Paramount Fire Ins. Co. v. Aetna Cas. & Sur. Co.

• Decision Date: 31 January 1962
• Docket Number: No. A-8459,A-8459
• Parties: PARAMOUNT FIRE INSURANCE COMPANY, Petitioner, v. AETNA CASUALTY & SURETY COMPANY, Respondent.
• Court: Texas Supreme Court

Page 841

353 S.W.2d 841

163 Tex. 250

PARAMOUNT FIRE INSURANCE COMPANY, Petitioner, v. AETNA CASUALTY & SURETY COMPANY, Respondent.

No. A-8459.

Supreme Court of Texas.

Jan. 31, 1962.

Rehearing Denied Feb. 28, 1962.

Strasburger, Price, Kelton, Miller & Martin, Royal H. Brin, Jr., with above firm, Dallas, for petitioner.

Johnson, Guthrie & Stanfield, Dallas, for respondent.

GREENHILL, Justice.

This case is an appeal from a summary judgment. The question is one of first impression in Texas and involves the liability of two insurance companies, each issuing a policy covering improvements which were destroyed by fire.

On July 17, 1957, the heirs of Mrs. R. L. Cameron entered into a written agreement labeled 'Contract of sale and receipt for earnest money,' whereby the seller(s) 'sells and agrees to convey' and the purchaser(s), Mr. and Mrs. Sterling D. Holmes and Pauline Reece, 'agrees to consummate the sale within fifteen days from date title company approves title' of a tract of land upon which were situated the improvements later destroyed. The contract specified the total purchase price, a down-payment, and terms of $125 monthly until the final closing date one year later, July 17, 1958, when the balance was due. Both seller and purchaser were given the right of specific performance. Purchasers had the right to occupy the premises from the inception of the contract, which they did, and had the right to make all desired improvements on the property.

On October 12, 1957, sellers procured from petitioner, Paramount Fire Insurance Company, an insurance policy for $15,000 covering improvements on the contracted land and payable only to sellers. A clause extending protection to purchasers under this policy was specifically rejected by sellers.

The fire involved occurred on July 7, 1958. By this time, the title company had issued the title insurance policy. The sellers had prepared a warranty deed conveying the property to the purchasers. Some, but not all of the sellers had already signed the deed, and it was being sent to the others for their signatures and acknowledgments. Purchasers had made the monthly payments of $125 and had procured a sufficient loan from Richardson Savings and Loan Association to pay the balance of the purchase price. Purchasers had also procured an $18,000 fire insurance policy from respondent, Aetna Casualty & Surety Company, in their favor with loss payable clause to the mortgagee as its interest might appear. This policy was dated June 25, 1958. All these and related papers, including the Aetna policy, were deposited in escrow with National Title & Abstract Company for final closing of the transaction on July 8, 1958. Because of the July 7 fire, this meeting was postponed until September 3, 1958. At the latter date, purchasers paid the contract price and received the warranty deed. Sellers, at the same time, assigned all their rights and claims under the Paramount policy to the purchasers.

Thereafter, purchasers and their mortgagee filed suit against both insurance companies, claiming property loss of $14,000. This suit was settled as to the plaintiffs by each insurance company's contributing a prorata share of the loss based on the amount of its respective policy, reserving its rights against the other. The suit then proceeded between the two insurance companies to determine liability as against each other. The trial court rendered summary judgment against Aetna, awarding Paramount the amount of money it contributed in the settlement with purchasers. Aetna's motion for summary judgment was consequently denied. On appeal, the judgment was reversed and the loss prorated between both companies in proportion to the face amount of the respective policies. 347 S.W.2d 281.

Both companies filed applications for writ of error to this Court. Paramount, of course, seeks to have the trial court's judgment affirmed. Aetna asks that the full loss be imposed upon Paramount, or, alternatively, that the judgment of the Court of Civil Appeals be affirmed.

Aetna's contentions require us at the outset to determine the legal nature of the written contract in this case. It concedes that if, as the lower courts have held, this was an absolute contract of sale with the vendees in possession and the vendors entitled to specific performance, then the loss would fall on vendees, at least partially. It is Aetna's position, however, that this contract was only a rental agreement with option to purchase and that the option was not exercised prior to the fire. Therefore, it argues that the loss should be entirely Paramount's. In support of this position, Aetna stresses primarily the contract provision that should vendee 'fail to pay the balance due herein on or before July 17, 1958, then all moneys paid hereon shall be forfeited as rents and purchaser will vacate the premises on letter written by the seller to the purchaser addressed to the address of the property.' (Emphasis supplied.) Aetna also points to the fact that no note, deed of trust, or deed prior to the date of the fire was provided for in the contract; that the authorization of purchasers to make improvements would be surplusage in a sales contract; and that the purchasers sometimes referred to their payments as 'rents' for further evidence to support its position.

