VOTAW v. FARMERS AUTOMOBILE INTER INSURANCE EXCHANGE (1938)

The pertinent facts which relate to the instant appeal appear to be that, although plaintiff was the owner of an automobile which was insured by the defendants against so-called ‘public liability,’ by the terms of the contract or policy of the said insurance, the defendants were exempted from such liability if it should appear that the interest of plaintiff in the automobile ‘was at any time other than sole and unconditional ownership’; that thereafter, under the terms of an oral conditional sale contract, plaintiff sold the automobile to one Kin, who paid a portion of the purchase price, and to whom possession of the automobile was delivered; but that notwithstanding that fact, plaintiff expressly reserved title to the automobile in himself until after the full remainder of the purchase price thereof had been paid to him; that with reference to such sale, neither plaintiff nor Kin complied with the provisions of section 45 3/4 of the California Motor Vehicle Act as it then was in force, St.1923, p. 517, as added by St.1931, p. 2105, in that no certificate of ownership was delivered to Kin, nor was a certificate of ownership or a notice of sale given to the division of motor vehicles of this state; that at a time when, in such circumstances, the automobile was in the possession of Kin, arising from his alleged negligent operation of said automobile, an accident occurred, as a result of which a third person was injured, on account of which a judgment was rendered against both plaintiff and Kin; and that on appeal, that judgment was affirmed; as a result of which plaintiff was compelled to and did pay the amount therein adjudged against him. Thereupon, in reliance on the terms of the insurance policy to which reference hereinbefore has been had, plaintiff instituted the instant action against the defendants for the purpose of recovering the pecuniary loss which theretofore he had thus sustained. A judgment was rendered in favor of plaintiff, and the defendants have appealed therefrom.

On the date when the conditional sale contract which was entered into between plaintiff and Kin became effective, subdivision (e) of section 45 of the California Motor Vehicle Act, St.1923, p. 525, as amended by St.1929, p. 514, contained the following provision: ‘Until said division shall have issued said new certificate of registration and certificate of ownership as hereinbefore in subdivision (d) provided, deivery of such vehicle shall be deemed not to have been made and title thereto shall be deemed not to have passed and said intended transfer shall be deemed to be incomplete and not to be valid or effective for any purpose.’

It is with respect to, and by reason of the language of the statute to which reference just has been had, that respondent asserts that the complete title to the automobile remained in the vendor.

From an examination of the several briefs that have been filed herein, it appears that ordinarily, a determination of the rights of the respective parties to a great extent would depend upon the effect which now is to be given to the reasoning which heretofore has been presented by this court in the leading case of Wyman v. Security Ins. Co. of California, 202 Cal. 743, 262 P. 329. For an understanding of the issue here under consideration, it is sufficient that attention be directed to that part of the syllabus of that case which contains not only a statement of the pertinent facts upon which the decision therein depended, but also the law which was applicable thereto, as follows: ‘Where the owner of personal property [an automobile truck] enters into a contract to sell it and gives the purchaser the possession thereof but retains the title to the property until final payment of the purchase price, the loss, in case of loss or destruction of the property, falls upon the vendor; and the latter is not precluded from recovering upon a policy of fire insurance [which contains a requirement of ‘sole and unconditional’ ownership of the truck in the vendor] by reason of the fact that he had entered into such an agreement prior to the issuance of the policy of insurance.'

It is unquestioned that the decision thus rendered was supported in principle, not only by precedents of cases which theretofore had been adjudicated by the courts of this state, but as well by those of other jurisdictions. See, also, Kelly v. Smith, 218 Cal. 543, 24 P.2d 471, where many authorities are reviewed. Notwithstanding that fact, appellants contend that because of the provisions of section 1742 of the Civil Code, as amended since the decision in the Wyman Case was rendered, the reasoning upon which that decision was made dependable, no longer has application to a statement of facts such as here is presented. A part of the language of the statute, Civ.Code, § 1742, as added by St.1931, p. 2242, to which appellants have referred is as follows: ‘Where delivery of the goods has been made to the buyer, or to a bailee for the buyer, in pursuance of the contract and the property in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery.’

