Guaranty Nat'l Ins. Co. v. Mihalovich

Annotate this Case

72 Wn.2d 704 (1967)

435 P.2d 648


No. 38954.

The Supreme Court of Washington, Department Two.

December 14, 1967.

Charles R. Johnson (of Gordon, Honeywell, Malanca, Peterson & Johnson), for appellants.

Carson F. Eller (of Johnson, Griffin, Boyle & Enslow), for respondent.


Guaranty National Insurance Company, a corporation (hereinafter referred to as Guaranty), which carried the insurance on cars owned by Acoma Car Rental, Incorporated (hereinafter referred to as Acoma), sought by a declaratory judgment action to be relieved of its liability on its policy with Acoma for damages occasioned to Mr. and Mrs. Vincent Mihalovich when the car in which they were driving was involved in a collision (November 16, 1963) with an Acoma car, which had been rented to Gary Harris (October 15, 1963) and was being driven by him.

Guaranty made Mr. and Mrs. Gary Harris and Mr. and Mrs. Vincent Mihalovich parties to the action. The latter joined their insurance carrier, State Farm Mutual Automobile Insurance Company, a corporation (hereinafter referred to as State), as a third-party defendant. It is conceded that if Guaranty is not liable under its policy with Acoma for the damages sustained by the Mihaloviches, State is liable by virtue of the "uninsured motorist's" provision[1] in its policy issued to them.

Guaranty's disclaimer of liability is predicated on its contention that Gary Harris had converted the car to his own *706 use and was no longer renting the car,[2] but if its coverage was in effect that Mr. Harris had failed to notify and cooperate with Guaranty in the suit brought by the Mihaloviches.

The trial court concluded that after renting the car Gary Harris had converted it to his own use; that he was not a renter at the time of the collision, and, hence, not covered by the Guaranty-Acoma policy.

Judgment was entered to that effect and State and the Mihaloviches each appeal.

On each appeal the issue is the same: Whether the Acoma car driven by Gary Harris, which collided with the Mihalovich car, had been, at the time of that collision, converted by Gary Harris to his own use.

Peculiarly, neither of the parties from whose attitudes and actions that issue must be determined (Acoma and Gary Harris) is a party to this appeal.

The trial court's conclusion that there had been a conversion seemingly rests on the basis that the car, rented for 1 day on October 15, 1963, was still in the possession of Harris on November 16, 1963. Retention of a chattel by a bailee beyond the period for which it was bailed does not, in itself, constitute a conversion. It is our view that the attitudes and the acts of lessor and lessee in the interim do not support such a conclusion in this case.

The Acoma car was rented to Mr. and Mrs. Harris, who were both present in the Acoma office, on October 15, 1963. A deposit of $25 was made by Mr. Harris, who signed the *707 rental agreement. Mrs. Lois O'Brien, the office manager for Acoma, said the car was to be returned the next day, as written in the appropriate blank in the rental agreement. Mr. Harris testified that it was rented for a week, and that the rental agreement was not filled in when he signed it.

There is a further conflict in the testimony as to the communications between Acoma and Mr. and Mrs. Harris following the rental. Harris testified that he secured the car to take his wife on a trip around the Olympic peninsula, in an effort to patch up their matrimonial difficulties. He testified that 3 days after renting the car and while on the Olympic loop trip, his wife desired to have the lease extended for a month so that they could visit her parents, and that she called Acoma in his presence to request an extension of the rental period to a month, which extension she told him was granted. He testified further that after they had returned to Tacoma he and his wife both talked with a representative of Acoma by telephone, and the 1 month rental period was confirmed.

The trial court was, of course, free to disregard the testimony of Mr. Harris and to believe the testimony of Mrs. O'Brien. However, her testimony and her actions both negate any intention on the part of Acoma to regard the retention of Acoma's car as a theft, embezzlement, or conversion. While she denies having any telephone conversation with Mr. Harris, she admits having been in communication with Mrs. Harris. We quote her testimony.

Q. Did you talk with Mrs. Harris personally? A. Yes, I did. Q. And how many times, do you remember? A. No, I don't, offhand. Q. Was it more than once? A. No, I don't believe it was more than once.

