Downey v. The Nat'l Fire Ins. Co.

Decision Date14 December 1915
Docket NumberNo. 2748.,2748.
Citation77 W.Va. 386
CourtWest Virginia Supreme Court
PartiesDowney, Receiver v. The National Fire Insurance Company.

1. Specific Performance Rights of Parties Determination.

The general rule is that the rights of the parties as they stand at the date of the decree of specific performance govern, and not as they stood at any preceding time. (p. 393).

2. Insurance Contracts Construction.

The rule of strict construction is especially applicable to the contracts of insurance, (p. 394).

3. same Policy Forfeiture Provision Incumbrance.

A mortgage or deed of trust purporting to secure an obligation not yet effective at the time of the loss is not an encumbrance of personal property by chattel mortgage, voiding a policy of insurance thereon, in the form prescribed by statute, containing such condition of forfeiture, (p. 394).

4. Same. |

Nor will an unexecuted eortraet to pledge such obligation as collateral for a pre-existing debt, constitute such encumbrance so as to avoid a policy of insurance, (p. 394).

5. Same Pleading Action on Policy Admissions Conclusiveness.

Admissions in pleadings or in proofs of loss of the fact of such pledge, rot consummated by performance of the condition of the contract, are not conclusive, and may be explained in connection with proof of the facts pertaining thereto, (p. 396).

6. Same Policy Condition Against Incumbrances Breach.

An agreement to pledge such an obligation, or an intent to pledge the same on condition, are not sufficient to constitute such pledge unless the condition of the contract has been complied with. (p. 397).

Error to Circuit Court, Berkeley County.

Action by William W. Downey, receiver, etc., against the National Fire Insurance Company of Hartford, Connecticut. Judgment for plaintiff, and defendant brings error.


John W. Davis, Allen B. Noll and W. Calvin Ghesnut, for plaintiff in error.

Malcolm Jackson and J. 0. Benson, for defendant in error.

Miller, Judge:

An action upon a policy of fire insurance, New York Standard form, countersigned by defendant's agents at Martinsburg, West Virginia, January 23, 1912, insuring The Stewart Vehicle Company, for the term of one year, against all direct loss or damage by fire, to an amount not exceeding three thousand dollars, on their buggies manufactured and in the process of manufacture, their own or held in trust on commission or sold but not delivered, etc., while situated in their three story and basement brick building, in Martinsburg, West Virginia.

The fire destroying the entire plant and property of the assured occurred on September 15, 1912. There was a verdict and judgment for plaintiff for the full amount of the policy.

The provision of the policy alleged to have been violated by the assured, and relied on as a defense to the action, is as follows: '' This entire policy * * * shall be void if * * * the subject of insurance be personal property and be or become encumbered by a chattel mortgage.''

The appointment and qualification of plaintiff as special receiver, and the contract of insurance, and the total loss of the property insured, having been fully established by proof, or the admissions of defendant, and with like proof that the total amount of the insurance carried on the stock of merchandise destroyed was $80,500.00, plaintiff rested.

The defendant then undertook to establish its defense by the evidence of plaintiff William W. Downey, and, in connection with his testimony, by the proofs of loss made by him, and Claude W. Stewart, vice president and general manager, and by the introduction of the bill of complaint in. the cause in which Downey had been appointed special receiver, and a deed of trust elated June 22, 1912, purporting to have been made and executed by The Stewart Vehicle Company to the said Downey, trustee, pursuant to the authority of its stockholders and board of directors by resolutions duly passed in stockholders' and directors' meetings, June 22, 1912, and covering by description the entire plant and property of the grantor, and which resolutions, as recited in said deed of trust, authorized the creation of an indebtedness by said company for the purpose of refunding its present indebtedness and for additional working capital to the amount of fifty thousand dollars, by an issue of two hundred and fifty first mortgage, fifteen years, six per cent, gold bonds, to be secured by first mortgage or deed of trust upon all the property, real, personal and mixed, and all the rights, privileges and franchises of said corporation then owned or thereafter to be acquired, said bonds and deed of trust, to be upon such terms and in such form and contain such conditions and stipulations as the board of directors should determine, and on the face whereof it was provided that said bonds might be redeemed on the fifteenth day of January and July, of any year subsequent to the fifteenth day of July, 1917, as stipulated therein, said bonds and the interest coupons to be without preference, priority, or distinction as to lien or otherwise, of any one bond over any other bond, by reason of priority in the time of issue, or otherwise.

