Ames v. Richardson , 29 Minn. 330 ( 1882 )

Berrv, J.

On December 16, 1879, Cochran, being owner of a piece of land in this state, ■ insured a mill, machinery and fixtures therein against damage by fire, in the Western Manufacturers’ Mutual Insurance Company, for $2,000. December 18, 1879, he borrowed of defendant $5,200, for which he gave his promissory note on five years, secured by a mortgage of the land mentioned, which was duly recorded December 22d. By the terms of the mortgage Cochran covenanted with Richardson that at all times during its continuance he would keep the buildings on the premises “unceasingly insured” for at least $'5,200, payable in case of loss to Richardson, to the amount then secured by the mortgage. December 28,1879, Cochran insured the mill, machinery and fixtures for $1,500 in one company, and for $2,000 in another, and, by indorsement upon each of the two policies issued to him, the loss was made payable to Richardson, as her interest might appear. On July 9, 1880, while the three insurances were in force, the insured property was totally destroyed by fire. Before this Richardson had no knowledge of the first insurance. The loss was adjusted by Cochran and the three insurance companies at $4,298.03, as the true value of the property destroyed. The result was that the losses payable to Richardson were scaled from $3,500 (the face of the 'last two policies) to $2,442:20, and this sum was paid to her and applied on the note. The loss under the first insurance was scaled and adjusted at $1,317.70, and that sum agreed to, be paid .Cochran accordingly. This was done July 19, 1880, and on the same day the certificate which had been issued to Cochran by the Western Manufacturers’ Mutual Insurance Company, in lieu of a policy, was for a valuable consideration duly assigned to the plaintiffs. They brought this action against the insurance company to recover the amount of the loss as adjusted at $1,317.70. Nothing having been paid upon Richardson’s note and mortgage other than the sum of $2,442.20 before mentioned, and the whole debt having been declared due under a provision in the mortgage, there remains due and unpaid thereon something ever $3,000. Richardson laying claim to the money ($1,317.70) realized from the first insurance, the company paid it into court, and Richardson was substituted as defendant in the company’s place. The question is, who is entitled to this money — plaintiffs or Richardson ?

It is well settled that, in the absence of an agreement by a mortgagor to insure for the benefit of his mortgagee, the latter has no right to any advantage whatever from an -insurance upon the mortgaged property effected by the former for his own benefit. 1 Jones, Mortg. § 401; Nichols v. Baxter, 5 R. I. 491; Plimpton v. Ins. Co., 43 Vt. 497; May, Ins. §§ 449, 456; Carter v. Rockett, etc., Ins. Co., 8 Paige, 437.

It is equally well settled that an agreement by the mortgagor to insure for the benefit of his mortgagee gives the latter an equitable lien upon the proceeds of a policy taken out by the former and embraced in the agreement. And when the agreement is that the mortgagor shall procure insurance upon the mortgaged property, payable in case of loss to the mortgagee, and the mortgagor, or some one for him, procures insurance in the mortgagor’s or a third person’s name, without making it payable to the mortgagee, though this be done without the mortgagee’s knowledge, or without any intent to perform the agreement, equity will treat the insurance as effected under the agreement, (unless this has been fulfilled in some other wray,) and will give the mortgagee his equitable lien accordingly. This is upon the principle by which equity treats that as done which ought to have been done. That is to say, inasmuch as the insurance effected ought to have been made payable to the mortgagee, equity will give the mortgagee the same benefit from it as if it had been. In support of these general propositions we refer to Thomas v. Voukapff, 6 Gill & J. 372; Carter v. Rockett, etc., Ins. Co., and Nichols v. Baxter, supra; Wheeler v. Ins. Co., 101 U. S. 439 ; Cromwell v. Brooklyn Fire Ins. Co., 44 N. Y. 42; Miller v. Aldrich, 81 Mich. 408; 1 Story, Eq. Jur. § 64g; 2 Am. Lead. Cas. (5th Ed.) 832-4; In re Sands Ale Brewing Co., 3 Biss. 175.

