Shunga Plaza, Inc. v. American Emp. Ins. Co.

• Decision Date: 07 March 1970
• Docket Number: No. 45650,45650
• Citation: 465 P.2d 987,204 Kan. 790
• Parties: SHUNGA PLAZA, INC., and American Savings Association of Topeka, Kansas Corporations, Appellants, v. AMERICAN EMPLOYERS' INSURANCE COMPANY, Appellee.
• Court: Kansas Supreme Court

Page 987

465 P.2d 987

204 Kan. 790

SHUNGA PLAZA, INC., and American Savings Association of Topeka, Kansas Corporations, Appellants, v. AMERICAN EMPLOYERS' INSURANCE COMPANY, Appellee.

No. 45650.

Supreme Court of Kansas.

March 7, 1970.

Rehearing Granted April 2, 1970.

Opinion vacated 476 P.2nd 642.

Syllabus by the Court

1. A method of cancellation provided for in an insurance policy is not necessarily exclusive so as to preclude an effective cancellation by mutual agreement without compliance with the method so provided.

2. It is a general rule that a promise by one party is a sufficient consideration for a promise or an act of another and it is the promise, not the performance thereof, that constitutes the consideration.

3. There is no basis for construction where the language of a contract is clear and unambiguous and where a contract is not ambiguous it is the function of a court to enforce it as made.

4. While a secretary of a corporation ordinarily has not authority by virtue of his office to bind his corporation, the corporation may be bound by his acts when it intrusts him with the management of its business, and where his acts are in furtherance of the corporate business. (Following Advance Rumley Thresher Co. v. Evans Metcalf Implement Co., 103 Kan. 532, 175 P. 392.)

5. An endorsement on an insurance policy deleting one item of coverage is examined and held to constitute a clear and unequivocal new agreement as to the portion of coverage afforded by the policy.

John E. Davis and Jerry W. Hannah, Topeka, for appellants.

J. Roger Hendrix, Topeka, argued the cause, and Herbert A. Marshall, Topeka, with him on the brief for appellee.

HATCHER, Commissioner.

This appeal stems from a controversy over the deletion of an item of property from an insurance policy.

The facts are not in dispute.

Robert J. Bernica and Dana K. Anderson and their wives owned properties located at 1122 Van Buren and at 216 Huntoon, both in Topeka, Kansas. The defendant, American Employers' Insurance Company, issued its insurance policy insuring the house at 1122 Van Buren in the sum of $4,000.00 and the house at 216 Huntoon in the sum of $8,000.00. It is agreed that the policy provided insurance protection against loss by tornadoes.

On or about February 4, 1966, both properties were conveyed to plaintiff, Shunga Plaza, Inc. The insurance policy was assigned to this corporation with defendant's consent. The policy premium had been paid in full. The policy period was to begin November 29, 1965, and expire November 29, 1966.

Shunga Plaza, Inc. consisted of three stockholders who were directors, namely: Dana K. Anderson, Robert J. Bernica and J.W. Hannah. Hannah was president and Mr. Bernica was secretary-treasurer.

The assets of the Shunga Plaza corporation consisted of the above-described properties and an unimproved lot.

Robert E. Gucker was the insurance agent who handled the insurance in question. He had sold the original policy and handled the later endorsement for defendant.

The American Savings Association of Topeka, one of the plaintiffs, was named in the mortgage clause of the policy as the holder of a mortgage on the houses. The policy had the usual loss payable clause to protect the mortgagee.

A representative of defendant inspected the insured premises, and because of the condition of the house at 1122 Van Buren, decided it should cease coverage of that house. Accordingly, Gucker computed the amount of refund due Shunga Plaza at $20.00. He prepared, and on or about February 23, 1966, mailed to Mr. Bernica an endorsement to the original policy. The endorsement reduced the coverage from a total of $12,000.00 to a new coverage of $8,000.00 and deleted item # 1, the $4,000.00 coverage on the house at 1122 Van Buren, from the policy.

Copies of the executed endorsement were then mailed by Bernica to Gucker, and were received in the mail by the latter. Gucker mailed an executed copy of the endorsement to the plaintiff, American Savings Association, which association received a copy bearing the signature of "Shunga Plaza, Inc., by Robert J. Bernica," and placed the same in its file with its security papers. The American Savings Association received a copy of the endorsement between February 23, and March 8, 1966, the exact date being unknown.

On March 8, 1966, Gucker executed his company check in the sum of $20.00 payable to Robert J. Bernica. This check was mailed to Bernica in the usual and ordinary course of business from Gucker's office by United States mail. The check has not been presented for payment and has not cleared the bank. This fact did not come to the attention of Gucker until after June 8, 1966. The check was not received by Bernica.

