DiCk v. Franklin Fire Ins. Co.

Decision Date31 May 1881
PartiesFRANKLIN A. DICK, Appellant, v. FRANKLIN FIRE INSURANCE COMPANY, Respondent.
CourtMissouri Court of Appeals

1. A trustee in a deed of trust in the nature of a mortgage has an insurable interest in the mortgaged property distinct from that of the mortgageor.

2. A conveyance by the mortgageor in no way affects the trustee's right to insure his interest.

3. Where the trustee insures his interest in mortgaged property, and the policy stipulates that he shall, in case of a loss, assign to the insurer an interest in the deed of trust equal to the amount of loss paid, provided such assignment shall in no way prejudice the beneficiary's claim in the trust to recover the full amount of his loan and proper charges, the trustee cannot recover for a loss until he shall have performed his agreement to assign.

4. In such a case the subrogation clause is material, and there can be no recovery against the insurer for a loss until this condition precedent is fulfilled, even though the mortgaged property is not worth the amount of the debt secured, less the amount the insured is liable to pay.

5. The insurance in this case is held to be of the interest of the trustee and not of the mortgageor.

APPEAL from the St. Louis Circuit Court, BOYLE, J.

Affirmed.

GLOVER & SHEPLEY, for the appellant: When an insurance is taken out by the mortgagee under an arrangement in the mortgage that it shall be done at the expense of the mortgageor, in such case the mortgageor or his assigns as well as the mortgagee is interested in and has the benefit of such insurance. The insured, in case of the payment by him of a loss, has no interest in the property. As between himself and the mortgageor (or his assigns, a second encumbrancer) agreeing to pay the premium for the insurance, it is the insurance of the mortgageor or the second encumbrancer alike with the mortgagee.-- Kernochan v. Insurance Co., 17 N. Y. 428; Bradford v. Insurance Co., 8 Abb. Pr. 261; Fland on Ins. (2d ed.) 403, chap. 12, sect. 11; Holbrook v. Insurance Co., 1 Curt. 199, 200; Norwich Ins. Co. v. Boomer, 52 Ill. 442; King v. Insurance Co., 7 Cush. 6; Clintonv. Insurance Co., 45 N. Y. 467. It is then clear in such cases that the insurer has no equitable claim to any subrogation by having paid a loss upon the property insured. The insurer must take notice of the agreement contained in the deed of trust between the mortgagee and the trustee, and is bound thereby.-- Foster v. Van Reed, 5 Hun, 321; Suffolk, etc., Ins. Co. v. Boyden, 9 Allen, 123; Mercantile, etc., Ins. Co. v. Caleb, 20 N. Y. 173; Wood on Ins., sect. 471. The trustees could assign to the insurer in the case put, no greater rights or interest than they had under the agreement and stipulation contained in the deed of trust; therefore, if the trustees had made an absolute subrogation to the insurer, the insurer would be as much bound by such an agreement as its assignor would be.-- Mercantile Ins. Co. v. Caleb, 20 N. Y. 173; Foster v. Van Reed, 5 Hun, 321; Waring v. Loder, 53 N. Y. 585.

NOBLE & ORRICK, for the respondent: The right to assignment of an interest in the deed of trust accrued upon payment of the loss, or an offer to pay, without qualification, and a refusal absolutely to assign at any time; and without such assignment, so demanded, the plaintiffs had no right of action.-- Foster v. Van Reed, 70 N. Y. 19 (overruling and reversing same case, reported in 5 Hun, 321, and relaxing the several text-writers standing heretofore on this supposed precedent). The interest of a trustee or mortgagee in an estate is entirely separate, as an insurable interest, from that of the grantor or mortgageor. From many text-books and precedents we cite: Carpenter v. Insurance Co., 16 Pet. 495; Excelsior, etc., Co. v. Insurance Co., 55 N. Y. 343; Honore v. Insurance Co., 51 Ill. 409. And in case of loss, the insurer, having paid the mortgagee the amount of his debt, may be subrogated to the rights of the mortgagee; and where there is a stipulation for such subrogation as one of the conditions of the policy, there can be no doubt of its validity in every State.-- Sussex Ins. Co. v. Woodruff, 26 N. J. L. 541; Thornton v. EnterpriseCo.,71 Pa. St. 234; Cone v. Insurance Co., 60 N. Y. 624; Ætna Ins. Co. v. Tyler, 16 Wend. 385; Kernochan v. Insurance Co., 3 Smith, 428. A mortgageor selling his equity of redemption would avoid the policy by its very terms, if his interest were insured, and much less could he claim a policy to be for his benefit when it was made after he ceased to have any direct interest in the property.-- Carpenter v. Insurance Co., 16 Pet. 495; Grovenor v. Insurance Co., 17 N. Y. 391. The insurer is entitled to subrogation at the time of payment; and the offer of defendant to perform a present obligation entitled defendant to demand the performance by plaintiffs of their duty to assign; and the absolute refusal still persisted in, in the reply filed, bars the action.-- Honore v. Insurance Co., 51 Ill. 414, 415; Kame v. Hood, 13 Pick. 281; May on Ins. 561; Foster v. Van Reed, 70 N. Y. 19.