A letter (exhibit No. 3) from Mrs. Harris to Acoma, produced by Mrs. O'Brien, certainly indicates much more extensive communication than Mrs. O'Brien concedes. She admitted, too, that she knew that Mrs. Harris had been involved in an accident with the car, which antedated the October 16 collision with the Mihalovich car, and that Acoma had received at least two letters from Mrs. Harris. Mrs. O'Brien testified as follows:

*708 Mr. Eller: These three pages [referring to exhibit No. 3] make up one letter. The witness: I would have to read it. I would say yes, this is no, this is the second letter when she sent the insurance form back. Q. The last page is part of the second letter? A. Yes. Wait a minute, I would have to, really have to have my original. Mr. Cavanagh: Just so I understand it, it is one letter? The witness: That is all one, that's right.

She explained a failure to turn the matter over to the police, "because Mr. Harris' father stepped in and asked us not to." She also referred to there having been a "lot of promises." Promises are, of course, made to somebody by somebody and involve communication.

None of this sounds like Acoma was contending that Gary Harris had stolen its car or had converted it to his own use. And, certainly, its computation of the charges against him amounting to $1,059.44,[3] as shown on exhibit No. 1, are much more consistent with a claim of lease (bailment) than of conversion.

We note, too, the quickness and the ease with which Acoma acquired possession of its car after the collision with the Mihalovich car. Mrs. O'Brien saw the car very shortly after the collision. It was in drivable condition, and she testified, "Someone from our company drove it to the *709 garage,".[4] Any question of notice to Acoma that its car had been involved in a collision would seem superfluous in the light of this testimony.

As indicated, the trial court, seemingly on no other basis than the length of time that Mr. Harris had retained possession of the rented car, concluded that there had been a conversion.

[1] Such a conclusion is a non sequitur. Possession for a month under a claim of lease certainly does not support that conclusion. Assuming the truth of Mrs. O'Brien's statement that the lease was for 1 day and that there was no extension, it still does not follow that the retention by a bailee of a car beyond the period for which it was bailed constitutes a conversion. He may be liable for a breach of his contract and not guilty of conversion or of any other tort. Salmond on the Law of Torts, § 78, p. 310 (9th ed. 1936). The following is an amplification of the foregoing statement:

[D]etention of a chattel amounts to a conversion only when it is adverse to the owner or other person entitled to possession that is to say, the defendant must have shown an intention to keep the thing in defiance of the plaintiff.... Thus, if a bailee merely holds over after the end of the period for which the chattel was bailed to him, he may be liable for a breach of contract, but he is not guilty of conversion or of any other tort. He has not deprived the owner of the possession, for there is nothing to show that the plaintiff may not have the chattel again whenever he desires it. (p. 315)

There is no evidence that the Harrises ever claimed possession of the car in question as anything but a lessee from Acoma, and no evidence that Acoma was anything but a reluctant lessor.

It is important to keep in mind who is claiming that there has been a conversion in this case and who assumes *710 the burden of proving it. It is not Acoma which was much better off keeping this transaction on a bailment basis and recovering its car rental and repair bills from the Harrises, rather than suing for the value of the vehicle under trover for conversion, which normally effects a transfer of the chattel to the converter. As we point out in Martin v. Sikes, 38 Wn.2d 274, 287, 229 P.2d 546 (1951),

A judgment for conversion has normally no other consequence than to compel the defendant to buy the converted goods at what is in reality a forced sale.

For whatever reason, Acoma did not choose to call it a theft and enlist police aid in recovering a stolen car; nor did it suggest conversion.

It was only after Acoma had regained possession of its car (after the collision with the Mihalovich car), that Guaranty, Acoma's insurance carrier to escape its liability as an insurer sought some basis for claiming that Gary Harris was not a renter of the car at the time of the collision with the Mihalovich car. If he was not a renter, what was he? Guaranty chose the label of "conversion" to mark the termination of the bailment or lease. To establish that Harris was a thief or an embezzler of the car would require proof of intent; and, of course, when those words are used, libel and slander present an ever present danger. But proof of intent is not necessary in establishing a conversion. Judkins v. Sadler-Mac Neil, 61 Wn.2d 1, 376 P.2d 837 (1962).

But it is still necessary, in order to transform a bailment into a conversion, that the bailee has, in some way, decisively indicated a repudiation of the right of the owner to the car.

The refusal of a demand to surrender possession is a customary way of proving conversion, because it establishes a moment at which the bailment or other relationship terminated and a conversion occurred. Concededly, there are other ways in which a conversion can be established, but it is not easy. As Dean Prosser says in his article "The Nature of Conversion," 42 Cornell L.Q., 168 at 184:

*711 In part quite deliberately, and in part as the result of unexpressed and more or less instinctive agreement, the courts have limited it to those interferences [with the plaintiff's rights] which are so important and serious as to justify the drastic remedy.

