Meyer Koulish Co. v. Cannon

• Decision Date: 27 February 1963
• Citation: 213 Cal.App.2d 419,28 Cal.Rptr. 757
• Court: California Court of Appeals Court of Appeals
• Parties: MEYER KOULISH CO., Inc., a Corporation and Arthur Nass, Plaintiffs and Respondents, v. Fred J. CANNON and Cannon-Schaefer Agency, a Co-partnership, Defendants and Appellants. Civ. 26315.

Page 757

28 Cal.Rptr. 757

213 Cal.App.2d 419

MEYER KOULISH CO., Inc., a Corporation and Arthur Nass, Plaintiffs and Respondents, v. Fred J. CANNON and Cannon-Schaefer Agency, a Co-partnership, Defendants and Appellants.

Civ. 26315.

District Court of Appeal, Second District, Division 2, California.

Feb. 27, 1963.

Thomas P. Menzies, James O. White, Jr., Los Angeles, for appellants.

Bolton, Groff & Dunne, Los Angeles, for respondents.

ASHBURN, Justice.

Defendants Cannon-Schaefer Agency, a copartnership, and Fred J. Cannon, one of the partners, appeal from summary judgment rendered against them in favor of plaintiffs Meyer Koulish Co., Inc., and Arthur Nass, respectively.

Defendants were manufacturers' agents. Plaintiffs separately shipped certain jewelry from New York to Los Angeles on consignment to defendant Cannon-Schaefer Agency and both defendants are charged with and admit receipt of the jewelry upon and pursuant to the terms and provisions of consignment memoranda sent them by plaintiffs. These memoranda place the risk of loss from all hazards upon defendants until the return of the jewelry to plaintiffs. On March 4, 1957, while Mr. Cannon was on a sales trip, his trunk which contained the consigned jewelry was stolen from the baggage room of the Southern Pacific Station at Tucson, Arizona, while the trunk was still checked on the railroad claim ticket. The theft was not due to any fault or negligence on the part of Cannon.

The complaint alleged three causes of action on behalf of each plaintiff. The first cause of action was for breach of contract, based upon the memoranda. The second cause of action was based on alleged conversion and the third cause of action upon alleged negligence. Prior to the time plaintiffs made their motion for summary judgment, they dismissed their causes of action based on alleged negligence and conversion, and thereafter relied solely on the cause of action based upon the memorandum receipts and the non-return of the merchandise.

In defense of the action defendants pleaded that plaintiffs were fully reimbursed for their loss by plaintiffs' insurance company and that thereby the claims of plaintiffs growing out of said losses had been fully paid and discharged, and that the said insurance company or companies do not have any greater equities in the premises than do the answering defendants, the property in question having been stolen without fault or neglect of the defendants.

Plaintiffs' attorney admitted in open court that this suit was actually a subrogation claim asserted by plaintiffs' insurance company in the names of plaintiffs.

Appellants' first contention on this appeal is that neither an insurance company nor a reimbursed insured can recover against anyone other than a wrongdoer who caused the loss. This affirmative defense was tried by the court, under the provisions of § 597, Code of Civil Procedure, prior to the trial of any other issue. The court ruled that this was not a proper defense.

'The principle on which the right of subrogation is founded applies in all cases in which one person, not a volunteer, pays a debt for which another is primarily answerable, and which, in equity and good conscience, should have been discharged by the latter. ¹ The principle is applied in favor of those who are legally bound to pay debts of others, such as sureties, guarantors, and insurers.' (46 Cal.Jur.2d, Subrogation, § 3, p. 69.) 'Furthermore, the equitable doctrine of subrogation will be liberally applied to promote justice.' ² (46 Cal.Jur.2d, Subrogation, § 3, p. 71.) (Emphasis added.)

'An insurer, on paying the amount of the loss on the property insured, is subrogated in a corresponding amount to the insured's right of action against any other person responsible for the loss. The right of the insurer against the wrongdoer does not rest on any relation of contract or privity between them, but arises out of the nature of the contract of insurance as a contract of indemnity.' (46 Cal.Jur.2d, Subrogation, § 4, p. 74.)

'As between master and servant and their respective insurers, the master has a right of indemnification against the servant who has negligently caused an injury for which the master has had to pay, and principles of subrogation afford this same right to the master's insurer against that of the servant. The principle involved may be applied as well where the party insured by the plaintiff has a right of indemnification against another by contract. The fact that the right arises from agreement rather than from tort is immaterial. In other words, one who has a superior equity growing out of contract may enforce it by way of subrogation through that contract was made with a third party.' ³ (46 Cal.Jur.2d, Subrogation, § 13, p. 99.) (Emphasis added.)

