Reynolds v. London Etc. Ins. Co. , 128 Cal. 16 ( 1900 )

Action upon a fire insurance policy. A demurrer to the complaint having been overruled, defendant answered; and thereupon, on motion of plaintiff, judgment was rendered for him on the pleadings. Defendant, the insurance company, appealed from the judgment. The defendant W.R. Porter made default, and does not appeal.

It appears from the pleadings that the policy in question was issued to said Porter upon certain buildings on his land, including a dwelling-house which was insured for seven hundred and fifty dollars, and also upon certain personal property. Porter procured the policy and paid the premium. At the date of the policy the plaintiff had a mortgage on the land on which the building stood to secure an indebtedness to him from Porter; and it is averred in the complaint "that, as a further security for said indebtedness," Porter caused to be written on the policy the following: "Loss, if any, payable to M.D. Reynolds, on buildings only." Plaintiff commenced an action against Porter to foreclose the mortgage, and on August 1, 1896, obtained a decree of foreclosure and order of sale; and on September 5, 1896, the premises were sold under the foreclosure proceedings to plaintiff for fifteen hundred and fifty dollars — being the full amount due, including interest and costs. On March 9, 1897, the period for redemption having expired without redemption, plaintiff received his deed under the sale. On November 5, 1896, which was after the purchase by plaintiff under the foreclosure proceeding but before the expiration of the period for redemption, the dwelling-house was destroyed by fire. It is averred in the complaint that Porter furnished proofs of loss, and performed all the conditions of the policy required of him. It further appears that the defendant has paid to Porter all loss and damage sustained by him from the destruction of the dwelling-house. The question to be determined is whether or not, under these circumstances, the defendant is legally liable to plaintiff in any amount whatever upon the alleged cause of action sued on; and in our opinion there is no such liability.