We agree with the courts below that the contract is one of sale and did not create a landlord-tenant relationship. The instrument itself is designated a contract of sale and its language throughout is of sale and purchase. The forfeiture provision quoted above does not alter the nature of the contract, in the absence of a provision that the vendor must accept such sum in full settlement of the buyer's liabilities for default. Moss & Raley v. Wren, 102 Tex. 567, 113 S.W. 739, 120 S.W. 847; Redwine v. Hudman, 104 Tex. 21, 133 S.W. 426; Stevens v. Karr, 119 Tex. 479, 33 S.W.2d 725; Texlouana Producing & Refining Co. v. Wall, Tex.Comm.App., 257 S.W. 875; La Prelle v. Brown, Tex.Civ.App., 220 S.W. 151 (wr. dism. w. o. j.). There is no such provision here. On the contrary, the vendors had a right to specific performance of the contract of sale. Aetna being the insurer of purchasers in possession under a contract of sale, it must bear all the loss unless it has a right to require Paramount to bear a prorata share as held by the Court of Civil Appeals.

Paramount's application attacks this proration holding, arguing that the vendors suffered no actual pecuniary loss from the fire and that, therefore, the vendees' insurance company should incur the total liability. Paramount's position is based on the generally accepted principle that:

'Since a contract for insurance against fire ordinarily is a contract of indemnity * * * insured is entitled to receive the sum necessary to indemnify him, or to be put, as far as practicable, in the same condition pecuniarily in which he would have been had there been no fire; that is, he may recover to the extent of his loss occasioned by the fire, but no more, and he cannot recover if he sustained no loss.' 45 C.J.S. Insurance § 915, p. 1010.

Aetna does not challenge this principle. Instead, the controversy is as to whether or not the insureds of Paramount suffered any 'loss in a legal sense.

The Court of Civil Appeals regarded the date of the fire as controlling and found that the vendors did incur a loss, despite the fact that they received the full contract price from the vendees after the fire. There is a line of cases which supports this viewpoint; e. g., State Mutual Fire Insurance Co. a. Updegraff, 21 Pa. 513; Dubin Paper Co. v. Insurance Co. of North America, 361 Pa. 68, 63 A.2d 85, 8 A.L.R.2d 1393; Insurance Co. of North America v. Alberstadt, 383 Pa. 556, 119 A.2d 83; Milwaukee Mechanics Insurance Co. v. Maples, 37 Ala.App. 74, 66 So.2d 159; First National Bank of Highland Park v. Boston Insurance Co., 17 Ill.2d 147, 160 N.E.2d 802; Kahn v. American Insurance Co., 137 Minn. 16, 162 N.W. 685. See generally 8 A.L.R.2d 1416, § 6. The rationale of these cases is that an insurance company contracts to protect an insured against destruction by fire of his property and that liability is fixed if such fire occurs, all other contract terms being met. Any compensation to the insured from third parties, such as payment from the vendees here, is regarded as being unrelated to the insurance contract, of no concern to the insurance company, and in the nature of a windfall to the insured.

On the other hand, there is also a line of cases which supports Paramount's argument that its insureds ultimately suffered no pecuniary loss from the fire and are therefore not entitled to recover on their insurance contract. In Ramsdell v. Insurance Company of North America, 197 Wis. 136, 221 N.W. 654, it was said:

'The court looks to the substance of the whole transaction rather than to seek a metaphysical hypothesis upon which to justify a loss that is no loss. This is not a case where a stranger to the transaction, out of charity, or for other reasons, might make good the loss * * *. The loss has been made good out of a related transaction * * *.'

Accord, Tauriello v. Aetna Insurance Co., 14 N.J.Super. 530, 82 A.2d 226; Smith v. Jim Dandy Markets, 172 F.2d 616 (9th Cir.). We are inclined toward this latter view.

The complexity of the present problem is heightened, however, by another widely accepted principle upon which the Court of Civil Appeals relied in ordering a proration between Paramount and Aetna. In 64 A.L.R.2d 1406, § 4, it is said:

'Where the purchaser as equitable owner will bear the loss occasioned by a destruction of the property pending completion of the sale, and the contract is silent as to insurance, the rule quite generally followed is that the proceeds of the vendor's insurance policies, even though the purchaser did not contribute to their maintenance, constitute a trust fund for the benefit of the purchaser to be credited on the purchase...