Keller

• Decision Date: 08 April 1980
• Citation: 104 Cal.App.3d 312,163 Cal.Rptr. 532
• Parties: Ima Jean LONG, Plaintiff and Appellant, v. Orville Lee KELLER and Carolyn Keller, Defendants and Respondents. Civ. 3883.
• Court: California Court of Appeals Court of Appeals

Page 532

163 Cal.Rptr. 532

104 Cal.App.3d 312

Ima Jean LONG, Plaintiff and Appellant, v. Orville Lee KELLER and Carolyn Keller, Defendants and Respondents.

Civ. 3883.

Court of Appeal, Fifth District, California.

April 8, 1980.

Rehearing Denied June 4, 1980.

Dan W. Lacy and Daniel E. Whitlock, Jr., Modesto, for plaintiff and appellant.

Taylor & Taylor and Edward T. Taylor, III, Modesto, for defendants and respondents.

CONDLEY, ^* Associate Justice.

Judgment was rendered in favor of the plaintiff and appellant for rescission of a contract for the purchase and sale of real property and ordering the return of appellant's $1,000 down payment together with interest.

Appellant alleges the trial court committed error in not crediting her for the insurance money paid to respondents to extinguish her obligation to pay them the balance of $12,000 (the remaining purchase price). In the alternative appellant contends the trial court committed error when it failed to award appellant (hereinafter referred to as buyer) a portion of the fire insurance proceeds paid to respondents (hereinafter referred to as sellers) to reimburse her for the improvements she made to the real property.

The facts are uncontroverted as they come before this court on an engrossed settled statement in lieu of reporter's transcript together with exhibits.

At all times herein mentioned sellers were the record owners of the subject property. From approximately March 1968 until August 21, 1974, buyer and her then husband leased this property consisting of land, house, barn and improvements from sellers. The lease contained an option to purchase the property. During the term of the lease buyer made improvements to the property, namely to the house, and constructed a pole barn, all in contemplation of purchasing the property. Buyer spent $5,795.35 in making these improvements.

On or about August 24, 1974, buyer exercised the option contained in the lease to purchase the property by depositing $1,000 on the $13,000 purchase price, as was provided in said option. Escrow was opened and both parties signed escrow instructions on November 4, 1975. The escrow instructions provided, among other things, that the balance owing, $12,000, was to be evidenced by a note secured by a deed of trust bearing 6 percent interest payable at $100 per month commencing December 1, 1975. The buyer was to furnish a policy of fire insurance with loss payable to the sellers (the holders of the note).

Sellers, during the entire period of the lease and the escrow, paid for and maintained a policy of fire insurance on the property for their own protection. The buyer during this same period did not. On November 11, 1975, prior to the close of escrow, the house and all outbuildings were completely destroyed by fire. Buyer was in continuous possession of the property under the lease until June of 1975 when she subleased the property to others who took possession of the same until the date of the fire when the premises were destroyed.

Sellers collected from their fire insurance carrier the sum of $14,053 for the destruction of the structures on the subject property, including improvements made by buyer.

On May 6, 1976, sellers unilaterally attempted to rescind said contract and tendered to buyer her down payment of $1,000. Buyer returned this check at the time of trial.

On December 9, 1976, buyer filed a complaint against sellers seeking specific performance, or in the alternative, damages for failure to convey the property and a common count for money had and received by sellers in the sum of $13,000. The case was tried before the court, a jury having been expressly waived by the parties.

At the outset we note during the trial buyer stated to the court that she did not want specific performance unless she could obtain credit for the insurance money paid to sellers to extinguish her obligation to pay sellers the remaining purchase price of $12,000. Sellers did not seek specific performance and did not oppose rescission. As an alternative, buyer asked for the return of her down payment and a portion of the fire insurance proceeds to reimburse her for the improvements made to the real property.

The contract between the parties, as evidenced by the escrow instructions, was subject to specific performance by either party and the trial court so found.

Each party to the lease, and as the same was modified by the escrow instructions, at all times had a separate and distinct insurable interest in the subject property and in the improvements on the same regardless of who made them.

