St. Louis County Nat. Bank v. Maryland Cas. Co.

• Decision Date: 28 February 1978
• Docket Number: No. 39716,39716
• Citation: 564 S.W.2d 920
• Parties: ST. LOUIS COUNTY NATIONAL BANK, Plaintiff-Respondent, v. MARYLAND CASUALTY COMPANY, Defendant-Appellant. . Louis District, Division Three
• Court: Missouri Court of Appeals

Page 920

564 S.W.2d 920

ST. LOUIS COUNTY NATIONAL BANK, Plaintiff-Respondent, v. MARYLAND CASUALTY COMPANY, Defendant-Appellant.

No. 39716.

Missouri Court of Appeals, St. Louis District, Division Three.

Feb. 28, 1978.

Motion for Rehearing and/or Transfer to Supreme Court Denied

April 10, 1978.

R. E. Keaney, Moser, Marsalek, Carpenter, Cleary, Jaeckel, Keaney & Brown, St. Louis, for defendant-appellant.

Lashly, Caruthers, Thies, Rava & Hamel, Edward L. Filippine, Thomas Cummings, Richard D. Watters, Clayton, for plaintiff-respondent.

GUNN, Presiding Judge.

Maryland Casualty Company (Maryland) appeals from a circuit court judgment reforming a contract of insurance to name St. Louis County National Bank (County National) loss payee under a policy issued to Hazel Novelty and Cabinet Company (Hazel). Maryland was ordered to pay County National $9,322.88, the amount of loss resulting from a fire which destroyed Hazel's business premises in St. Louis, plus $4,303.70 interest accrued from the date of the fire to the date of the judgment. Maryland raises numerous points of error challenging the propriety of the reformation, the entitlement of County National to the proceeds in light of competing federal tax liens and the authority of the court to award interest. We affirm the judgment except as to the award of interest, which must be modified to comply with the terms of the policy.

Hazel is a Missouri corporation in the business of manufacturing wooden cabinets and other similar products. On August 31, 1965, Hazel, through its president, Frank O. Steiner, procured a loan from County National secured in part by its inventory. Financing statements were timely filed with the Secretary of State and with the St. Louis City Recorder of Deeds. Under the terms of the security agreement Hazel was to keep its inventory fully insured against fire and casualty loss. The policies were to contain a loss payable clause naming County National payee "as its interest may appear, the form of endorsements to such policies to that end to be otherwise in form and content satisfactory to Bank."

Steiner initially obtained the required insurance on Hazel's inventory from Independent Lumberman's Mutual Insurance Company. Under those policies, which were in effect until March of 1968, County National was named loss payee. Early in 1968, Steiner decided to change insurers. He contacted a personal friend, Frank Bittner, who was an officer of the Stuckenberg Insurance Agency Inc., (Stuckenberg) to secure the new coverage on Hazel's inventory. In the course of discussing the type of coverage sought, Steiner explained Hazel's relationship with County National to Bittner and instructed him to name the bank loss payee under a fire and extended loss policy. To ensure that the proper coverage was secured, Steiner gave Bittner a copy of the Lumberman's Mutual policy which contained a loss payable clause in favor of the bank. Bittner examined the old policy and then, according to Steiner, gave an oral assurance that insurance providing identical coverage was bound. ¹ It was stipulated that Stuckenberg was the local agent for Maryland and that Bittner was an officer of Stuckenberg with the authority to bind Maryland to temporary contracts of insurance and to countersign policies issued by Maryland's St. Louis branch office.

Neither Hazel nor County National received a written binder. It was stipulated, however, that on March 18, 1968, Stuckenberg through Bittner obligated Maryland to a temporary binder of insurance providing fire and extended coverage in the amount of $10,000 on Hazel's inventory.

The policy itself was not countersigned by Bittner until August 5, 1968, and it was not delivered to Hazel until after August 24, 1968, the date of the fire. Because of this delay in issuance of the policy, Steiner became concerned. He telephoned Bittner on three occasions to inquire about the status of the policy. Each time Bittner assured him that the coverage was bound and that the policy would be forthcoming after necessary endorsements were obtained. Because of Bittner's assurances Steiner did not seek other insurance coverage.

Rodney Hill, a County National loan officer in charge of the Hazel account, testified that it was standard practice in the banking industry to require debtors to procure insurance on collateral naming the lender bank as loss payee. He stated that he and Steiner discussed Hazel's obligation under the security agreement to obtain insurance accomplishing this result. Hill also stated that he spoke with Bittner twice in the summer of 1968. During these conversations he informed Bittner that County National was to be named loss payee with a standard mortgage clause under the fire and extended loss policy. According to Hill, Bittner assured him that he had bound the requested coverage.