And another of the provisions of said deed of trust is: "The Company will take out and pay the premium upon such fire insurance, upon the insurable property of the company, as the Trustee may reasonably require, and the policies therefor shall be made payable to the Trustee and shall be delivered to the Trustee."

Though purporting to have been made June 22, 1912, said deed of trust was not signed or executed on behalf of said company by its officers, or acknowledged by them, until August 16. 1912, and the same was not admitted to record until September 12, 1912.

And as showing or tending to show the existence of said deed of trust as an encumbrance upon the property insured, voiding the policy, defendant relied especially upon the allegation in plaintiff's said bill and the statement in said proof of loss, to the effect that the property insured belonged exclusively to The Stewart Vehicle Company, subject to a bonded indebtedness of sixty thousand dollars, bonds owned by assured, but hypothecated with the Maryland Surety & Trust Company, to secure a commercial paper loan of twenty two thousand dollars, and the evidence of the witness Downey, in connection therewith, that prior to the fire, about August 19, 1912, he, as trustee in the deed of trust, had certified the bonds as provided thereby, and had participated in delivering the bonds into the possession of the Maryland Surety & Trust Company, or more accurately speaking, into the hands of John M. Lane, secretary and assistant treasurer of said company, and which was done prior to the recordation of said deed of trust, September 12, 1912.

To rebut, or explain, defendant's evidence, and the conclusions sought to be drawn therefrom, that said bonds and mortgage or deed of trust constituted an existing encumbrance on the property at the time of the fire, plaintiff proved by said Lane, secretary and assistant treasurer, and a bookkeeper, of the Maryland Surety & Trust Company, that the indebtedness of said company against The Stewart Vehicle Company commenced about September, 1909, the original loan being ten thousand dollars; that later, date not definitely given, this debt was increased by another loan of twelve thousand dollars, and afterwards by a third loan, with some invoices or accounts receivable pledged as collateral, so that at the end of the year 1911, said indebtedness had grown to between twenty-five and thirty thousand dollars, and that in the spring of 1912, it amounted to between twenty-six and twenty-seven thousand dollars, evidenced by three notes, one of ten thousand dollars, one of twelve thousand dollars, and one of seventy-two hundred dollars, with some credits on it, said notes being numbered respectively, 35413, 35414, and 35735. The witnesses explained that when notes are discounted by said bank, they are numbered regularly, so that every note which belongs to the bank has a number on it by which it is entered on its books. The first two of these notes introduced in evidence bear date December 30, 1911, the last one January 13, 1912.

And in explanation of the statements in said bill and proof of loss the witnesses Downey, Stewart and Harris say that the bill was prepared at night time, under the emergencies occasioned by the fire, and that the proofs of loss were prepared by adjusters, and verified, without a full understanding of the status of the proceedings by which said bonds were to become pledged as collateral security to the Maryland bank.

Plaintiff proved, furthermore, that the contract of the Vehicle Company with the Maryland bank, and as to which there is not the slightest controversy, was that on condition that said bank would accept the new note of the Vehicle Company, for twenty two thousand dollars, with all arrears of interest paid on the old notes to date of the new, amounting to one hundred and eighty-three dollars and thirty-four cents, and surrender, cancel, and release the old notes and an old issue of bonds secured by deed of trust on the real estate of the Vehicle Company, the latter company would pledge its whole issue of fifty thousand dollars of said first mortgage bonds as collateral to the twenty-two thousand dollar note.

And it was also proven by the bank officers and the special receiver and the officers of the Vehicle Company, and not controverted, that a few days before the fire, and after negotiations begun as far back perhaps as June, 1912, these bonds had been placed in the hands of the Maryland bank, or Lane, its officer, then unsigned, but a day or two later signed by the officers of the Vehicle Company, and certified by Downey, trustee, in accordance with the provisions in the deed of trust, and that the deed of trust, securing the bonds, was delivered to Downey, and placed upon the public record, and...

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