Frontier Mortg. Corp. v. Heft

• Decision Date: 20 June 1924
• Docket Number: 48.
• Citation: 125 A. 772,146 Md. 1
• Parties: FRONTIER MORTGAGE CORPORATION v. HEFT ET UX.
• Court: Maryland Court of Appeals

125 A. 772

146 Md. 1

FRONTIER MORTGAGE CORPORATION v. HEFT ET UX.

No. 48.

Court of Appeals of Maryland

June 20, 1924

Appeal from Superior Court of Baltimore City; James P. Gorter Judge.

"To be officially reported."

Suit by the Frontier Mortgage Corporation, assignee, for use of the Central Fire Insurance Company of Baltimore, against Morris Heft and wife. Judgment for defendants, and plaintiff appeals. Reversed, and new trial awarded.

Argued before PATTISON, URNER, ADKINS, OFFUTT, and DIGGES, JJ.

Joseph France, of Baltimore (Venable, Baetjer & Howard, of Baltimore, on the brief), for appellant.

J. Paul Schmidt, of Baltimore (Isaac Lobe Straus, Michael Miller, and Robert L. Mainen, all of Baltimore, on the brief), for appellees.

DIGGES J.

This suit was brought in the superior court of Baltimore city by the Frontier Mortgage Corporation, assignee, on November 3 1922, against the defendants. Morris Heft and Bessie Heft his wife. The declaration contains the money counts, and an additional count, declaring on the mortgage principal and interest notes.

The defendants' pleas were never indebted, and never promised as alleged, and the third plea for defense on equitable grounds, in which equitable plea it is set forth that the defendants executed the said mortgage to the Linthicum Realty Company on June 11, 1920; that on July 8, 1921, defendants sold the property covered by the mortgage to Abel Rosenthal, and bought from Rosenthal property located on Madison avenue, Baltimore city; that Rosenthal purchased the Maple avenue property subject to the mortgages thereon, and the defendants purchased the Madison avenue property subject to the mortgages then upon it; that subsequently deeds were executed, consummating the sale or exchange of properties between Rosenthal and the defendants, with knowledge of the Provident Savings Bank, holder of the first mortgage on the Maple avenue property, and the Linthicum Realty Company, the holder of the second mortgage on said property; that the property on Maple avenue was insured against loss by fire in favor of the first and second mortgagees; that subsequently the building on the Maple avenue property was burned, and the insurance company refused to make payment therefor to the mortgagees, whereupon the holder of the first mortgage foreclosed the same, at which sale Rosenthal became the purchaser, and upon his refusal to pay the second mortgage the Frontier Mortgage Corporation made demand therefor to the insurance company, and the defendants have been informed, believe, and therefore allege that the said insurance company has duly paid to the Frontier Mortgage Corporation the amount of its mortgage and the indebtedness upon which suit is herein brought; that the Frontier Mortgage Corporation knew of the ownership of the property by the said Abel Rosenthal, and of the circumstances under which he took title--filed February 27, 1923.

Replication of the Frontier Mortgage Corporation, filed April 27, 1923, joined issue on the defendants' first and second pleas, and to the third plea, entitled a "Defense on Equitable Grounds," denied that the Central Fire Insurance Company had paid the defendants' indebtedness to the plaintiff.

On May 15, 1923, the case was tried ex parte, the defendants failing to appear before Judge James P. Gorter, without the aid of a jury, and resulted in a verdict for the plaintiff for the sum of $3,737. On the 16th day of May, 1923, the case was entered to the use of the Central Fire Insurance Company of Baltimore. Subsequently the judgment was stricken out, by agreement, and later, on October 15, 1923, the case was again entered to the use of the Central Fire Insurance Company of Baltimore.

On October 15, 1923, the case was again tried before the court without the aid of a jury, resulting in a verdict and judgment for the defendants. From this verdict and judgment, the Frontier Mortgage Corporation, plaintiff, and Central Fire Insurance Company, equitable plaintiff, have appealed. The evidence, as agreed for the purpose of the record, is substantially as follows:

On June 11, 1920, the appellees, defendants below, executed a second mortgage on real estate belonging to them located on Maple avenue, Avondale Park, Baltimore, to the Linthicum Realty Company, to secure the payment of the sum of $4,500; said sum being a portion of the purchase price of the property covered by the mortgage. The principal of the debt was evidenced by two promissory notes, dated as of the date of the mortgage, signed by Morris Heft and Bessie Heft, his wife, the defendants, and payable to the order of the Linthicum Realty Company. One of the principal notes was for the sum of $1,300, maturing July 1, 1920 (which was paid at maturity), and the other for the sum of $3,200, payable 3 years after date. There were also 12 interest notes, each for the sum of $48, and payable quarterly.

