Libby Lumber Co. v. Pacific States Fire Ins. Co.
| Decision Date | 19 April 1927 |
| Docket Number | 6083. |
| Parties | LIBBY LUMBER CO. v. PACIFIC STATES FIRE INS. CO. |
| Court | Montana Supreme Court |
Rehearing Denied May 6, 1927.
Appeal from District Court, Cascade County; Stephen J. Cowley Judge.
Action by the Libby Lumber Company against the Pacific States Fire Insurance Company. Judgment for plaintiff, and defendant appeals. Reversed and remanded, with directions.
Gus C Moser, of Portland, Or., and R. M. Armour and Charles Davidson, both of Great Falls, for appellant.
R. J Powell, of Minneapolis, Minn., and Hartman & Ford, of Great Falls, for respondent.
This action was instituted to recover upon a policy of fire insurance because of the destruction by fire of a certain mill and grain elevator building located in the town of Geraldine. Upon issue joined, the cause was tried to a jury and resulted in a verdict in favor of the plaintiff for the full sum of $3,000, the principal amount of the policy, together with interest at the rate of 8 per cent. per annum from January 15, 1923, being 60 days after proofs of loss were finally submitted.
The defendant has assigned 28 alleged errors committed by the court as reason for a reversal of the judgment. In order to dispose of the determinative questions presented, an understanding of the facts as disclosed by the record is necessary. The policy of insurance forming the basis of this action was written by the defendant company on a standard form at the request of the Libby Lumber Company, by which the premium was paid, and as issued it purports by its terms to insure the Farmers' Elevator & Milling Company, a corporation, "for the term of one year from the 1st day of December, 1921, at noon, to the 1st day of December, 1922, at noon, against all direct loss or damage by fire," for the principal sum of $3,000, Subsequent to the issuance of such policy by the defendant company, on March 1, 1922, an indorsement or rider was attached thereto reading:
This rider was made in consequence of the fact that on January 7, 1922, a sheriff's deed to the property had been executed and delivered to the plaintiff. Among other conditions contained in the policy are the following:
"This entire policy, unless otherwise provided by agreement indorsed hereon or added hereto, shall be void if * * * the interest of the insured be other than unconditional and sole ownership; or if the subject of insurance be a building on ground not owned by the insured in fee simple; * * * or if any change, other than by the death of an insured, take place in the interest, title, or possession of the subject of insurance (except change of occupants without increase of hazard), whether by legal process or judgment or by voluntary act of the insured, or otherwise."
The property insured had for several years belonged to the Farmers' Elevator & Milling Company. However, on November 18, 1920, a decree of foreclosure of a mechanic's lien against it was by the court entered in favor of the Libby Lumber Company, and on December 20, 1920, the property was sold on execution by the sheriff to the Libby Lumber Company, and a sheriff's certificate of sale was thereupon issued and delivered to the purchaser. The limitation of time for redemption before the purchaser was entitled to a sheriff's deed to the property did not expire until December 20, 1921. On May 20, 1921, the Farmers' Elevator & Milling Company by deed conveyed all of its title to the property to B. K. Johnson, trustee, "subject to all liens and incumbrances appearing of record." B. K. Johnson was the cashier of the Montana State Bank of Geraldine, and, as trustee, since 1919 was in possession of the property representing the creditors of the Farmers' Elevator & Milling Company, including that bank, and also the stockholders of the elevator company. The Libby Lumber Company was a secured creditor of the elevator company and had been such since 1917, when its claim of lien was filed. During the entire period of time involved in this litigation Johnson was in possession of the property, and the Farmers' Elevator Company was indebted to the Bank of Geraldine to the extent of $10,000 or $12,000. On December 30, 1921, the Libby Lumber Company entered into a written contract with the Montana State Bank of Geraldine, designated an "escrow agreement," by the terms of which the Libby Lumber Company agreed to sell and the bank agreed to purchase the property at the stipulated price of $6,355.05. The salient features of this contract are as follows: The bank agreed to forthwith execute its certificate of deposit dated January 2, 1922, in favor of the Libby Lumber