Appellants rely upon cases holding that an insurer upon a fidelity bond may not pursue subrogation from a bank for a loss sustained by the insured employer when the bank made payment on a check forged by an employee.

The cases of Meyers v. Bank of America etc. Ass'n, 11 Cal.2d 92, 77 P.2d 1084; American etc. Ins. Co. v. Capital Nat. Bk., 75 Cal.App.2d 787, 171 P.2d 449; Liberty Mut. Ins. Co. v. Kleinman, 149 Cal.App.2d 404, 308 P.2d 347, and J. G. Boswell Co. v. W. D. Felder & Co., 103 Cal.App.2d 767, 230 P.2d 386, are cited by the appellants as authority to defeat the subrogation rights of the insurance company in the instant case. All the above mentioned cases involve fidelity bonds and are distinguishable from the present factual situation.

The true nature of subrogation in regard to insurance companies is set forth in the California case of Offer v. Superior Court, 194 Cal. 114, at page 118, 228 P. 11, at page 12, wherein the court states: 'The principle upon which the right of subrogation is founded applies to cases of suretyship, but it is applied in all cases in which 'one party pays a debt for which another is primarily answerable, and which, in equity and good conscience, should have been discharged by the latter.' Sheldon on Subrogation, p. 2. Thus insurance companies are given the right, Id. p. 333 et seq. This right of the insurer against the wrongdoer does not rest upon any relation of contract or of privity between them, but arises out of the nature of the contract of insurance as a contract of indemnity. The right arises independent of a provision in the contract of insurance which gives the insurer the right to recover damages from the person responsible for the loss.'

In the same case the court cites with approval the annotation in connection with Mobile Insurance Company v. Columbia etc. R. R. Co., 41 S.C. 408, 19 S.E. 858, 44 Am.St.Rep. 725, which annotation states, at page 732: 'So, when one person discharges an obligation which primarily rests upon another, he should be subrogated to the place of the injured party or the creditor in respect to the party who is primarily liable. The fact that the latter has not been guilty of any negligence or wrongdoing will not enable him to escape the demands of the party insisting upon the right to subrogation.'

When the carrier reimbursed the plaintiffs Koulish and Nass for their loss, it thereby became subrogated to all of the rights of the plaintiffs in relation to this loss. The fact that the right was a contractual one, rather than a right founded in tort, in no way affects the result that after payment by the carrier the right of recovery which originally vested in the insured now vests in the insurer.

American Auto. Ins. Co. v. Seaboard Surety Co., 155 Cal.App.2d 192, 318 P.2d 84, contains pertinent language. The court, after deciding that the original leasing agreement did not contain an indemnification clause in favor of the lessor, said: 'If Republic had a right to indemnification from Kaufman the Continental case [Continental Cas. Co. v. Phoenix Const. Co., 46 Cal.2d 423, 296 P.2d 801, 57 A.L.R.2d 914], supra, would be controlling. The fact that the right arose from agreement rather than tort would be immaterial. One who has a superior equity growing out of contract may enforce it by way of subrogation although that contract was made with a third party.' (P. 196, 318 P.2d p. 87.) (Citations omitted.)

The case of United States Fidelity & Guaranty Co. v. Slifkin, 200 F.Supp. 563 (N.D.Ala.1961), involved facts similar to those at bar. Defendant Slifkin, a diamond merchant, received diamonds on consignment accompanied by a memorandum which recited: 'Risks of loss or damage from all hazards of any kind, with or without negligence on your * * * part is yours.' (P. 567.) The diamond merchant was robbed of the consigned merchandise by third parties. The consignors were compensated for the loss by insurance. The insurance companies sued the merchant on the theory that they were subrogated to the consignors' rights under the contracts whereby the merchant agreed to be liable for any loss. The court noted that the diamond merchant's personal liability to the consignors must be grounded on his contractual enlargement of his common law liability, stating on page 569: 'And if the consignors' insurers have any right to subrogation, it must be to this right of their insureds.'

The court in the Slifkin case cited with approval the case of Chicago, S. L. & N. O. R. R. v. Pullman Car Co., 139 U.S. 79, 11 S.Ct. 490, 35 L.Ed. 97, and held that the consignors' insurers were entitled to subrogation to the rights of their insureds as against Slifkin.

The case of Chicago etc. v. Pullman Car Co., supra, involved an action brought by a lessor against a lessee for damages caused when leased railroad cars were destroyed by fire from an unknown cause. The defendant railroad company had agreed to repair all damages of every kind occasioned by accident or casualty. The railroad company urged that the plaintiff had already been reimbursed by its insurance carrier for the loss and hence it could not maintain the action. The court held that the insurance...