Nichols v. Baxter Others , 5 R.I. 491 ( 1858 )

A mortgagee of property, real or personal, merely as such, has no interest in or claim to a policy of insurance effected by the mortgagor upon the property mortgaged for his own benefit. Each has an insurable interest in such property, and may protect himself against loss by his own contract of insurance. It is obvious, however, that such separate and disconnected action on the part of those interested in the same insurable subject, tending as it does to over-insurance and double premiums, is both difficult and expensive; and accordingly, the insurance of mortgaged property is ordinarily regulated, by some contract between the mortgagor and mortgagee respecting it, for the benefit of both. If the mortgagor have a policy upon it outstanding at the time of the mortgage, adequate in the judgment of the mortgagee to his protection, it is usually, with the consent of the insurers, assigned by the mortgagor to him, as collateral security for his mortgage debt. If no such policy exist, the mortgagee, in general, requires a policy in the requisite amount to be taken out by the mortgagor, payable, in the event of loss, to him, or, at least, requires the mortgagor to covenant, or in some form to contract, that he will insure, and keep the mortgaged premises insured in that amount for his benefit during the existence of the mortgage, and in default, that the mortgagee may himself effect such insurance for the common protection, the premiums paid by him therefor, to be secured by the mortgage. An executory agreement by the mortgagor to insure for the benefit of the mortgagee, whether express or implied, gives to the latter an equitable lien upon the money due upon a policy taken out by the former upon the mortgaged premises, to the extent of the interest of the mortgagee therein, which a court of equity will enforce to the satisfaction of the amount due upon the mortgage. Thomas's Ex'rs v. Van Kaff'sEx'rs, 6 Gill Johns. 372; Carter v. Rockett, 8 Paige, Ch. R. 437, 438; and see Vernon v. Smith, 5 Barn. Ald. 1, 6, remarks of Best, J.

Does the case before us disclose such a contract on the part of Baxter, the mortgagor, with his mortgagee, Nichols? It is objected that the evidence of it does not exist in the form of a direct covenant in the mortgage to make or keep up such insurance, but only in the condition of the mortgage; and thatin default of the performance of such condition by Baxter, the contract itself provides the sole remedy for the mortgagee, to wit, to procure insurance himself at the expense of the mortgagor, and under the security of the mortgage for the premiums paid by him therefor. We do not feel the force of this objection. How can we account for such a condition, except upon the supposition of an agreement by the mortgagor to keep the little dwelling-house upon the mortgaged premises insured for the benefit of the mortgagee, which the condition was designed by the parties to enforce? The words, "or in default thereof," are quite significant of such an agreement; and the liberty to the mortgagee to insure at the expense of the mortgagor, and under security of the mortgage for the premiums, which these words precede, are quite satisfied by applying it to the possible case of the failure of the existing insurance, without supposing that it was designed to deprive him of any equitable lien upon such insurance, or to turn him over, as his sole remedy, to the additional difficulty and expense for both parties, of procuring new insurance.

The form of mortgage used by the parties is the ordinary printed form of Massachusetts, and the condition respecting insurance, is the usual printed condition of the form; and it will be incidentally noticed, that the supreme court of that state, when speaking in Fowley v. Palmer, 5 Gray, 549, 551, of such a condition, speak of and reason from it, as thecontract, as well as the condition, of the parties to the mortgage before them.

Besides, at the time when the mortgage was executed, the mortgagor held the policy in question insuring his dwelling-house to the amount of $250, and this policy had then about six of its term of seven years to run. The condition of the mortgage is, that the mortgagee shall, during the existence of the mortgage, keep the buildings on the mortgaged premises insured in this precise amount for the benefit of the mortgagee, the same in case of loss to be payable to him. This condition would have been well fulfilled by an assignment of that policy, with the consent of the insurance company, to the complainant; and we have no doubt, from its existence and the coincidence of its amount with that required by the condition, that the parties contemplated the fulfilment of the condition by such an assignment. Indeed the admissions of Baxter, sworn to in the affidavit of Stiness, are in exact correspondence with such an understanding of the parties; Baxter putting his refusal to assign this policy after the loss, not upon the ground that such was not the obligation imposed upon him by the contract between him and the complainant, but upon the ground that the complainant, by neglecting to demand such an assignment before the loss, had given him an advantage, of which he meant to avail himself. That advantage may and will avail him in a court of law, but, considering the contract, for that very reason entitles the complainant to the interposition in his favor of a court of equity. Both the insurance company and the assignee of the policy, Dwyer, are subject to the same equity as Baxter; since both had notice, prior to the assignment to Dwyer, of the equitable lien of the complainant.

We shall enjoin the insurance company from paying to Baxter or Dwyer, and them from receiving from the insurance company, the amount of the loss upon this policy, until the further order of this court; but we think, in order that the insurance company may avail themselves of any legal defence which they may have to the suit at law pending upon the policy, and to save delay and expense, that the suit, as was eventually done in Barnard v.Wallis, Craig v. Phillips, 91, should be allowed to proceed to final judgment, with this additional order, to enable the plaintiff to protect his equitable interest in the policy, that he shall be allowed to appear and prosecute the same in the name of the plaintiff.

As the amount in dispute is small, and will be swallowed up in the expenses of this double litigation, if protracted, we will suggest, in order to a speedy settlement between the parties, that if it shall, upon full trial of this case, appear, as is complained by Baxter, that the plaintiff has, pending this controversy, sold the mortgaged premises under his power and purchased them at the auction sale, in the name of a third person, himself, and especially if he has done so at a great undervalue, that we shall enforce the lien of the plaintiff upon the money due upon this policy only upon condition, that Baxter shall be allowed to redeem the mortgage notwithstanding such sale. A purchase of the mortgaged estate by the mortgagee, at a sale ordered by him under his power, cannot stand in a court of equity if the mortgagor applies in time to set it aside; and as the equity of the respondent, Baxter, grows out of the same transaction in which the complainant applies to us for equitable relief, the rule applies, "that he who seeks, must first do equity."