Hartford Fire Ins. Co. v. Jones

• Decision Date: 28 October 1926
• Docket Number: Civil 2487
• Parties: HARTFORD FIRE INSURANCE COMPANY, a Corporation, Appellant, v. LLOYD F. JONES, Appellee
• Court: Arizona Supreme Court

250 P. 248

31 Ariz. 8

HARTFORD FIRE INSURANCE COMPANY, a Corporation, Appellant, v. LLOYD F. JONES, Appellee

Civil No. 2487

Supreme Court of Arizona

October 28, 1926

APPEAL from a judgment of the Superior Court of the County of Maricopa. Dudley W. Windes, Judge. Judgment reversed, with instructions.

Mr. W W. Hindmand and Messrs. White & McMurchie, for Appellant.

Messrs Kibbey, Bennett, Gust, Smith & Lyman and Mr. R. M. Butler for Appellee.

OPINION

LOCKWOOD, J.

On the twenty-fifth day of July, 1923, John K. Akers was a merchant residing in Flagstaff, Arizona, and running a grocery known as the "Cash 'N' Carry Store." On that date he and his wife executed a chattel mortgage to Lloyd F. Jones, hereinafter called plaintiff, as security for the payment of the $3,500, the property mortgaged being described as follows:

"All that certain grocery store located in the premises known as No. 6 Leroux street, Flagstaff, Arizona, consisting of all stock, fixtures and appurtenances appertaining thereto and any and all stock or fixtures that may be added thereto. . . ."

On the twelfth day of July, 1924, the Hartford Fire Insurance Company, a corporation, hereinafter called defendant, issued to Akers a fire insurance policy covering the following described articles: "Then owned by the said John K. Akers while located and contained in the storeroom at No. 8 on the east side of North Leroux street in block 149, Sanborn map, page 9, in the town of Flagstaff, Arizona, to wit, merchandise of every description, consisting principally of groceries and store furniture, fixtures and equipment" -- it being admittedly the same property as that covered by the mortgage. The policy contained, among other things, this provision:

"This entire policy, unless otherwise provided by agreement indorsed hereon or added hereto, shall be void . . . if the subject of insurance be personal property and be or become incumbered by a chattel mortgage. . . ."

On November 9th, 1924, the property so insured was damaged by fire, and November 11th Akers assigned his interest in the policy to plaintiff. Proof of loss was made, but on December 4th the defendant in writing denied all liability under the policy, and thereafter plaintiff commenced this action in the superior court of Maricopa county. The defendant set up as a defense the execution and delivery of the chattel mortgage as aforesaid, claiming it to be a breach of the conditions of the policy of insurance which rendered the latter void. The matter was tried on a stipulation of facts substantially as above, with the addition that it was agreed the amount of the damage to the property was $1,810.20, and that if the statutory penalty and attorney's fee provided by paragraph 3441, Revised Statutes of Arizona of 1913 (Civil Code), should be payable at all under the law and the facts, the penalty would amount to $271.53 and the attorney's fee to $300. On September 14, 1925, the trial court entered judgment against defendant for the amounts above set forth, and, a motion for new trial having been overruled, an appeal was taken to this court.

There is no question that under the law of this state when a policy of fire insurance contains a provision of the nature above quoted, and substantially all of the property covered by the insurance policy is encumbered by a chattel mortgage, the policy is void and the insurer can set up the encumbrance as a good defense in an action to recover on it. Aetna Ins. Co. v. Itule et al., 25 Ariz. 446, 218 P. 990.

Nor, indeed, does plaintiff deny this to be the rule. He contends, however, first, that to void the policy the mortgage must cover substantially all of the property insured; and, second, since the mortgage in question expressly includes a stock of goods, wares and merchandise exposed for sale to the general public in the regular course of business, it is so far void under the provisions of paragraph 4125, Revised Statutes of Arizona of 1913 (Civil Code), or, if not void as between the parties, nevertheless is not an "encumbrance" upon that part of the property insured, and therefore not within the condition of the policy above set forth.

Paragraph 4125, supra, reads as follows:

"Every mortgage, deed of trust or other form of lien attempted to be given by the owner of any stock of goods, wares or merchandise daily exposed to sale, in parcels, in the regular course of the business of such merchandise, and contemplating a continuance of possession of said goods and control of said business, by sale of said goods by said owner, shall be deemed fraudulent and void."

We know of no other code with a provision exactly like the one quoted above, but defendant contends the decisions of the Supreme Court of California on a statute covering the same subject are in point. Plaintiff, on the other hand, insists the California law is so different that the cases from that state are not applicable. Section 2955 of the Civil Code of California, as originally enacted, reads as follows:

"What Personal Property may be Mortgaged. -- Mortgages may be made upon all growing crops, including grapes and fruit, and upon any and all kinds of personal property, except the following: . . .

"(3) The stock in trade of a merchant. . . ."

In construing this statute the Supreme Court of California in the case of Tregear v. Etiwanda w. co., 76 Cal. 537, 9 Am. St. Rep. 245, 18 P. 658, said:

"The property involved here is not of the class upon which a chattel mortgage, as defined by statute, may be given. It may, however, as between the parties, be mortgaged. . . . It would, of course, under our statute, have been void as to creditors and subsequent purchasers in good faith for a valuable consideration, but there are no such persons here complaining."

And this decision was followed in the case of Works v. Merritt, 105 Cal. 467, 38 P. 1109. The statute was later amended in California to make it read, "Mortgages may be made upon the following personal property and none other, . . ." (Stats. 1895, p. 57), the stock in trade of a merchant being excluded, and the court thereafter in the case of McLeod v. Barnum, 131 Cal. 605, 63 P. 924, held:

"It is contended that the mortgage was of personal property -- and of personal property not enumerated in Civil Code, section 2955 -- and for that reason void even between the parties. . . . It is said that by the amendment of 1895 to Civil Code, section 2955, after the words 'mortgages may be made upon the following personal property,' the words 'and none other' were added, and that since the amendment a mortgage of personal property not enumerated is absolutely void even between the parties. We do not think such is the law, neither do we think the Legislature intended any such consequence. It would require very plain and imperative language to convince us that the Legislature intended to prevent parties from making a mortgage upon any personal property, as between themselves, where the rights of no third parties are involved. . . . A law that would prohibit competent parties from making a valid contract as between themselves, where no rights of third parties intervene and no public policy is violated, would be a very serious infringement of the right of making contracts."

And the same ruling was made in the case...