Haskin v. Greene

• Decision Date: 03 August 1955
• Citation: 205 Or. 140,286 P.2d 128
• Parties: D. M. HASKIN and J. W. Haskin, Appellants, v. Forrest F. GREENE, Respondent, Dean H. Lee and Lim Lee, husband and wife, Lee Yick, Jane Doe Greene, Kalberer Hotel Supply Co., a corporation, and F. Brock Miller, trustee in bankruptcy for Henry Schleining, Defendants.
• Court: Oregon Supreme Court

Page 128

286 P.2d 128

205 Or. 140

D. M. HASKIN and J. W. Haskin, Appellants, v. Forrest F. GREENE, Respondent Dean H. Lee and Lim Lee, husband and wife, Lee Yick, Jane Doe Greene, Kalberer Hotel Supply Co., a corporation, and F. Brock Miller trustee in bankruptcy for Henry Schleining, Defendants.

Supreme Court of Oregon, Department 2.

Argued and Submitted April 14, 1955.

Decided July 6, 1955.

Rehearing Denied Aug. 3, 1955.

Lee A. Ellmaker, Portland, for appellants. With him on the brief were Phelps, Burdick & Walker, Portland.

Norman N. Griffith, Portland, for respondent.

Before WARNER, C. J., and LUSK, BRAND and PERRY, JJ.

LUSK, Justice.

The principal question on this appeal arises out of conflicting claims to the proceeds of a policy of fire insurance on a building which was damaged by fire. The claimants on the one side are the purchasers of the property involved at execution sale. They were first mortgagees who had foreclosed their mortgage. The fire occurred while they were in possession and before the period of redemption had expired. The insurance policy, which was issued to the mortgagors, contained a standard mortgage clause in favor of the mortgagees. On the other side of the question is a second mortgagee, who acquired the title of the mortgagors before foreclosure and gave notice of intention to redeem in accordance with ORS 23.570. Thereafter, an accounting was had, pursuant to ORS 23.560, which resulted in a decree favorable to the redemptioner from which the purchasers at execution sale have appealed.

The facts are as follows: In June, 1952, Donald L. Greene was the owner of the South 100 feet of Lot 25, Portview Tracts, Multnomah County, commonly known as 7503 N. E. Killingsworth, on which there was a building used as a restaurant. He sold the property to Dean H. Lee and Lim Lee, husband and wife, and Lee Yick. The purchasers executed a first mortgage in the amount of $6,500 to D. M. Haskin and J. W. Haskin, the appellants, and a second mortgage in the amount of $16,650.12 to Forrest F. Greene, the respondent. The mortgage to the Haskins contains a provision requiring the mortgagors to keep the building on the premises insured against loss or damage by fire in the sum of $6,500 for the benefit of the first mortgagees. The transaction was consummated by the deposit of instruments and moneys with Title and Trust Company as escrow agent, and the carrying out by the escrow agent of instructions from the interested parties with respect to the delivery of instruments and disbursement of moneys. Under this arrangement George A. Rahoutis, as agent for the Haskins, transmitted to Title and Trust Company $6,500, the amount of his principals' loan to the purchasers of the property, with instructions, among others, to pay therefrom the premium on a fire insurance policy to be issued upon the building. This instruction Title and Trust Company followed by remitting to George A. Rahoutis Co., agent for Royal Exchange Assurance, which wrote the policy, the sum of $477.42, covering the premium for three years.

The policy was in the amount of $6,500 and for the term commencing June 28, 1950, and ending June 28, 1953. Attached to it was an endorsement containing a mortgage clause with the following provisions:

'Subject to the terms, covenants and conditions set forth in this rider, loss or damage (if any) under this policy, on buildings only shall be payable as follows: firstly, to D. M. and J. W. Haskin as first mortgagee * * *

'2. Subject to and in consideration of the terms, covenants and condition set forth in this rider this insurance, as to the interest of the mortgagee 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 said property, nor by any change in the title or ownership of said property, nor by the occupation of the premises for purposes more hazardous than are permitted by this policy.'

The transactions just described took place in the latter part of June, 1950.

On August 23, 1951, the Haskins filed suit to foreclose their mortgage. Prior to that, in February and March of 1951, the Lees and Yick had, by separate deeds, conveyed the property to the respondent Greene. They did not, however, assign the insurance policy. On August 4, 1952, the court entered a decree of foreclosure, and on September 8, 1952, the Haskins bought in the property at execution sale for $7,671.04, the full amount of the judgment, interest, costs and disbursements.