On April 27, 1921, the Linthicum Realty Company assigned the mortgage, together with the principal note for $3,200 and 8 interest notes, to Frontier Mortgage Corporation, for which the Frontier Mortgage Corporation paid the sum of $2,880. This assignment was duly recorded and the notes were indorsed by the Linthicum Realty Company in blank. The mortgage is in the usual form and contains a covenant on the part of the mortgagors to keep the property insured for the benefit of the mortgagee and its assigns. By deed dated July 20, 1921, and promptly recorded, the defendants conveyed in fee to Abel Rosenthal and Howard S. Kroh all of the lots and property described in the mortgage, subject to a first mortgage and the above-described second mortgage.

At the time the mortgage was assigned to the Frontier Mortgage Corporation, there was no policy of insurance assigned to it, but subsequently that corporation applied to the Central Fire Insurance Company for a policy on the property described in the mortgage, in the name of Morris Heft, and Bessie Heft, his wife, payable to it as assignee of the second mortgage.

The Central Fire Insurance Company on August 12, 1921, issued a policy insuring Morris Heft and Bessie Heft, his wife, from loss by fire on the frame building located on the lots described in the mortgage, for one year, to an amount not exceeding $3,200, payable to the Frontier Mortgage Corporation, assignee of second mortgage, as interest may appear. To the policy was attached the following mortgagee clause:

"Mortgagee Clause Without Full Contribution.

Loss or damage, if any, under this policy, shall be payable to Frontier Mortgage Corporation of Buffalo, N. Y., assignee of second mortgagee (or trustee), as interest may appear, and this insurance, as to the interest of the mortgagee (or trustee) only therein, shall not be invalidated by any act or neglect of the mortgagor or owner of the within described property, nor by any foreclosure or other proceedings or notice of sale relating to the property, nor by any change in the title or ownership of the property, nor by the occupation of the premises for purposes more hazardous than are permitted by this policy: Provided that, in case the mortgagor or owner shall neglect to pay any premium due under this policy, the mortgagee (or trustee) shall, on demand, pay the same.

Provided, also, that the mortgagee (or trustee) shall notify this company of any change of ownership or occupancy or increase of hazard which shall come to the knowledge of said mortgagee (or trustee), and, unless permitted by this policy, it shall be noted thereon and the mortgagee (or trustee), shall, on demand, pay the premium for such increased hazard for the term of the use thereof; otherwise this policy shall be null and void.

This company reserves the right to cancel this policy at any time as provided by its terms, but in such case this policy shall continue in force for the benefit only of the mortgagee (or trustee) for 10 days after notice to the mortgagee (or trustee) of such cancellation and shall then cease, and this company shall have the right, on like notice, to cancel this agreement.

Whenever this company shall pay the mortgagee (or trustee) any sum for loss or damage under this policy and shall claim that, as to the mortgagor or owner, no liability therefor existed, this company shall, to the extent of such payment, be thereupon legally subrogated to all the rights of the party to whom such payment shall be made, under all securities held as collateral to the mortgage debt, or may, at its option, pay to the mortgagee (or trustee) the whole principal due or to grow due on the mortgage, with interest, and shall thereupon receive a full assignment and transfer for the mortgage and of all such other securities; but no subrogation shall impair the right of the mortgagee (or trustee) to recover the full amount of its claim.

Attached to and made part of policy No. 328298 of the Central Fire Insurance Company of Baltimore."

Among others, the policy contained the following printed stipulations:

"This entire policy shall be void if the insured has concealed or misrepresented, in writing or otherwise, any material fact or circumstance concerning this insurance or the subject thereof, or if the interest of the insured in the property be not truly stated herein, or in case of any fraud or false swearing by the insured touching any matter relating to this insurance or the subject thereof, whether before or after a loss.

This entire policy, unless otherwise provided by agreement indorsed hereon or added hereto, shall be void if the insured now has or shall hereafter make or procure any other contract of insurance, whether valid or not, on property covered in whole or in part by this policy, or if the subject of insurance be a manufacturing establishment and it be operated in

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