Merle Sanguinet, executive vice-president of County National, also testified to a conversation he had with Bittner concerning Hazel's insurance. In August of 1968, Bittner came to the bank seeking assistance from Sanguinet to persuade Steiner to pay the premiums for the fire insurance. Bittner told Sanguinet that he knew of the debtor-creditor relationship between Hazel and County National and that it was in the bank's interest to ensure that the policy remained in force. Sanguinet told Bittner he would do what he could to assist in the collection of the premium.

On August 24, 1968, a fire destroyed Hazel's inventory. ² Shortly thereafter, County National first learned that it had not been named loss payee under the policy. Although the policy issued contained a loss payable clause, the space reserved for the name of the payee was left blank. On September 6, 1968, Hazel assigned to County National its right to the proceeds of the Maryland policy. Having no written evidence of the insurance covering its interest, County National took the assignment "for whatever it might be worth." A proof of loss statement dated February 12, 1969, was filed with Maryland by Hazel claiming $9,322.88 in fire related losses.

The major complication in this case arises from the fact that on June 12, 1968 and on August 2, 1968, the Internal Revenue Service filed notices of liens, totaling $12,159.01, with the St. Louis City Recorder of Deeds against Hazel for unpaid taxes. On November 26, 1968, the Internal Revenue Service served a notice of levy on Maryland against Hazel in the amount of $9,325.35. Prior to that date Maryland had been served with a writ of garnishment arising from a prior judgment against Hazel in favor of Richard and Gladys Green.

On March 12, 1969, Maryland issued a draft for $9,322.88 naming Hazel, the Internal Revenue Service, County National and the Greens as payees. The draft was first forwarded to County National which returned it to Maryland without endorsement. Maryland then forwarded the draft to the Internal Revenue Service. The District Director and the Greens endorsed the draft and it was deposited with the Federal Reserve Bank of St. Louis for credit to the Treasurer of the United States. The draft was subsequently presented to Maryland and was honored although it was endorsed by neither County National nor Hazel.

County National filed this suit in equity seeking reformation of the Maryland policy to name it as loss payee. The circuit court, sitting without a jury, granted the requested reformation and found that under the policy as reformed, County National's rights to the proceeds were superior to those of the Internal Revenue Service. Maryland was ordered to pay the proceeds of the policy to County National with interest ($13,626.58). Maryland appeals from this judgment. ³

As this is an equitable proceeding tried without a jury, appellate review is governed by Rule 73.01 V.A.M.R. We review both the law and the evidence giving due regard to the superior opportunity of the trial court to judge the credibility of witnesses. The judgment of the trial court will be sustained unless there is no substantial evidence to support it; unless it is against the weight of the evidence; unless it erroneously declares the law; or unless it erroneously applies the law. MFA Mutual Ins. Co. V. Thost, 561 S.W.2d 431 (Mo.App.1978); Macalco, Inc. v. Gulf Ins. Co., 550 S.W.2d 883 (Mo.App.1977).

The first general issue raised is whether reformation of the insurance contract between Maryland and Hazel to name County National as loss payee was an appropriate remedy supported by the evidence. We believe it was. Reformation is an equitable remedy available to either party to a contract when the written instrument embodying their agreement does not express the true contract the parties agreed to and desired to put into writing. Equity will not impose a new contract upon the parties but will reform the instrument to accurately set forth the terms of the actual agreement. King v. Riley, 498 S.W.2d 564 (Mo.1973); Walters v. Tucker, 308 S.W.2d 673 (Mo.1957). It is not necessary to show that the parties to the contract agreed upon any particular language to be used; it is sufficient to show that they agreed to accomplish a particular object by the instrument and that the instrument as executed is insufficient to effectuate their intention. Bollinger v. Sigman, 520 S.W.2d 710 (Mo.App.1975). Before an instrument will be reformed, the proponent of the reformation has the burden of proving by clear and convincing evidence that a mistake mutual and common to both parties has been made. It must be clear that the instrument has done what neither party intended. J. E. Hathman, Inc. v. Sigma Alpha Epsilon Club, 491 S.W.2d 261 (Mo.banc 1973); Edwards v. Zahner, 395 S.W.2d 185 (Mo.1965); Walters v. Tucker, supra. If such a mistake is shown it is irrelevant whether it is a mistake of law or fact or merely a scrivener's error; all may be rectified in equity. Edwards v. Zahner, supra ; Erickson Refrigerated Transp., Inc. v. Canal Ins. Co., 474 S.W.2d 337 (Mo.App.1971); ...