On June 8, 1966, the house at 1122 Van Buren, Topeka, Kansas, was totally destroyed by a tornado.

On June 8, 1966, the American Savings Association, plaintiff, held a mortgage on both the Van Buren and the Huntoon properties. Both properties were included in the same mortgage and the unpaid principal sum on that date was $11,501.08. This mortgage at the date of trial remained unpaid.

Shunga Plaza, Inc. and American Savings Association of Topeka brought an action to recover the $4,000.00 for which the property at 1122 Van Buren was originally insured. They contended that the property had never been deleted from the policy.

The trial court concluded:

"The alteration of the original rights and obligations of the parties to this agreement was contained in an endorsement to the original policy. This endorsement was clear and unequivocal. This is simply a new agreement as to a portion of the coverage afforded by the policy. When this endorsement was 'signed and accepted' by Shunga Plaza, through its authorized officer, Mr. Bernica, it became a contract. This was a bi-lateral contract between the parties as to the new relationship created.

* * *

* * *

"What we have here is a bi-lateral agreement created by the endorsement--this is simply a new contract. Coverage is deleted on the Van Buren property and defendant company owes Shunga Plaza the $20.00. Payment of the $20.00 is not a condition precedent to the effectiveness of the endorsement."

The plaintiffs have appealed.

Before considering appellants' contentions it would perhaps be helpful if we review briefly the exact transaction which we have before us for consideration.

The policy provided a method for cancellation. The provisions of the policy for cancellation were not followed--perhaps for the reason this did not purport to be a cancellation but was the deletion of a single item. We must, therefore, find a separate and complete agreement.

In 45 C.J.S. Insurance § 444, p. 71, we find the following statement:

" * * * A method of cancellation provided for in the insurance policy is not necessarily exclusive so as to preclude an effective cancellation by mutual agreement without compliance with the method so provided, and a requirement of notice as a condition precedent to cancellation does not apply to a termination by mutual consent." (See, also, Riddle v. Rankin, 146 Kan. 316, 69 P.2d 722.)

The appellee desired to delete item # 1, the insured property at 1122 Van Buren, because of its condition.

An endorsement, standard in form, was mailed by Robert Gucker on behalf of the appellee to Robert J. Bernica, secretary of the appellant, Shunga Plaza, Inc., to be attached to the policy of insurance. The endorsement is too cumbersome to be presented in full. It was headed:

"ENDORSEMENT

(To be attached to policy)"

It stated:

"Attached to and forming part of Policy No. A 22-10385-62

"Effective Date of Endorsement 2-33-66"

The endorsement gave the amount of the return premium--$20.00. The following was typed at the bottom of the printed form:

"In consideration of return premium of $20.00. It is understood and agreed that item # 1 is deleted from this policy.

Signed and accepted X____"

Written in the blank space following the X was: "Shunga Plaza, Inc.

By: Robert J. Bernica"

The endorsement with copies were mailed to Robert J. Bernica with a letter of transmittal, which read:

"Please sign and return all copies where the X is indicated. Please be sure and sign Shunga Plaza, Inc., by you. Please find enclosed a stamped, self addressed envelope and return promptly.

"A check for the return premium will be sent to you when we receive confirmation from company."

The appellants first contend that the trial court erred in its conclusion that the endorsement created an enforceable bi-lateral contract for the reason that there was failure of consideration.

We see no merit in the contention. The endorsement clearly stated it was to be effective February 23, 1966, which was about the time it was mailed to Bernica on behalf of Shunga Plaza, Inc. This was in consideration of the return premium of $20.00. When Mr. Bernica signed the company's name to the endorsement and mailed the signed copies to Mr. Gucker, the agreement to delete the property at 1122 Van Buren from the policy was complete and binding. The appellee was then obligated to pay the $20.00 return premium. The fact that the check for $20.00 was not delivered in the due course of the mail did not reinstate the deleted insurance.

The receipt of the $20.00 was not a condition precedent to the validity of the endorsement which deleted part of the coverage. As we have said, the endorsement was definitely stated to be effective February 23, 1966.

It is a general rule that a promise by one party is a sufficient consideration for a promise or an act by another. It is the promise and not the performance thereof that constitutes the consideration. These rules were considered in First Federal Savings & Loan Ass'n v. Thurston, 148 Kan. 88, 80 P.2d 7, where we said:

"It is said in 12 Am.Jur., Contracts, § 113:

" 'Subject to qualifications, hereinafter stated, it is a general rule that a promise by one party is a sufficient consideration for a promise by the...