Cetkowski v. Knutson
| Decision Date | 19 June 1925 |
| Docket Number | 24,647 |
| Parties | FRANK CETKOWSKI v. ANTON KNUTSON AND ANOTHER |
| Court | Minnesota Supreme Court |
Action in the district court for Marshall county. The case was tried before Grindeland, J., who ordered judgment in favor of plaintiff. Defendant appealed. Affirmed.
When vendee of real estate in executory contract of purchase has insurable interest.
1. A vendee in possession of real estate under an executory contract has an insurable interest, even though the contract is subject to rescission for his fraud.
When such vendee is trustee for vendor as to fire loss collected.
2. If the contract was induced by the fraud of the vendee and therefore subject to rescission by the vendor, the vendee is so far a trustee for the vendor that insurance on the buildings, under which loss occurs during the vendee's possession, will enure to the benefit of the vendor.
1. See Fire Insurance, 26 C.J. pp. 32, 33, § 14.
2. See Fire Insurance, 26 C.J. p. 437, § 586 (Anno).
2. See note in 37 L.R.A. 150. See note in 13 L.R.A. (N.S.) 909; 27 R.C.L. pp. 558, 559. See note in 22 A.L.R. 575.
A. N Eckstrom, for appellant.
C. M Ascham, Julius J. Olson and Rasmus Hage, for respondent.
Action on a policy of fire insurance. Plaintiff prevailed below and defendant insurance company appeals from the judgment. The other defendant, Anton Knutson, is no party to this appeal, but his relationship to the case is important.
In August, 1921, plaintiff contracted with Knutson to convey to him a Marshall county farm in exchange for other real estate. The contract remained executory. Deeds were placed in escrow pending examination and approval of titles. They were never delivered, for plaintiff claimed and established fraud on the part of Knutson and succeeded, by action, in having the contract rescinded and the ownership and right to possession of his farm restored to him. The rescission did not become effective until some time after December 22, 1922.
In the meantime, plaintiff had put Knutson in possession of the farm. While so in possession, as plaintiff's vendee under the executory contract, Knutson procured insurance on the buildings and certain personal property of his own from defendant insurance company. The policy was effective during February, 1922, when the insured dwelling, together with certain personal property of Knutson's, was destroyed by fire. This, it will be observed, was while the contract between plaintiff and Knutson was still in effect; that is, the fire occurred and the resulting rights became fixed before the rescission of that contract.
Defendant Knutson seems not to be making any claim, for himself or plaintiff, to the insurance on the dwelling. He is joined as a party defendant simply in order to have his rights, if any, determined. The insurance company's liability to Knutson for the loss of his personal property was recognized by payment, but the claim under the same policy for the loss of the dwelling is resisted upon two grounds, viz: (1) That defendant Knutson had no insurable interest in the real estate of which the dwelling was a part, and (2) plaintiff cannot recover because he had no contractual relation, under the insurance policy or otherwise, with defendant insurance company, upon which to predicate the desired recovery.
1. A vendee in possession under an executory contract of sale has an insurable interest. Holbrook v. St. P.F. & M. Ins. Co. 25 Minn. 229; Kells v. N.W. Live Stock Ins. Co. 64 Minn. 390, 67 N.W. 215, 71 N.W. 5, 58 Am. St. 541; 26 C.J. 32. That the contract is voidable for fraud matters not as long as it remains unavoided, for the rights it creates remain until the rescission is accomplished. That is so because the question is not as to its value but the existence "of any legal interest to sustain the contract of insurance and to prevent the policy being a mere gambling contract." Holbrook v. St. P.F. & M. Ins. Co. supra.
2. But it doesn't decide the case to hold that Knutson had an insurable interest, for recovery is now sought by his vendor. In favor of the latter there was no insurance, and under the contract to convey there was no obligation on Knutson to insure -- for the benefit of the vendor or otherwise. Plaintiff did not protect himself and the insurance now in question was procured by his vendee for his own protection.
Long ago, it became "too well settled to be questioned, that policies of insurance against fire are personal contracts with the assured, which do not attach to the realty, or in any manner go with the same, as incident to a conveyance or transfer of the title to lands." Culbertson v. Cox, 29 Minn. 309, 13 N.W. 177, 43 Am. St. 204; Imperial Elev. Co. v. Bennett, 127 Minn. 256, 149 N.W. 372; Remington v. Sabin, 132 Minn. 372, 157 N.W. 504. But the proceeds of an insurance policy may be affected by a trust for the benefit of someone other than the named insured. That was the case in Culbertson v. Cox.
The case of Mitchell v. McDougall, twice in the supreme court of Illinois (62 Ill. 498, and, sub. nom. Phoenix Ins. Co. v. Mitchell, 67 Ill. 43), is the principal authority for plaintiff. Originally it was a suit to set aside a conveyance of land by plaintiffs induced by the fraud of the grantee, McDougall. Pending the litigation, the buildings burned. The only insurance had been obtained by McDougall under a policy for his sole benefit, except that it made the loss, if any, payable to certain mortgagees under a mortgage put on the property by the plaintiffs before their conveyance, the debt secured by which McDougall had expressly assumed and agreed to pay. The insurance company was brought in by supplemental bill, for the purpose of compelling payment of the insurance to the mortgagees, pro tanto, and the balance to the plaintiffs, who stood in relation to the insurance just as plaintiff does here. On hearing, plaintiffs suffered a dismissal of their bill, but on appeal secured a reversal. The opinion concerns mainly the issue between plaintiff and McDougall. It gave scant consideration to the defenses of the insurance company.
The case went back for trial on the merits and, plaintiffs prevailing against both McDougall and the insurer, the latter alone appealed, so presenting squarely its defense against the vendor's right to recover from it. The decree was affirmed (67 Ill. 43), upon the ground the McDougall, the insured, although holding under a deed finally avoided for his fraud, had an insurable interest and, "as between him and Mitchell, his vendor, the insurance money represented the property destroyed," and which, it might have been added, he was obliged to restore, but, because of the fire which he was insured against, he could not restore to the plaintiffs.
The subject is discussed in notes appearing in 37 L.R.A. 150 and 13 L.R.A. (N.S.) 909. The latter note is appended to the report of Zenor v. Hayes, 228 Ill. 626, 629, 81 N.E. 1144, where it was held a vendor could not reach insurance in the hands of the vendee because the debt from the latter was not due. The case is distinguished from Mitchell v. McDougall, supra, because the latter was against a "fraudulent vendee" and upon the ground that "in that case the vendee's fraud entered into and vitiated the contract itself, and, if he could have collected and held the insurance money, he would to that extent have profited by his own fraud." The earlier note is appended to Williams v. Lilley, 67 Conn. 50, 62, 34 A. 765, where decision was put upon the idea that insurance moneys stand as a substitute for the...
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