Royal Zenith Corp. v. Citizens Publications, Inc.

• Decision Date: 02 September 1970
• Docket Number: No. 54009,54009
• Citation: 179 N.W.2d 340
• Parties: ROYAL ZENITH CORPORATION, Appellee, v. CITIZENS PUBLICATIONS, INC., J. W. Grant and Carroll T. Westbrook, Appellants.
• Court: Iowa Supreme Court

Page 340

179 N.W.2d 340

ROYAL ZENITH CORPORATION, Appellee, v. CITIZENS PUBLICATIONS, INC., J. W. Grant and Carroll T. Westbrook, Appellants.

No. 54009.

Supreme Court of Iowa.

Sept. 2, 1970.

Nelson & Fassler and Maurice L. Nathanson, Cedar Rapids, for appellants.

Simmons, Perrine, Albright & Ellwood, Robert C. Tilden and James C. Nemmers, Cedar Rapids, for appellees.

UHLENHOPP, Justice.

The problem presented by this case is whether a seller of goods under conditional sale contract is entitled to recover the price from the buyer after the goods have been destroyed by fire while in the buyer's possession and the seller has received insurance proceeds from its own insurer. See also State v. Rees, 258 Iowa 813, 139 N.W.2d 406; Preferred Investment Co. v. Westbrook, 174 N.W.2d 391 (Iowa).

Royal Zenith Corporation imports machinery from Europe and sells it in America. In April 1963 it bought a blanket policy from Switzerland General Insurance Company covering various types of property including goods sold on conditional sale contracts to the extent of the unpaid balances. The policy provided, 'It is warranted by the assured that they will require conditional sales customers to provide insurance against fire on the property sold on this basis and insured hereunder. The coverage provided by this policy shall be excess over such specific insurance.' Also, 'Warranted by the Assured that this insurance shall not enure directly or indirectly to the benefit of any carrier, bailee or other party, by stipulation in bill of lading or otherwise, and any breach of this warranty, shall render this policy of insurance null and void.' Also, 'It is expressly agreed that upon payment of any loss or advancement or loan of moneys concerning the same, that the Assured will, at the request and expense of the Company and through such counsel as the Company may designate, make claim upon and institute legal proceedings against any carrier, bailee or other parties believed to be liable for such loss, and will use all proper and reasonable means to recover the same.'

Prior to the events in question in 1964, J. W. Grant and Tom Kuncil operated a printing establishment in Cedar Rapids, Iowa, as Citizen Publications. A. D. Beers, an independent salesman, tried to interest them in buying a printing press. The press would be sold directly by Royal Zenith to Citizen Publications, and Beers would receive a commission. Beers contacted Royal Zenith, which ran a credit check through Citizen Publications' bank. The report disclosed that Citizen Publications had an average bank balance from zero to two figures and was being sued by another organization for nonpayment. The bank could not recommend the printing press transaction, and Royal Zenith refused to sell.

Grant approached Carroll T. Westbrook, who owned an insurance agency. Westbrook thought he could have his printing done by Citizen Publications and believed an opportunity for profit existed. Citizen Publications was thereupon incorporated with Grant as president and Westbrook as treasurer. Westbrook held half the stock, for which he contributed $7,000. Of that amount, $4,166 was for the cash payment on the press which will be mentioned.

Royal Zenith ran a credit check through Westbrook's bank, which disclosed that Westbrook maintained an average balance in four figures and owed a long term loan in four figures. The bank had no recommendation on Westbrook's ability to carry the printing press transaction. Westbrook's unaudited financial statement was submitted to Royal Zenith showing a net worth of $802,610, with the insurance agency included as an asset at a million dollars. Royal Zenith decided to sell the press to Citizen Publications on conditional sale guaranteed by Grant and Westbrook personally.

Royal Zenith priced the press in two ways--$41,620 for cash or $55,106 on time. The time price would be payable $4,160 down with the balance in monthly installments over six years. The difference of $13,486 in the cash and time prices was computed by Royal Zenith by subtracting the down payment from the cash price, leaving $37,460, and by multiplying that figure by 6% Times six years or .36. Citizen Publications bought for the time price.

The conditional sale contract was prepared with the figures set forth in the appropriate spaces. The contract form also contained spaces for cost of insurance charged to buyer and official fees. Those spaces were left blank. The first monthly payment would be due July 1, 1964. The contract was signed by seller and buyer, and Grant and Westbrook signed their personal guaranty. They acknowledged their signatures on the instruments on May 4, 1964.