However, as is illustrated in each of several former adjudications in analogous cases, the conclusion that was reached in the Wyman Case does not conform to some earlier decisions which were rendered by this court. In the case of McCollough v. Home Ins. Co., 155 Cal. 659, 102 P. 814, 815, 18 Ann.Cas. 862, it was held that a ‘conditional’ vendee of real property was the ‘sole and unconditional owner’ thereof within the terms of an insurance policy which provided that in order that it be binding upon the insurance company, the assured was required to be the ‘sole and unconditional’ owner of the insured property. In part it was there said: ‘The clause of the policy providing that it shall be void if the insured's interest is other than sole and unconditional ownership, or the subject be a building on ground not owned by the insured in fee simple, is designed to remove from him the temptation to profit by the willful destruction of property not entirely owned by him. Imperial Fire Ins. Co. v. Dunham, 117 Pa. 460, 12 A. 668, 2 Am.St.Rep. 686. ‘It therefore follows that the clause is in most cases held to refer to the character and quality of the title—to the actual and substantial ownership, rather than to the strictly legal title.’ 2 Cooley, Ins., 1369. An equitable title in the insured is a sufficient compliance with the condition in question. A vendee in possession of property under a valid contract of purchase which he is entitled to enforce specifically is the holder of such equitable title. Id. 1376. And the great weight of authority supports the proposition that such vendee is the ‘sole and unconditional owner,’ within the meaning of the policy, even though a portion of the purchase price may yet remain unpaid.' To the same effect, in similar cases, see Ramirez v. United Firemen's Ins. Co., 46 Cal.App. 451, 189 P. 309, and Kavanaugh v. Franklin Fire Ins. Co., 185 Cal. 307, 197 P. 99. And in the case of Savage v. Norwich U. F. Ins. Soc., 125 Cal.App. 330, 13 P.2d 955, the same rule was applied where the subject-matter of a fire insurance policy was personal property.

But it should be noted that the Wyman Case is supported by the case of Cocores v. Assimopoulos, 4 Cal.2d 82, 47 P.2d 699, which involved an issue similar to that here under consideration, and which was decided after the amendment to the original provisions of section 1742 became effective. However, for the reason that, as amended, the statute was not in force at the time when the contract there under consideration was asserted to have been breached, it was held that the provisions of the statute as hereinbefore have been set forth, could not be made applicable to the facts in that case. But in addition to the authorities hereinbefore cited, which are to the effect that the vendee was the ‘sole and unconditional’ owner of property which theretofore had been sold to him on a conditional sale contract, in the case of Sharman v. Continental Ins. Co., 167 Cal. 117, 138 P. 708, 52 L.R.A.,N.S., 670, it was ruled that (syllabus), ‘One who has entered into, though not recorded, an agreement to convey property, received installments of the purchase price, and placed the vendee in possession, is not the sole and unconditional owner of the property within the meaning of a provision in a policy of insurance thereon that the policy shall be void ‘if the interest of the assured be other than unconditional and sole ownership.’' To the same effect, see Brickell v. Atlas A. Co., 10 Cal.App. 17, 101 P. 16.