The appellants Haskin, through their agent Rahoutis, went into possession of the property, and on December 11, 1952, a tenant took possession under a lease executed on behalf of the appellants by Rahoutis. On December 14, 1952, a fire occurred doing substantial damage to the restaurant building. On December 19, 1952, Mr. Norman N. Griffith, attorney for the respondent Greene, wrote to the appellants Haskin, in care of their agent Rahoutis, advising them that Green claimed the proceeds of the insurance under the policy written by Royal Exchange Assurance as redemptioner from the execution sale, and on December 23, 1952, Messers Phelps, Burdick and Walker, as attorneys for the Haskins, answered Mr. Griffith by a letter which rejected the respondent's claim and stated: 'The proceeds of the policy are being used to rebuild the property and we find that the cost of rebuilding the property is practically equal to the face amount of the policy.' Again, on January 19, 1953, Mr. Griffith notified the appellants by letter that his client intended to 'pay off the judgment' and demanded that the proceeds of the fire insurance collected be applied against the judgment. The appellants, however, proceeded with the restoration of the building, and in the latter part of January, 1953, received from the insurance company the cost of the repairs, $4,992.

On January 28, 1953, the respondent gave notice to the appellants of his intention to apply to the sheriff for the purpose of redeeming, pursuant to ORS 23.570, and thereafter the appellants filed in the office of the sheriff their accounting in accordance with ORS 23.560. The respondent filed objections to the accounting, thus raising the issue as to the ownership of the proceeds of the fire insurance policy and other issues which will be later considered.

The court found that the premium of $477.42 was paid by the redemptioner, Forrest F. Greene. We think that this finding is without support in the evidence. A copy of the closing statement of the escrow agent, Title and Trust Company, which is an exhibit in the foreclosure proceeding, is relied on by the respondent to support this finding. But the only reference to that matter in the closing statement is the following: 'Paid * * * George A. Rahoutis Company for fire insurance premium $477.42.' As already stated, the instruction to Title and Trust Company from George A. Rahoutis Company, when transmitting to it the amount of the mortgage loan, $6,500, was to pay therefrom the premium on a fire insurance policy to be issued upon the building. There is no evidence that the Title and Trust Company did not follow this instruction, and it must be presumed that it did so. That being the case, the only reasonable conclusion is that the premium was paid by the mortgagors.

The court also found that the mortgagees received from the insurance company the sum of approximately $4,980 as proceeds of the insurance policies and that they repaired the building. Appellants challenge this finding, and urge that the evidence shows that the insurance company exercised its option under the policy to make the repairs and itself made them. There is some slight evidence to this effect, but to us it is not at all convincing. No claim of this kind was made by the appellants or their agent, who was also the agent for the insurance company, when the respondent first made demand for the insurance money, and no such claim is asserted in the appellants' pleadings. The contention appears to be an afterthought, and we sustain the finding of the Circuit Court on this issue.

The question for decision is whether the respondent, as redemptioner, may require the appellants to account to him for the insurance money they received.

As grantee of the mortgagors the respondent Greene has the right to redeem the property within one year after the date of sale by paying the amount of the purchase money with interest at the rate of six percent per annum from the date of sale, and certain other items, subject, however, to the setoff provided in the statute. ORS 23-560.

The appellants Haskin contend that Greene has no rightful claim to the insurance money at all, and that in any event it would be inequitable to allow him a reduction in the amount required to redeem in view of the fact that the building has been repaired and restored to its former state.

The general rule is that where a mortgagor takes out and pays for a policy of fire insurance on a building upon the mortgaged premises, and there is attached to the policy a rider making the insurance payable to the mortgagee as his interest shall appear, sometimes referred to as the 'open mortgage clause', in case of a loss while the mortgage is in full force the mortgagee has a prior or superior right to the proceeds of the policy to the extent of the mortgage debt. 46 C.J.S., Insurance, § 1147, p. 27. See Butson v. Misz, 81 Or. 607, 612, 160 P. 530. As stated in the well-considered case of Malvaney v. Yager, 101 Mont. 331, 338, 54 P.2d 135, 138:

'Under such a mortgage clause, if loss occurs while the mortgage is in full force and after the debt is due, the mortgagee is bound to collect the insurance money and apply it in full, or pro tanto, satisfaction of the debt, and such payment amounts to satisfaction of the mortgage to the extent of the payment (Connecticut Mutual Life Insurance Co. v. Scammon, 117...