Risken v. Clayman

• Decision Date: 14 January 1987
• Docket Number: No. 85-541,85-541
• Citation: Risken v. Clayman, 398 N.W.2d 833 (Iowa 1987)
• Parties: Louis K. RISKEN, Appellant, v. Abe D. CLAYMAN and Joseph Hyman, Trustees of the Betty Clayman Trust, Appellees.
• Court: Iowa Supreme Court

Page 833

398 N.W.2d 833

Louis K. RISKEN, Appellant, v. Abe D. CLAYMAN and Joseph Hyman, Trustees of the Betty Clayman Trust, Appellees.

No. 85-541.

Supreme Court of Iowa.

Jan. 14, 1987.

Gerald B. Feuerhelm, Des Moines, for appellant.

Paul A. Zoss and Lori L. Koop of Adams, Howe & Zoss, P.C., Des Moines, and James G. Prescott, Iowa City, for appellees.

Considered by McGIVERIN, P.J., and LARSON, SCHULTZ, CARTER and NEUMAN, JJ.

McGIVERIN, Justice.

The ultimate question in this declaratory judgment action is who, as between a contract vendor and an assignee of the vendee, is entitled to the insurance proceeds from a fire loss that preceded forfeiture of the real estate contract. On this record, we conclude the latter should prevail.

Plaintiff Louis Risken, assignee of the vendee, appealed from a district court ruling that the issue in the present action had been decided in a prior case, barring this action under the doctrine of res judicata, and ordering Risken to tender the insurance proceeds to defendants Abe Clayman and Joseph Hyman, trustees of the Betty Clayman Trust, the vendor. The court of appeals reversed the trial court and directed the trustees to tender the insurance proceeds to Risken. The trustees petitioned us for further review of the court of appeals decision, claiming the issue is barred by res judicata and the trust is entitled to the proceeds of the fire insurance policy. On review of the issues raised, we affirm the decision of the court of appeals and reverse the district court.

In 1980, the Betty Clayman Trust sold a parcel of property on an installment real estate contract to Bill and Virginia Couch. The contract contained the following provision on insurance:

5. INSURANCE. Sellers agree to carry existing insurance until date of possession and Buyers agree to accept the insurance recovery instead of replacing or repairing buildings or improvements. Thereafter until final settlement, Buyers agree to keep the improvements upon said premises insured against loss by fire, tornado and extended coverage for a sum not less than $32,500 or the balance owing under this contract, whichever is less, with insurance payable to Sellers and Buyers as their interests may appear, and to deliver policies therefor to Sellers.

Couches assigned their interest in the contract to Risken in December 1981. The assignment was recorded and Risken obtained fire insurance coverage on the property in January 1983.

The property was sold to Couches for $37,500. At the time Risken's interest in the property was recorded, Couches had made a $5,000 down payment and were current on the monthly installment payments of $335.

On March 7, 1983, the buildings on the realty were damaged by fire. On April 29, U.S. Fire Insurance Company, Risken's insurer, issued a check for the loss in the amount of $18,980.43, payable to Risken and the trustees. Risken, who failed to make the installment payments from January to May of 1983 or to pay the real estate taxes, proposed to use the insurance proceeds to cure the delinquent installment payments, pay the taxes, and retain the remainder. The trustees proposed to use the insurance proceeds to repair the building.

On May 13, the trustees served Risken with notice of forfeiture of the contract. See Iowa Code §§ 656.2-.3 (1983). At that time delinquent taxes on the property totalled $8,131.33 and delinquent payments on the contract totalled $1,675.

On June 6, Risken commenced an action to enjoin the forfeiture and to seek court-ordered application of the insurance proceeds on the contract delinquencies. On June 13, the trustees completed the forfeiture proceedings by filing the notice of forfeiture and affidavit in support thereof with the county recorder. See Iowa Code § 656.5. After trial, the district court ruled on January 20, 1984, there was a substantial default on the contract and allowed the forfeiture to stand. No appeal was taken from that order.

On October 12, 1984, Risken filed the present action, a petition for declaratory judgment, raising the question of who was entitled to the insurance proceeds. In this action, the parties stipulated to several facts, including the following:

....

6. That following the fire, the property's value was $40,000 without repair of the structure.

....

10. On January 20, 1984, the District Court ... declined to apply the insurance proceeds towards the delinquent contract obligations.

....