But with reference to the language that is contained in subdivision (e) of section 45 of the California Motor Vehicle Act, to which reference hereinbefore has been had, it should be noted that instead of containing any attempted restriction or limitation upon the right of ownership or interest in an automobile that has been the subject of sale and purchase by respective parties to an agreement, in that regard the only attempt to fix the status of either the seller or the buyer relates to matter of ‘title’ and to ‘transfer.’ That is to say, that should the parties fail to comply with the statutory requirements, the ‘title’ to the automobile should be deemed ‘not to have passed’; nor shall the ‘transfer’ be deemed complete or valid for any purpose. It is apparent that one may have ‘title’ to a thing and not be its owner; likewise, would it be possible for one who holds that naked title, to ‘transfer’ the property to another without the ownership therein being at all affected. On the other hand, one who is the equitable owner of property may convey his rights therein without any effect being produced in the legal title thereof. For example, had one purchased an article of personal property, but had had it delivered into the possession of another to whom a bill of sale or other evidence of ownership had been given, there could be no doubt that the one who had furnished the money for such purchase at least would be the equitable owner of such property. It therefore would seem not impossible that the language of the statute to which attention hereinbefore has been directed may affect the legal title, as distinguished from equitable ownership of or interest in an automobile. See Sly v. American Ind. Co., 127 Cal.App. 202, 207, 15 P.2d 522; Swing v. Lingo, 129 Cal.App. 518, 19 P.2d 56; Kenny v. Christianson, 200 Cal. 419, 253 P. 715; Pendell v. Thomas, 95 Cal.App. 33, 272 P. 306; Goodman v. Anglo-Cal. T. Co., 62 Cal.App. 702, 217 P. 1078. For note, with appropriate authorities with respect to the general situation, see 23 California Law Review, 562.

But to reiterate the legal principle applicable to the situation only as here presented: By the Wyman Case, it was decided that ‘the loss falls upon the vendor’; whereas, by the provisions of section 1742, Civil Code, ‘the goods are at the buyer's risk.’ In other words, although by virtue of the decision in the cited case the title to the property remains in the seller, nevertheless, in accordance not only with the express terms of the statute as amended, but also as interpreted by other California cases hereinbefore cited, as well as by the courts of other jurisdictions, the equitable title to such property is in the buyer.

In reaching a conclusion with regard to the binding force of a provision in an insurance contract like that here involved, especially in the absence of some qualifying agreement between or among the interested parties, the test that frequently has been applied has been related to a determination of the question upon whom the loss would fall. And without reference to the desirability of such a rule, in consideration of our statutory provision that ‘the goods are at the buyer's risk,’ it would seem conclusive that if such test be here applied, the necessary result will be not only that the vendee of the automobile had at least an equitable title therein, and that he held it at his risk, but also that the seller was not the ‘sole and unconditional’ owner thereof, within the meaning of that phrase, as expressed in the policy of insurance which is here under consideration. Otherwise stated, if the case is determinable by a solution of the question: ‘Upon whom would the loss fall?’ it becomes apparent that by the terms of the statute to the effect that the goods are at the buyer's risk, no answer is permissible other than that because the vendee must suffer the loss, necessarily the vendor is not the ‘sole and unconditional’ owner of the automobile.

Again, it may be noted that although the validity of the insurance policy is made to depend upon the provision which requires in the assured sole and unconditional ownership of the insured property, and consequently that the question of ownership of the assured in the subject-matter of the policy necessarily is involved in the determination of liability of the insurance company, nevertheless, neither in the Wyman Case nor in the language of the pertinent statute, is the question of ownership directly made a special subject of consideration. However, in the cited case, notwithstanding the requirement in the insurance policy regarding the necessity of sole and unconditional ownership in the vendor, together with the apparent fact that after a sale of the property had been made, the vendor no longer was the possessor of the equitable title thereto—from the ultimate conclusion therein expressed, to wit, ‘that * * * in case of the loss or destruction of the property involved, the loss falls upon the vendor,’ it becomes clear that the implied question of whether the vendor was the sole and unconditional owner of the property, was substantially answered to the effect that the ownership was in the vendor. But with respect to the pertinent terms of the statute, to wit, that ‘the goods are at the buyer's risk,’ in opposition to the ruling in the Wyman Case, the implication is that the vendee has acquired an interest in the property, with the result that the insurance contract or policy has been breached, in that at the time the loss was sustained, the vendor no longer was the sole and unconditional owner of the insured property.