"As noted in another portion of this article, different persons may have separate insurable interests in the same property, as, for example, vendor and vendee, mortgagor and mortgagee, owner and lienholder, lessor and lessee, or life tenant and remainderman. However, in the absence of an agreement to the contrary, none of the persons with insurable interests in the same property is entitled to the proceeds of insurance obtained by another on a separate insurable interest." (39 Cal.Jur.3d, Insurance Contracts, § 485, p. 806.)

Civil Code section 1662 ¹ (also known as Uniform Vendor and Purchaser Risk Act) provides in pertinent part as follows:

"Any contract hereafter made in this State for the purchase and sale of real property shall be interpreted as including an agreement that the parties shall have the following rights and duties, unless the contract expressly provides otherwise:

" . . .

"(b) If, when either the legal title or the possession of the subject matter of the contract has been transferred, all or any part thereof is destroyed without fault of the vendor or is taken by eminent domain, the purchaser is not thereby relieved from a duty to pay the price, nor is he entitled to recover any portion thereof that he has paid. . . . "

Both parties acknowledged that buyer was in possession of the property at the time of the fire; therefore subdivision (b) of the above statute applies. As such, buyer was not relieved from her duty to perform, nor was she entitled to recover any portion of the price already paid. Buyer was bound by the contract and carried the risk of loss as the purchaser in possession. (Palos Verdes Properties v. County Sanitation Dist. No. 5 (1960) 177 Cal.App.2d 679, 690, 2 Cal.Rptr. 537.)

The lease agreement introduced at trial contains no provision requiring either party to procure a policy of fire insurance or any insurance on the demised premises. However, paragraph 7 of said lease acknowledges that lessor (seller) has in force and effect a policy of fire insurance and that should lessee's (buyer's) occupancy cause the rates to go up, lessee (buyer) shall pay the difference.

The escrow instructions signed by both parties obligated buyer, prior to the close of escrow, to procure a policy of fire insurance with liability of not less than $12,000 and with a loss payable to the holder of the note (sellers) secured by a deed of trust. From the inception of the lease to the destruction of the structures by fire, a period of some seven years, buyer failed to protect herself by insuring her own interest. Buyer concedes that during this time she had a separate and distinct insurable interest.

We now take up the issues raised by buyer in this appeal. The first issue raised by buyer is whether the trial court erred in failing to credit part of the insurance proceeds paid to sellers to extinguish the unpaid balance of the purchase price due on the contract of sale. The case of White v. Gilman (1903) 138 Cal. 375, 71 P. 436, is dispositive of this issue. In that case one Rucker contracted to sell a lot to White on an installment sales contract. White took possession and built a house upon the lot. Ultimately, Gilman acquired Rucker's (vendor's) interest in the property and he insured the dwelling erected by White on his own behalf and for his own protection. The dwelling was destroyed by fire and the insurance company paid the insurance proceeds to Gilman (vendor). Upon learning of this White (vendee) filed suit seeking to force Gilman to execute a deed to him on the theory that White was entitled to apply the insurance money on the balance due Gilman as vendor. The court, at page 377, 71 P. at page 436, held:

"This claim of the plaintiff is erroneous. He had no interest in the insurance effected by defendant. Each party had an insurable interest in the house. The plaintiff was a purchaser in possession, and could have insured the house, as owner, for his sole benefit; and if he had done so, in the absence of an agreement that the insurance should be paid to the vendor to the extent of the unpaid purchase money, the vendor could have no claim upon it. So the defendant, having a vendor's lien, had an insurable interest to the extent of the unpaid purchase money, and could insure for his own benefit to protect his own interest, and having insured the building at his own expense, and for his own benefit, the plaintiff had no interest in the insurance money paid to defendant, and could not require that any part of it should be applied in satisfaction of the defendant's claim for the unpaid purchase money."

Another case that touches upon this problem, although not exactly on point, is Russell v. Williams (1962) 58 Cal.2d 487, 24 Cal.Rptr. 859, 374 P.2d 827. In that case a husband and wife owned an improved piece of property in joint tenancy. The husband and wife were divorced; however, in the divorce decree the joint tenancy property was not distributed. The husband, after the divorce, procured a policy of fire insurance on the dwelling to protect his interest. Thereafter, the house burned down, the husband died and the surviving joint tenant, Russell, brought suit against the administrator of her deceased husband's estate claiming that the insurance proceeds belonged to her.

The court, in deciding the case against the surviving joint tenant, held on page 491, 24 Cal.Rptr. on...