The conditional sale contract provided, 'Buyer covenants and agrees * * * to be responsible for all loss or damage to said property by fire, theft, or other casualty whatsoever; * * *' Also, 'Injury to, or loss or destruction of said property, from whatever cause shall not release Buyer from payment as provided herein.' Also, 'Buyer will keep said property insured against all risks of loss or damage from every cause whatsoever for not less than the aggregate amount owing hereunder. All said insurance shall be in form and amount and with companies satisfactory to Seller. All insurance for loss or damage shall provide that losses, if any, shall be payable to Seller as its interests may appear.' The contract contained the usual clause authorizing the seller to accelerate future payments on breach by the buyer.

Royal Zenith received the down payment of $4,160. The press was shipped to Citizen Publications and was installed.

On June 16, 1964, Citizen Publications obtained an insurance binder from Safeguard Insurance Company against loss by fire and other perils, covering the contents of the printing establishment up to $50,000 until noon on August 15, 1964. Apparently the binder did not contain a loss-payable clause in Royal Zenith's favor.

On July 1, 1964, the first installment under the conditional sale contract was due. Westbrook wrote Royal Zenith for an extension. The parties agreed the payments should be extended one month.

The installment due August 1, 1964, was not paid.

On August 7, 1964, Citizen Publications obtained two insurance policies from Mutual Service Casualty Insurance Company against loss by fire and other perils. One was for $20,000 for business interruption. The other was for $48,000, which was divided into $25,000 on the building, $16,000 on its contents, and $7,000 on a nearby dwelling. Apparently no loss-payable clauses naming Royal Zenith were included in these policies.

On the morning of August 15, 1964, the building of Citizen Publications and the press in question were destroyed by fire.

No payments were made under the conditional sale contract following the fire.

On March 19, 1965, Royal Zenith received $37,460 from Switzerland General under a loan receipt. See Glancy v. Ragsdale, 251 Iowa 793, 102 N.W.2d 890 (relating to use of a loan receipt). The loan receipt recited the money was received 'as a loan, without interest, under policy #T4418 repayable only in the event and to the extent that any net recovery is made by us from any person or persons, corporation or corporations, or other parties, on account of loss by fire, sprinkler leakage, or other casualty for which this company may be liable occasioned to said property on or about 18 day of August 1964.' In the receipt Royal Zenith pledged to Switzerland General any recovery it might make and agreed, if necessary, 'to commence, enter into and prosecute suit against such person or persons, corporation or corporations, through whose negligence the aforesaid loss was caused, or who may otherwise be held responsible therefor, with all due diligence, in our own name, but at the expense of and under the exclusive direction and control of the Switzerland General Insurance Company.'

On July 13, 1965, Royal Zenith filed its petition in the present action seeking recovery of the time price for which the press was sold. The action against Citizen Publications is on the conditional sale contract and notes and against Westbrook and Grant on their guaranty.

In the summer of 1966, in two actions, Citizen Publications sued the Safeguard and Mutual Service insurance companies for the insurance on the building, contents, and interruption of business. Those actions are pending.

Trial of the present action, without a jury, began on October 27, 1966. Summary judgment was rendered against Citizen Publications. The principal defense asserted by Westbrook and Grant was lack of consideration for their guaranty. In the course of the trial a working paper was introduced showing how Royal Zenith calculated the time price for insertion in the conditional sale contract, as previously explained. The conditional sale contract, showing the blank for the item of insurance charged to buyer, was also introduced.

One of the Royal Zenith's witnesses was its treasurer. On cross-examination he was asked if Royal Zenith had insurance on the press. Royal Zenith objected that such issue was not pleaded. But the trial court permitted defendants to pursue this line of testimony until defendants' counsel said he had no more questions. This testimony disclosed the facts already related--Royal Zenith had a blanket policy of its own and had received $37,460 under a loan receipt. Royal Zenith's insurance file with Switzerland General, as well as the loan receipt, were introduced in evidence.

After the foregoing evidence was received, the judgment against Citizen Publications was set aside on its motion. Defendants then amended their answers and averred 'the plaintiff had in full force and effect a policy of insurance insuring the subject matter of the conditional sales contract against loss.' Also, 'That subsequent to the aforesaid fire and the said destruction of the said printing press, the plaintiff was fully and completely reimbursed and compensated for...