In the cases cited (with the exception of Nichols v. Baxter) the insurance was effected after the agreement to insure. In Nichols v. Baxter it would seem that the court thought this made no difference, though the opinion alludes (somewhat as a makeweight, as it occurs to us) to the fact, which appeared by inference only, that the insurance in that ease, though effected before the agreement to insure, was understood by the parties to be embraced in it. We, however, can see no reason why the same rule should not be applicable to insurance already subsisting when the agreement to insure is made, as to that subsequently obtained, unless this result is affirmatively excluded by the facts of the case. Such subsisting insurance can be made payable to the mortgagee, or assigned to him, so as to satisfy the agreement. Where the agreement is, as in the case at bar, “to keep” the premises insured, it is entirely c'onsistent with its letter as well as its spirit to hold that it embraces prior as well as subsequent insurance. And where, as in the present instance, the value of the insured property is such that subsequent insurance, sufficient to satisfy the agreement, cannot be obtained so long as the prior insurance stands, this is an equitable circumstance entitled to great weight upon the question whether the prior insurance ought to be held to be covered by the agreement. This equitable circumstance is much enhanced when the effect of the prior insurance is, as in this case, to scale and reduce the subsequent insurance procured and made payable to the mortgagee under the agreement.

In such a state of facts, to permit the mortgagor to withhold the prior insurance from the mortgagee is to permit him to profit by his own wrong, at the expense of him whom he has wronged, and a violation of one of the first principles of law as well as of equity. The question is not what the mortgagor’s intention was with reference to the prior insurance, but whether it was equitable that, in carrying-out any intention, he should be permitted to withhold the benefits from the mortgagee, especially in view of the maxim that equity regards that as done which ought to have been done. Cromwell v. Brooklyn Fire Ins. Co., Wheeler v. Ins Co., Miller v. Aldrich, and In re Sands Ale Brewing Co., supra.

Applying these considerations-to this cáse, we are of opinion that Richardson is clearly entitled to an equitable lien upon the proceeds of the first insurance, to be applied upon her note and mortgage. Cochran ought to have kept his covenant. He could have done this by procuring a third new policy, or by assigning the first insurance, or having it made payable to Kichardson. As he did not do the former, he should have done the latter, and therefore Richardson is in •equity entitled to stand in the same position as if he had done what he ought to have .done.

Stearns v. Quincy Ins. Co., 124 Mass. 61, relied upon by the plaintiffs is not a case presenting the precise question whether an, insurance •effected before an agreement to insure is to be regarded as embraced in such agreement, so as to give a mortgagee an equitable lien on the proceeds. But the principle there enunciated, and which appears to be supported by other decisions of that state, is that the mortgagee cannot have the lien unless the insurance was obtained by the mortgagor as his agent, or with intent to perform an agreement to insure. If this was to be regarded as the correct rule, it would seem to be decisive in the plaintiffs’ fávor. But it is against the weight and current of authority, and, as it seems to us, inequitable, and therefore we do not follow it.

Another question was discussed upon the argument, viz., whether the covenant to insure ran with the land, so that the record of the mortgage was constructive notice to the plaintiff and to all others of Richardson’s (the mortgagee’s) equities. We do not deem it at all necessary to consider this question. The mortgagor’s assignment of his claim under the certificate after the loss was' an assignment of a debt, — a mere chose in action, — which the plaintiffs took subject to all defences and equities against him. Archer v. Merchants' & M. Ins. Co., 43 Mo. 434; Wilson v. Hill, 3 Met. 66; Brichta v. N. Y. Lafayette Ins. Co., 2 Hall, (N. Y.) 372; Mellen v. Hamilton Fire Ins. Co., 17 N. Y. 609; Greene v. Warnick, 64 N. Y. 220; May, Ins. § 386. From all this it follows that, in our opinion, the defendant is entitled to the proceeds of the first insurance paid into the court, instead of the plaintiffs, as found by the court below.

There being no dispute as to the correctness of the findings of fact, the case is remanded, with directions to the district court to render judgment for the defendant accordingly. Though there is no formal reversal of the order denying a now trial, the defendant is entitled to costs, as of course.