It is obvious that upon the execution of a conditional sale agreement, followed by a delivery of the subject-matter of the contract to the vendee, neither of the parties to the agreement has an absolute ownership in the property, but that the ownership of each is subject to certain provisions or stipulations that are contained within the terms of the contract. Each of the parties has a qualified interest in the property which, on the one hand, as far as the vendee is concerned, contingent upon the happening of defeasance conditions, may be entirely lost to him, or, on the other, likewise contingently, may develop or ripen into his unqualified ownership therein. In other words, the absolute ownership is perfect in neither of the parties; nor may it become perfect in either of them except, as far as the vendee is concerned, upon the happening or the performance by him of some specified act or acts; or in the vendor, except upon the failure on the part of the vendee to perform some designated act or acts.

But in the instant case a separate reason exists for refusing recognition of plaintiff as the ‘sole and unconditional’ owner of the automobile which he sold on a conditional sale contract. By the provisions of sections 45 1/2 and 153 of the California Motor Vehicle Act then in force, St.1923, pp. 517, 565, added by St.1927, p. 1424, and amended by St.1925, p. 414, a violation by plaintiff of other provisions of the statute relative to the registration of the sale of the automobile and a delivery of a certificate of ownership thereof to the purchaser, constituted a misdemeanor. Had plaintiff complied with the requirements of the statute with reference to such matters, it is probable that the necessity for his present contention that after the oral conditional sale contract had been entered into he remained the ‘sole and unconditional owner’ of the automobile, would not have arisen. His assertion at this time, in effect that because he violated such statutory requirements he should be permitted to profit by such wrongdoing should not, in equity, be available to him.

The ruling in the case of Schmidt v. C.I.T. Corporation, 14 Cal.App.2d 92, 57 P.2d 1016, is in point. It was there held (syllabus): ‘Where the registered owner of a motor vehicle sells it and delivers to the vendee the certificate of ownership duly endorsed by him, and the vendee, without forwarding the certificate to the division of motor vehicles as required by subdivision (b) of section 45 of the Motor Vehicle Act, sells the car to a third person under a contract of conditional sale, and an action is subsequently brought for damages arising from the operation of the car by said third party, the vendee cannot take advantage of its own wrong in failing to comply with said subdivision (b), but must bear the burden of ownership under section 1714 1/4 of the Civil Code in the same manner as if it had complied with said subdivision upon its purchase of the car; and it is immaterial that said vendee was never the registered owner of said vehicle.’

However, a final question of vital importance remains for consideration: Preceding the date on which the accident which gave rise to the question of the liability of the defendants occurred, the defendants wrote a letter to plaintiff of which the following is a copy of the essential part of the body thereof, to wit:

‘We are enclosing an endorsement form which you will please attach to your policy. It is for the purpose of broadening the terms of the same to meet present automobile driving conditions. This endorsement provides for the extension of insurance under your policy to others who may be driving your car (with your permission), and gives to them all the protection afforded you by your policy. It also provides for compliance with the Owner's Responsibility Laws of the various states in which the Exchange operates, or in which you may be traveling at the time of an accident involving your insured car. There will be no additional charge for the extension of this coverage. In granting the extension of this coverage the Governing Board of the Exchange is keeping to the policy of furnishing its members with adequate coverage to meet the various changes in laws and conditions affecting the driving of automobiles. * * *’

The ‘extension of the insurance,’ to which reference was made in that letter, was as follows:

‘It is made a condition of the policy to which this endorsement is attached that, beginning at noon, standard time, January 1, 1933, at the address of the named insured stated herein, the insurance granted to the named insured under Part II relating to Property Damage and Public Liability and subject to all the terms, conditions and limitations of the policy, shall also inure to the benefit of any person or persons while riding in or legally operating the automobile described herein and to any person, firm or corporation legally responsible for the operation thereof, provided such use or operation is with the permission of the named Insured, or, if the named Insured is an individual with the permission of an adult member of the named Insured's household other than a chauffeur or domestic servant; provided that the insurance so granted and extended shall not be available to any public carrier, public automobile garage, automobile repair shop, automobile sales agency, automobile service station, or the agents or employees thereof while in the course of such agency or employment.’

