Smith Furbush MacH. Co. v. Huycke , 72 Okla. 30 ( 1918 )

Smith Furbush Machine Company sold certain machinery to the Southwestrn Bedding Company, a corporation, of Sapulpa, and at the time of sale, entered into a contract with the purchaser by which title thereto was retained until fully paid for, and by which the purchaser agreed to keep the machinery insured in the name of Smith Furbush Machine Company. At the suit of the American National Bank, a receiver was appointed for the assets of the Southwestern Bedding Company, who operated the property from June 3, 1914, to August 6, 1914, when the plant, including the machinery mentioned, was destroyed by fire. On May 21 1915, Smith Furbush Machine Company filed a petition of intervention in the proceedings wherein a receiver had been appointed. The property was covered by insurance which was paid to the receiver. Smith Furbush Machine Company claimed an equitable lien upon the proceeds of the insurance for the amount of their indebtedness, which claim was denied by the court.

There appears to be no doubt, from an examination of the record, that the machinery was taken over by the receiver and that the insurance collected covered said property. Insurance had originally been taken out by the Southwestern Bedding Company for its own benefit and was continued in force by the receiver. The court found that the insurance did not cover the interest of plaintiff in error, and it is contended that, because the interest of plaintiff in error was not insured, the judgment of the court was right and should be affirmed.

It is a well established rule that when, by the terms of a mortgage, it is the duty of the mortgagor to keep the property insured for the benefit of the mortgagee and the mortgagor takes out a policy in his own name and does not assign it or make it payable to the mortgagee, and a loss occurs, such agreement creates an equitable lien in favor of the mortgagee to the extent of the mortgage indebtedness upon the money due under the policy of insurance; and this is true, even though the mortgagee under the power contained in the mortgage, in default of insurance by the mortgagor, may insure the property at the expense of the mortgagor. Wheeler v. Factors' Traders' Ins. Co. 101 U.S. 439, 25 L.Ed. 1055; Chipman et al. v. Carroll et al., 53 Kan. 163 35 P. 1109 25 L. R. A. 305; Aetna Ins. Co. v. Thompson, 68 N.H. 20,40 A. 396, 73 Am. St. Rep. 552; Hyde v. Hartford Fire Ins. Co.,70 Neb. 503, 97 N.W. 629 113 Am. St. Rep. 796; 4 Joyce, Ins. § 3523; 4 Cooley's Briefs Ins. 3703; 14 R. C. L. § 536, title "Insurance." This rule is applicable to an agreement by a vendee to insure for the benefit of his vendor. Grange Mill Co. v. Western Assur. Co., 118 Ill. 396, 9 N.E. 274; Cromwell v. Brooklyn Fire Ins. Co., 44 N.Y. 42 4 Am. Rep. 641.

Applying this rule to the case at bar, the Smith Furbush Machine Company was entitled to an equitable lien upon the proceeds of the policy of insurance for the balance of the purchase price remaining unpaid at the time the property was destroyed by fire and the judgment of the court was wrong, and is therefore reversed and reman led, with instructions to enter judgment in accordance with the views herein expressed.

On Petition for Rehearing.