Company for the principal sum of $6,355.05, payable on October 31, 1922, with interest at the rate of 6 per cent. per annum from January 1, 1922, until paid, which certificate of deposit was to be delivered to the Northwestern National Bank of Minneapolis, Minn., and "held by said bank in escrow for final delivery to said Libby Lumber Company on October 31, 1922, unless cash is delivered on said day to said Libby Lumber Company in lieu thereof," it being further agreed that the Libby Lumber Company should execute a quitclaim deed conveying its title to the property to the Montana State Bank of Geraldine, which deed was to be deposited with the Northwestern National Bank of Minneapolis, Minn., for final delivery to the Montana State Bank of Geraldine on October 31, 1922, provided the certificate of deposit had been fully paid with interest on that date. If the certificate of deposit was not paid in accordance with the agreement on or before October 31, 1922, then it was specifically understood and agreed that the Libby Lumber Company should be entitled to have delivered to it by the escrow holder both the certificate of deposit and the deed, and that the certificate of deposit should thereupon "become the absolute property of the Libby Lumber Company, which shall have the right to proceed for collection thereof as it may be advised." The certificate of deposit and the deed referred to in this contract were executed at about the date of the agreement and were deposited with the Northwestern National Bank of Minneapolis in accordance with the terms of the contract.
It appears that this agreement was so executed by the Libby Lumber Company with the Bank of Geraldine in order that the bank as a creditor of the Farmers' Elevator Company might better protect itself from loss. The purpose was to give the bank time beyond the period of redemption to obtain title to the property upon payment to the Libby Lumber Company of the amount actually due it, admittedly greatly less than the real value of the property. And by virtue of this transaction the bank increased its recognized assets $10,000. The certificate of deposit so issued has not been paid, and, the escrow agreement not having been carried out by the Bank of Geraldine, both the deed and the certificate of deposit were delivered to the Libby Lumber Company and are now held by it. On August 23, 1922, the buildings on the property were totally destroyed by fire occasioning a loss conceded to be in excess of $17,000. It is the defendant's contention that the agreement executed by the Libby Lumber Company with the Montana State Bank of Geraldine constituted "an executory contract of sale, enforceable by either of the parties to the agreement"; that it is clearly a contract by the terms of which the lumber company agreed to sell and the bank agreed to buy "the property at an agreed price and on specific terms." It is argued by it: That from the admitted facts it is clear that when the insurance policy was issued, on December 1, 1921, insuring the interest of Farmers' Elevator & Milling Company as the sole and unconditional owner, said corporation had no interest whatever in the property insured. The sheriff's certificate of sale thereof had been issued December 20 1920, and the time for redemption expired December 20, 1921, but even its right of redemption had been transferred to B. K. Johnson, trustee, on May 20, 1921. Hence it not only was not the sole and unconditional owner of the property, but it did not have an insurable interest therein. The fact that a loss payable clause was attached to the policy in favor of Libby Lumber Company did not insure any interest of the Libby Lumber Company. It only insured whatever interest Farmers' Elevator & Milling Company had in the property on December 1, 1921, and it had none. The loss payable clause in favor of Libby Lumber Company was therefore worthless, and the policy was void. On December 21, 1921, the period of redemption having expired, Libby Lumber Company became the sole and unconditional owner of the property, but it ceased to be such on December 30, 1921. That because the Libby Lumber Company was not the sole and unconditional owner of the property when the indorsement of March 1, 1922, was added to the policy, and because it failed to have described in the policy its insurable interest, the policy was still void on and after March 1, 1922, and at the time of the fire. There never was a time during the entire history of the policy, when it correctly described the insurable interest to be insured, and it was therefore void from its inception, and remained void at all...
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