With reference to such ‘extended coverage,’ at the outset respondent directs attention to the ‘words' which occur therein, to wit, ‘broadening the terms,’ ‘extension of insurance,’ ‘extension of coverage,’ ‘extended coverage,’ ‘omnibus clause,’ and ‘any person or persons.’

From the general tenor of the language contained in such letter, as well as from a consideration of such several phrases to which reference just has been had, respondent asserts that ‘beyond any doubt an intention on the part of appellants that the insurance provided by the endorsement shall be not restrictive but increased or more extensive than that provided in the body of the policy,’ is clearly indicated. In that connection, it first should be noted that in situations similar to that which is presented herein, the general trend of authority is to the effect that the violation of a provision in an insurance policy by which the risk of the insurer is not increased or its rights substantially prejudiced, does not constitute a valid defense to an action on the policy. Hynding v. Home Acc. Ins. Co., 214 Cal. 743, 7 P.2d 999, 85 A.L.R. 13, and Sly v. American Indemnity Co., 127 Cal.App. 202, 15 P.2d 522.

In the case of Hynding v. Home Acc. Ins. Co., 214 Cal. 743, 752, 7 P.2d 999, 1002, 85 A.L.R. 13, it was said: ‘The violation of the condition by the assured cannot be a valid defense against the injured party unless in the particular case it appears that the insurance company was substantially prejudiced thereby.’ Citing cases. And in the case of Sly v. American Indemnity Co., 127 Cal.App. 202, 208, 15 P.2d 522, 524, the identical thought is expressed. But as regards the instant case, although of great consequence, the question for determination is not so much whether the risk of the defendants in any manner was increased, or whether its rights were substantially prejudiced, but rather is, what construction fairly and reasonably may be placed upon the pertinent language of the contract of insurance, as modified (if at all) by the so-called ‘extended coverage’? And that question, or one analogous to it, has been definitely answered by at least one decision by an appellate tribunal of this state. We refer particularly to the case of Sly v. American Indemnity Co., which was decided in the Fourth Appellate District, and is reported in 127 Cal.App. 202, 15 P.2d 522. In that case it appeared that under the terms of a conditional sale contract, one Krause had purchased an automobile. Thereafter he had some negotiations with one Mills, which related to a proposed transfer to him of Krause's interest in the automobile, in consequence of which, possession of the automobile was delivered to Mills. In such circumstances, while the automobile was being operated by the latter, an accident occurred by which the plaintiff Sly was injured, by reason of which she thereafter recovered a judgment against Krause. On the return, unsatisfied, of a writ of execution on said judgment, the plaintiff in said action instituted an action against Krause's insurer. The contract of insurance therein, which resembled that in the instant case, contained a provision to the effect that the insurance company would be relieved from liability if thereafter it should appear that ‘the interest of the assured in the subject of this insurance be or become other than unconditional and sole lawful ownership.’ However, by the express terms of the policy of insurance, it was provided that the insurance of Krause was extended so that the coverage of liability became available to any person who, with Krause's permission, might operate the insured automobile.