12. The Court, in [the prior action], concluded that the insurance proceeds could not be used to pay [the trustees] the delinquency on the contract with the balance paid to [Risken] for the reason that such a disposition of the insurance proceeds would not be in accord with the insurance provision (paragraph 5) of the contract of the parties.

13. That [the prior action] made no specific disposition of the insurance proceeds.

The district court, acting on plaintiff's motion for separate adjudication of law points, Iowa Rule of Civil Procedure 105, and the stipulated facts, ruled that the January 1984 order in the prior action was res judicata as to the present case and ordered Risken to tender the insurance proceeds to the trustees.

Risken appealed that order to this court, contending he was entitled to the insurance proceeds. We transferred the case to the court of appeals. Iowa R.App.P. 401. The court of appeals, concluding Risken's action was not barred by the doctrines of issue and claim preclusion and determining Risken was entitled to the insurance proceeds, reversed the trial court and directed the trustees to tender the insurance proceeds to Risken.

Upon application of the trustees, we granted further review of the court of appeals decision. See Iowa R.App.P. 402. The trustees contend that the court of appeals erred: (1) in determining Risken's claim was not barred by res judicata; and (2) in awarding the insurance proceeds to Risken.

I. Issue and Claim Preclusion. The trustees claim that the issue of who should receive the insurance proceeds was an inherent part of the district court ruling in the earlier action; therefore, the court of appeals erred in allowing Risken to relitigate the issue and in awarding the insurance proceeds to him. The court of appeals concluded, following Risken's argument, that the only issue presented in the first action was whether the insurance proceeds could be used to satisfy contract delinquencies and avoid the forfeiture.

For purposes of clarity, we have substituted the terms "issue preclusion" and "claim preclusion" in place of the general term "res judicata." Israel v. Farmers Mutual Insurance Association, 339 N.W.2d 143, 146 (Iowa 1983).

Claim preclusion occurs when an action has been brought, an adjudication made and the claimant is foreclosed from any further litigation on the claim. Id. For reasons stated in more detail later, a final adjudication as to who was to receive the insurance proceeds did not occur in the first case. Therefore, we affirm the court of appeals conclusion that Risken's present action is not barred by the doctrine of claim preclusion.

We next will address whether the court of appeals erred in determining the doctrine of issue preclusion would not operate on this record. The court of appeals aptly stated the doctrine:

Issue preclusion prevents parties to a prior action in which judgment has been entered from relitigating in a subsequent action issues raised and resolved in the previous action. Hunter v. City of Des Moines, 300 N.W.2d 121, 123 (Iowa 1981). Four prerequisites are required before the doctrine of issue preclusion can properly be applied in any given case:

(1) the issue concluded must be identical;

(2) the issue must have been raised and litigated in the prior action;

(3) the issue must have been material and relevant to the disposition of the prior action; and

(4) the determination of the issue in the prior action must have been necessary and essential to the resulting judgment.

For applications of these four prerequisites, see Bascom v. Jos. Schlitz Brewing Co., 395 N.W.2d 879 (Iowa 1986); Kraft v. El View Construction, Inc., 394 N.W.2d 365 (Iowa 1986); Israel, 339 N.W.2d 143; and Hunter, 300 N.W.2d 121.

The first prerequisite requires that the issue be identical in this case as compared with the prior action. The ruling disposing of the prior action for an injunction against the forfeiture stated:

The [trustees] have asked for no affirmative relief as to the insurance proceeds. As to the insurance proceeds, the only issue raised by the pleadings is whether or not [Risken] should be afforded the relief he asks; namely, that the proceeds be used to pay [the trustees] the delinquency on the contract with the balance paid to [Risken]. The Court concludes that this should not be granted for the reason that such a disposition of the proceeds would not be in accord with the insurance provision of the contract of the parties.

(Emphasis added.) Thus, after concluding the vendor was entitled to the forfeiture of the contract, the court determined that the insurance proceeds could not be applied to preclude a forfeiture because that application would not comply with the contract provision that the insurance money be payable to the seller and buyer "as their interests may appear."

Risken in his petition for declaratory judgment in the present action framed the issue by stating, "In its ruling the Court [in the prior action] specifically made no ruling disposing of the insurance proceeds.... [T]here now remains the question of who is entitled to the insurance proceeds."

The trustees contend the issue of ownership of the insurance proceeds raised in Risken's petition for declaratory judgment was the same issue raised in the injunction action. Particularly, the trustees rely on language in the injunction court's ruling stating the trustees are beneficiaries of the fire insurance policy taken out by Risken; thus, they should receive the proceeds.

We agree,...