We are satisfied that, disregarding entirely the testimony of Gary Harris, there has been no conversion established.

[2] We have not overlooked the provision on the back of the rental provision (though we were able to find it only by the use of a magnifying glass).[5]

Lessee agrees that if he does not return the vehicle as herein provided or if information given by Lessee be deemed false it shall constitute probable cause for belief by Lessor that the vehicle has been stolen and cause for the institution of such criminal or civil action as Lessor may elect, such action may include but is not limited to the issuance of one or more warrants for the arrest of Lessee. (subsection (a) of § 2 of the rental agreement)

The language of this subsection does not support the construction that failure to promptly return the rented vehicle, ipso facto, constitutes conversion by the lessee. Use of the words "shall constitute probable cause for belief," rather than language to the effect that failure to return "shall constitute theft and conversion," indicates that such belief by the lessor is permissive rather than mandatory, permitting the rental agency to regard the retention as a conversion and take such actions as it "may elect."

The purpose of this language, no doubt, is to serve notice upon the lessee that his possession beyond the agreed period may result in the lessor treating the car as converted. We do not, however, think that such equivocal language would have been utilized had it been intended that failure to return the car would automatically and conclusively be regarded as theft or conversion.

*712 Guaranty's second string to its bow a claimed failure by the Harrises to cooperate by giving notice of the action *713 which Mr. and Mrs. Mihalovich had brought against them, or to cooperate in its defense is even more fragile than the first. It was our impression from the colloquy appearing in the statement of facts that the trial court was satisfied that there had been no proof of a failure to give notice after the accident or to cooperate in the defense of the action brought by Mr. and Mrs. Mihalovich; however, the finding was made that Mr. Harris failed "to give notice of the accident as required by said insurance contract" (the Guaranty-Acoma policy), which finding was made a basis for the judgment of nonliability of Guaranty. There is no evidence to substantiate the finding.

It is unnecessary to consider the issue raised as to whether Guaranty was estopped to maintain this action.

The judgment is reversed with directions to dismiss the declaratory judgment action. Both appellants will recover their costs against Guaranty National Insurance Company, a corporation, on this appeal.



[*] Reported in 435 P.2d 648.

[1] State's counsel stipulated "that if there is not insurance here [under Guaranty's policy], there is under the uninsured motorist's"; and again, "We have no defense on the uninsured motorist coverage other than the fact that there is other insurance."

[2] The insurance policy contains the following language:

"It is further agreed that such insurance as is afforded by this policy is extended to a `renter' as defined, but subject always to the terms, conditions, and limitations of the policy. The limit of the company's liability as respects the renter is:

"COVERAGE `A' Bodily injury liability ..... $10,000.00 each person $20,000.00 each accident "COVERAGE `B' Property damage liability ... $10,000.00 each accident


"1. The term `renter' as used herein means:

"A. Any person, firm, association, partnership or corporation to whom an automobile has been rented (herein referred to as the `renter');"

[3] Computed as follows:

    52 days at $9 a day .......................... $  468.00
    2,142 miles at 9¢ a mile ................         192.78
                                                      665.78 [their addition;
                                                              ours, $660.78]
    Damage .......................................    356.53
    Towing .......................................     10.50
    Tax ..........................................     26.63

52 days is apparently computed as the elapsed time between the day the car was rented October 15, and the day it was "returned" to Acoma, i.e. December 6. Acoma actually took possession of the car on November 16, following the collision with the Mihalovich car, and took it to a garage for repairs. December 6 is apparently the date Acoma has decided to say that the car was returned to service.

[4] This would seem to raise some question about the towing charge indicated in footnote 3, unless it had reference to the prior accident in which Mrs. Harris had been involved and of which Guaranty or some insurance company obviously had notice. See reference to "insurance form" in the quoted testimony of Mrs. O'Brien, page 702 of this opinion.

[5] While we have discussed the quoted provision of the rental agreement, we would express as a caveat that we would be loath indeed to charge anyone with notice of the content of provisions in a contract so extensive and written in such "microtype," if we may coin a word, as was this rental agreement. People signing car rental agreements such as this will not take the time to read such contract provisions, nor will they possess the necessary magnifying glass. We reproduce it so that our meaning may be clear.