Although a finding of fact that was made by the lower court to the effect that Krause had not transferred his interest to Mills was not disturbed on the appeal from the judgment, nevertheless the reviewing tribunal also declared not only that ‘under the circumstances' there was no ‘increase of risk’ to the insurer by reason of Krause's ‘attempted transfer of interest in the automobile,’ but also that there could be no doubt that at the time when the accident occurred, Mills was operating the automobile with the permission of the assured. In part, the language which was used by the court was as follows: ‘In an action by such [third] person against the insurer violation by the assured of some condition in the policy is a valid defense only when it appears that by reason of such violation the insurer was substantially prejudiced. Hynding v. Home Acc. Ins. Co., [214 Cal. 743], 7 P.2d 999 [85 A.L.R. 13]. In the present action the insurer was not prejudiced by the attempted transfer of interest in the automobile by the insured. It is true that possession of the automobile was transferred to Mills, who was operating the machine at the time respondent was injured. But it is expressly stated in the policy of insurance that insurance provided by the liability peril clause is so extended as to be available to any person lawfully operating the insured automobile provided such operation is with the permission of the assured named in the policy. There can be no doubt that the operation of the automobile at the time respondent was injured was with the permission of the assured. It is therefore apparent that no increase in risk to appellant occurred by reason of the attempted transfer of interest in the automobile by its insured.’

The case of Firkins v. Zurich A. & L. Ins. Co., which was decided in the Third Appellate District, and reported in 111 Cal.App. 655, 295 P. 1051, provides another illustration of the same principle. That was an action based on a ‘public liability’ indemnity policy of insurance, which contained a provision that the policy should not cover ‘in respect of any automobile, * * * while driven or manipulated by any person * * * under sixteen years of age in any event.’ However, an amendment or rider was attached to the policy, as follows:

‘The policy to which this endorsement is attached is hereby extended to apply to any person * * * legally responsible for the operation thereof, provided such use or operation is with the permission of the named assured, or if the named assured is (an) individual, with the permission of an adult member of the named assured's household.’ Thus situated, the insurance company denied liability for damages which resulted from an accident which had occurred through the alleged negligent operation of the automobile by a fourteen year old son of the insured. In passing upon the question that was thus presented, in part, the court said:

‘There appears to be no difficulty in reconciling the language of the policy with that of the rider on the subject of liability on account of the age of the chauffeur. It may be reasonably construed to mean that the surety company shall not be liable upon the policy ‘while [the machine was] driven or manipulated by any person * * * under sixteen years of age’ unless such minor was operating the car ‘with the permission of an adult member of the named assured's household,’ in which event the company is liable. To construe the language of this instrument otherwise would defeat the apparent intent of the parties and render the quoted language of the rider valueless.' (An application for hearing of the cause by this court was denied.)

A nearly identical situation was presented in the case of Swift v. Zurich A. & L. Ins. Co., which was decided in the First Appellate District, and reported in 112 Cal.App. 709, 297 P. 578. For all practical purposes here involved, the syllabus thereto contains a sufficient resume of both the facts and the law as therein decided: ‘A proviso in the body of an automobile indemnity insurance policy to the effect that the policy should not cover when the car was operated by one under sixteen years of age was superseded by a rider attached to the policy, where such rider was entitled ‘Omnibus Coverage Endorsement’ and provided that the coverage of the policy was extended to apply to any person or persons legally operating the car with the consent of the assured, and further provided in effect that it was a substitute for any inconsistent provision in the body of the policy.' (A hearing was also denied by this court in that case.)

On a comparison of the facts of the instant case with those which were present in each of the cases to which attention just has been directed, it is deemed sufficient to observe that, in principle, no substantial difference may be discovered. Irrespective of the conclusion herein reached with regard to whether plaintiff was the ‘sole and unconditional owner’ of the automobile, in any event, in accordance with the terms of the conditional sale contract, his proposed vendee was in possession of the automobile ‘with the (implied) permission’ of plaintiff and was operating it at the time when liability of the defendants attached. Without doing violence to the judgment of each of three separate Courts of Appeal of this state, in which respectively, as hereinbefore has been noted, in principle, it was decided that the special provision of the ‘extended coverage’ indorsement on the policy of insurance superseded the general provision with respect to the limitation of liability unless at all times within the life of the policy the assured was the ‘sole and unconditional owner’ of the automobile—this court is constrained to affirm the judgment that was rendered by the lower court.

The judgment is affirmed.

HOUSER, Justice.

We concur: CURTIS, J.; LANGDON, J.; SHENK, J.; EDMONDS, J.