It is apparent, not only from the averments in the complaint but also from the general law on the subject, that plaintiff's relation to the policy was merely that of a creditor of Porter, who was the party insured; that the only interest which he had therein grew out of, and was dependent upon, the indebtedness from Porter to him, and that he was named in the policy merely that the latter might be — as averred in the complaint — "a further security for said indebtedness." Section 2541 of the Civil Code provides that: "Where a mortgagor of property effects insurance in his own name, providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to the mortgagee, the insurance is deemed to be upon the interest of the mortgagor"; and in Holbrook v. Baloise Ins. Co.,117 Cal. 566, this court said that: "The stipulation in the policy for payment to the mortgagees in case of loss was but a provisional assignment of the contingent proceeds of the contract, and had not the effect to substitute the mortgagees for the mortgagor as the party insured." Therefore, in such a case, as the mortgagee has an interest in the policy only as security for his debt, it follows that such interest ceases whenever the debt is discharged, and there is no longer the relation of creditor and debtor between him and the mortgagor. In PhoenixAssur. Co. v. Allison, 27 S.W. Rep. 784, the court of civil appeals of Texas said: "So it appears that in either case — whether the mortgagee procures the policy, paying the premium, without authority from the mortgagor, or whether it is procured by the mortgagor in the name of the mortgagee and the debt is paid — the insurers are not liable to the mortgagee, because in the one case the payment of the debt and the extinguishment of the mortgage determines all efficacy in the policy, and in the other the mortgagor, paying the debt, is subrogated, and he alone should sue." (See, also, Carpenterv. Providence etc. Ins. Co., 16 Pet. 495.) In the case at bar, if Porter had extinguished the mortgage debt by paying it, no one would claim that there was any cause of action left to plaintiff against the defendant upon the policy in question. But by the foreclosure proceedings and the purchase of the mortgaged premises by the plaintiff for the full amount of the debt and judgment, the debt was fully extinguished, and plaintiff was no longer a creditor or mortgagee of Porter. There was no longer any debt which could be enforced in any way. Plaintiff was then substantially the owner of the property; and Porter had the mere statutory right of redemption which could be exercised within the statutory period, not by paying the former an extinct debt, but by paying the purchase price bid for the property, together with certain statutory percentages and costs. In Duff v. Randall, 116 Cal. 226, 58 Am. St. Rep. 158, this court said: "Although the right of a mortgagor to redeem the mortgaged premises is not cut off until the expiration of the time allowed for redemption, yet the purchaser at a sale under the judgment rendered in the foreclosure suit acquires the same interest in the property sold as does a purchaser in property sold under an ordinary money judgment. `Upon the sale the purchaser acquires all the right, title, interest, and claim of the debtor thereto' (Code Civ. Proc., sec. 700), and only the right to redeem from this sale is left in the mortgagor. If a redemption is made by the mortgagor, it is not from the lien of the mortgage, but from the sale under the judgment, and the amount which he is required to pay under such redemption is not the amount of the mortgage, but the amount for which the property was sold. Prior to the entry of the judgment the mortgagor holds the title to the property subject to the lien of the mortgage, and after the judgment is entered he holds it subject to the lien of the judgment; but after the sale he has only a right of redemption, while the purchaser has the entire beneficial interest in the property, subject to be defeated by a redemption from the sale. `The execution of the deed gives to the purchaser at the sale no new title to the land purchased by him, but is merely evidence that his title has become absolute.'(Robinson v. Thornton, 102 Cal. 680.) `The purchaser obtains an inchoate right which may be perfected into a perfect title without any further act than the execution of a deed in pursuance of a sale already made. It is not a mere right to have a certain sum charged upon the property satisfied out of it. The sum before charged upon the land had already been satisfied by the sale to the extent of the amount bid and paid by the purchaser. The purchaser has already bought the land and paid for it. The sale is simply a conditional one, which may be defeated by the payment of a certain sum by certain designated parties within a certain limited time. If not paid within the time, the right to a conveyance becomes absolute without any further sale or other act to be performed by anybody.' (Page v. Rogers, 31 Cal. 301.)" InBreedlove v. Norwich etc. Ins. Soc., 124 Cal. 166, this court said: "Upon a sale of real property the purchaser is substituted to and acquires all the right, title, interest, and claim of the judgment debtor thereto. . . . . It is by the foreclosure sale that the title passes. (Robinson v.Thornton, supra.)" The sheriff's deed gives no new title. It is merely evidence that the title has become absolute. (Duffv. Randall, supra.) Under these authorities there is no logical answer to the proposition that the sale to plaintiff extinguished the mortgage indebtedness and all interest which he had in the policy as "a further security for said indebtedness." Respondent cites National Bank v. Union Ins. Co.,88 Cal. 497, 22 Am. St. Rep. 324. The facts in that case differ to some extent from those in the case at bar, although there are some things in the opinion which support respondent's contention; but, so far as the opinion there could be invoked to sustain the judgment in the case at bar, it is founded upon notions of the effect of a judicial sale which are inconsistent with those declared in the later cases of Robinson v. Thornton, supra,Duff v. Randall, supra, and Breedlove v. Norwich etc. Ins. Soc.,supra, above cited. Of course, a foreclosure, in the sense of a perfect extinguishment of the mortgagor's equity of redemption, may be said not to be complete until after the expiration of the statutory period for redemption; but that consideration has no bearing upon the proposition that the sale extinguishes the debt. As before stated, redemption is effected, not by the payment of the former debt, which no longer exists, but by payment of the purchase price at the judicial sale, which may be much less or much more than the former debt. We are not concerned with the question whether or not, under the circumstances, Porter could have recovered anything of defendant on the policy; although, if Porter suffered no loss, then certainly plaintiff could not have recovered, because Porter was the party insured and only through his losses could plaintiff's security have been efficacious. Neither are we concerned with the class of cases where the mortgagee himself procures a policy on buildings situated on the mortgaged premises, where he is the party insured, and where it has been held that he may take the policy on his interest in the property itself. In the case at bar, under our law, the plaintiff was not the party insured, and his interest in the buildings mortgaged was not insured; the interest in the property which was insured was that of Porter the mortgagor, and it was only the indebtedness of Porter to plaintiff which gave the latter any interest in the policy. After he changed his position from creditor to purchaser he could, in the latter capacity, have procured a policy on the buildings and thus insured his interest in the property itself; but whatever interest he had in the old policy ceased with the extinguishedment of the indebtedness.

The judgment appealed from is reversed.

Temple, J., Henshaw, J., Harrison, J., Garoutte, J., and Van Dyke, J., concurred.

Rehearing denied.