THOMPSON, J., delivered the opinion of the court.

This is an action upon a policy of insurance against fire. The action was originally brought to reform the policy, but it has been changed to an action to recover upon the policy according to its terms. This renders it unnecessary to consider a mass of testimony found in the record, which is not relevant to the present issue. The policy was written by the defendant company, on April 24, 1874, and was kept alive by renewals until the loss sued for, which took place on October 2, 1877. The policy, by its terms, insured F. A. Dick and Ben Farrar, trustees of Isaiah V. Williamson, against loss or damage by fire, to the amount of $3,500 * * * on their interest under deed of trust,” in a certain building in St. Louis County.

The interest of Dick and Farrar in the insured premises was that of trustees under a deed of trust executed on May 1, 1871, by John J. Murdock and wife to them, to secure a loan of $30,000 made by Isaiah V. Williamson to Murdock for a period of five years, at interest at the rate of eight per cent per annum, payable semi-annually; the principal debt being evidenced by a note for $30,000 due five years after date, and the interest by ten notes for $1,200 each, maturing successively at every six months after the date of the loan.

Among other covenants of the grantors of the deed of trust was the following: “And also to keep the building on said premises insured for a sum not less than $16,000, until said notes be paid, in a company or companies satisfactory to the party of the third part [Williamson], the policy or policies of insurance to be assigned or made payable to the party of the second part, and the money collected thereon in case of fire, to be held until said building be rebuilt by said first parties, as collateral security for said note, and when rebuilt shall be applied in payment of such rebuilding. If such insurance be not kept up, the party of the third part may pay the necessary premium therefor, and all sums so paid shall be held secured by the deed of trust, for the repayment of which and ten per cent per annum interest thereon said premises may be sold as below provided. Any failure by said first parties to comply with any of the provisions of this deed of trust shall, at the option of the third party, make said principal notes immediately due.”

The second paragraph in the policy of insurance was in the following words: “It is hereby agreed that in case of loss the assured shall assign to this company an interest in said deed of trust equal to the sum of loss paid under this policy, provided the said assignment shall in nowise prejudice the assured's claim under said deed of trust to recover the full amount of their loan and proper charges.”

Before the policy was written, namely, the fifth day of May, 1873, Murdock and wife executed a second deed of trust, by which they conveyed the premises in question to Robert M. Renick, as trustee for David H. Armstrong, to secure the latter against a liability which he had incurred to the extent of over $30,000, as indorser for Murdock. Moreover, the answer alleges, and the reply does not deny--and it must, therefore, be taken as true--that on December 20, 1873, Murdock sold and conveyed all his right, title, and interest in and to the premises, to John G. Priest, and that Murdock has had no interest in the premises, or in any part of them, since that time. There is evidence that all the premiums necessary to keep the policy in force were paid by Dick and Farrar, but were repaid to them by Armstrong, the second mortgagee.

When the deed of trust matured, namely, on May 1, 1876, Armstrong, to protect his own interest, entered into a written contract with Williamson, in which he assumed and agreed to pay the debt secured by the deed of trust, and by which Williamson extended the time of payment for two years longer, namely, until May 1, 1878, at the same rate of interest, for which Armstrong gave to Williamson four notes for $1,200 each, maturing successively every six months thereafter.

It is alleged in the answer, and not denied in the reply, and it is also proved by the testimony of a witness, that the defendant offered to pay the amount insured, if the plaintiffs would assign to them an interest in the deed of trust equal to the sum which was to be paid, which offer was declined by the plaintiffs; and that such an assignment was demanded by the defendant and refused by the plaintiffs. The grounds on which the plaintiffs refused this assignment, as stated in their reply, are substantially these: (1) That, although the clause providing for an assignment was a part of the contract, yet it was no part of the consideration of the contract; (2) that it was wholly immaterial to the rights of the parties, in that, under the facts of the case, it conferred no right or benefit on the...

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