Milwaukee Mechanics' Ins. Co. of Milwaukee, Wis. v. B.S. Rhea & Son

• Decision Date: 02 June 1903
• Docket Number: 1,144.
• Citation: 123 F. 9
• Parties: MILWAUKEE MECHANICS' INS. CO. OF MILWAUKEE, WIS., v. B. S. RHEA & SON et al.
• Court: U.S. Court of Appeals — Sixth Circuit

123 F. 9

MILWAUKEE MECHANICS' INS. CO. OF MILWAUKEE, WIS., v. B. S. RHEA & SON et al.

No. 1,144.

United States Court of Appeals, Sixth Circuit.

June 2, 1903

In Error to the Circuit Court of the United States for the Middle District of Tennessee.

This was an action upon a policy of fire insurance, brought by B S. Rhea & Son, a copartnership, for the use of two national banks named in the writ. The insured premises were destroyed by fire in November, 1899, and during the currency of the policy, and this action was brought to recover the full amount of the insurance. The policy on its face provided among other things, that it should be void 'if the interest of the insured in the property be not truly stated herein, * * * or if the interest of the insured be other than unconditional and sole ownership. ' The insurance company, among other defenses not now necessary to be noticed, denied all liability upon the ground that the insured had not truly stated their interest in the insured property and had no insurable interest whatever.

The plaintiffs below were forwarding and storage merchants owning and operating an elevator and warehouse on the east bank of the Cumberland river at Nashville. In the spring of 1893 they became financially embarrassed, and voluntarily made a distribution of all their assets among their creditors in full payment and satisfaction. Among their creditors so settled with were the First and American National Banks at Nashville. These banks received certain stocks and choses in action in satisfaction of a part of their several debts, and accepted a deed to the insured premises as tenants in common as payment and satisfaction of an additional indebtedness aggregating $20,000. Of this, $15,000 was owing to the American National Bank, and $5,000 to the First National Bank, so that the first-named bank became the owner of an undivided three-fourths interest in said elevator or warehouse, and the other bank of an undivided one-fourth. Thus the matter stood until the fall of 1893, when it is claimed that these two banks sold back to B. S. Rhea & Son all of the property which they had received in the spring and that, although no reconveyance of the warehouse was made, B. S. Rhea & Son became, by virtue of the contract then made, revested with such an interest in the warehouse as was insurable, and such as to constitute them the sole and unconditional owners within the meaning of the contract of insurance. Rhea & Son continued in possession, and in May, 1899, took out the policy in suit, wherein they are named as the insured and as owners. The insured property is described therein as situated upon leased premises, and the loss is made 'payable to the American National Bank, mortgagees, as their interest may appear. ' There was evidence tending to show that the First National Bank was also included as a mortgagee in the loss payable clause, and by mistake of the local agent of the insurer accidentally omitted. At the close of all of the evidence the defendant below moved the court to instruct the jury to find a verdict in its favor. This was denied, and exception reserved.

After instructing the jury that the policy would be void if Rhea & Son were not the owners of the property insured at the date of the policy, the trial judge instructed them as follows: 'That notwithstanding the record legal title was in the American National Bank and the First National Bank, three-fourths in one, and one-fourth in the other, if there was a completed agreement, verbal or written, between them and Mr. Rhea, by which Mr. Rhea was to have the property back on terms stated, and the property was sufficiently described to be identified, that he was to pay interest annually on the debt for which the property had been transferred, and pay insurance, taxes, repairs, and finally, when the property could be paid for, title made to it, if he was a vendee under a contract like that in possession, he would be, and might represent himself as being, the owner, and the policy would be valid, in the absence of any fraud, and assuming that he was acting in good faith. Under such circumstances as that, the relation between him and the banks would be that they would be the legal owners, and Rhea would be the equitable owner, and, in the absence of a particular inquiry as to whether his interest was legal or equitable, he might consider himself the true owner under such a contract, and might so state, and insure the property for himself and the banks. If you find the existence of such a contract as that, the policy would not be forfeited on account of the fact that he did not have the record paper title; and that is the question of fact which I submit to you for your determination. ' The jury were directed to specially find whether there was a verbal or written contract for the repurchase of the premises. In response to this the jury did, in addition to a general verdict for the plaintiff, return a special verdict in these words: 'And the jury, upon their oaths aforesaid, do further say that they find that there was a verbal contract between B. S. Rhea & Son and the American and First National Banks, and also a written contract with the American National Bank, for the sale of the warehouse to said Rhea.'

John Vertrees, William Vertrees, and Norman Farrell, Jr., for plaintiff in error.

John M. Gaut and James S. Pilcher, for defendants in error.

Before LURTON, SEVERENS, and RICHARDS, Circuit Judges.

LURTON Circuit Judge, after making the foregoing statement, .

The defendants excepted to the instruction that a verbal contract of sale would constitute Rhea & Son the owners of the insured premises within the provisions of the policy. Inasmuch as the jury found specially that there was a written agreement between the American National Bank and Rhea & Son for the sale and purchase of the insured premises, the charge in respect to the effect of a parol agreement would be harmless, even if erroneous, but for the fact that the First National Bank was the owner of an undivided one-fourth interest, and unless the verbal agreement, which the jury found to exist between Rhea & Son and that bank, operated to make Rhea & Son the equitable owner of this one-fourth interest, the insured would not be the sole and unconditional owner of the premises described and insured. That a vendee in possession under a written agreement for the sale and purchase of the property is the equitable owner thereof, and authorized to represent himself as the owner, or the 'sole and unconditional' owner, within the meaning of that term in fire policies, is hardly the subject of debate. 13 Am.& Eng.Ency.of Law (2d Ed.) 178, 179, and cases cited; Insurance Co. v. Crockett, 7 Lea. 725. If the vendees unconditionally bound themselves to buy and pay for the property in question, they were in every equitable sense the owners, and a loss of the property by fire would fall upon them, and not the vendor. In Paine v. Miller, 6 Ves.Jr. 349, where an agreement for the sale and purchase of improved property was enforced after the destruction of the improvements by fire, and before title passed or possession changed, Lord Eldon said:

'If the party by the contract has become in equity the owner of the premises, they are his to all intents and purposes. They are vendible as his, chargeable as his, capable of being incumbered as his. They may be devised as his, they may be assets, and they would descend to his heir.'

The rule is the same under a representation of ownership in a fire policy, whether the vendee be in possession under an oral or a written unconditional contract of purchase. If he has unconditionally agreed to buy, and the vendor to sell upon definite terms, he is the sole and unconditional owner, within the meaning of that term in...