Savings Bank of Ansonia v. Schancupp

• Decision Date: 18 December 1928
• Citation: 108 Conn. 588,144 A. 36
• Court: Connecticut Supreme Court
• Parties: SAVINGS BANK OF ANSONIA v. SCHANCUPP ET AL.

144 A. 36

108 Conn. 588

SAVINGS BANK OF ANSONIA v. SCHANCUPP ET AL.

Supreme Court of Errors of Connecticut.

December 18, 1928

Appeal from Superior Court, New Haven County; John Richards Booth Judge.

Action by the Savings Bank of Ansonia against Jacob Schancupp and others to foreclose a mortgage of real estate. Judgment for plaintiff for an insufficient amount, and it appeals. Error and cause remanded, with directions.

Ralph H. Clark, of New Haven, for appellant.

Walter J. Walsh, of New Haven, for appellee Shancupp.

Argued before WHEELER, C.J., and MALTBIE, HAINES, HINMAN, and BANKS JJ.

HINMAN, J.

On September 12, 1924, the defendant Schancupp owned certain real estate in Ansonia, which he had mortgaged to the plaintiff for $3,000. He had insured the property against fire for $5,000, by one policy for $2,000 with the Girard Fire & Marine Insurance Company, and another for $3,000 with the North River Insurance Company. On this date he sold and conveyed the property to the defendant Rindone, who assumed and agreed to pay the $3,000 mortgage indebtedness; the insurance policies were also transferred to the name and benefit of Rindone. The latter was the owner and possessor of the premises when, on or about December 20, 1925, the large brick building which stood on the lot was damaged by an explosion and fire.

Both the fire insurance policies contained the standard mortgagee clause, making the loss payable to the plaintiff mortgagee as its interest may appear, and containing, inter alia, a provision that " 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 the occupation of the premises for purposes more hazardous than are permitted by this policy" ; also that " whenever this company shall pay the mortgagee 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 the whole principal due or to grow due on the mortgage with interest, and shall thereupon receive a full assignment and transfer of the mortgage and of all such other securities; but no subrogation shall impair the right of the mortgagee to recover the full amount of its claim."

Both insurance companies denied liability to the owner, Rindone, for the loss occasioned by the explosion and fire, on the grounds that, although the building was insured as a dwelling, it was partly occupied for mercantile purposes, and that the fire was caused by the explosion of a still operated in the building contrary to law, and Rindone did not pursue a claim against either of the insurers until after the time for filing formal claim for the loss had expired.

Subsequently the plaintiff mortgagee took up the matter with the insurers, and the amount of the loss occasioned by the fire was appraised at $1,368.49, the liability, if any, being apportionable 60 per cent. to the North River Company, and 40 per cent. to the Girard Company, and each insurer agreed to pay the plaintiff such share of the loss, on condition that the plaintiff would agree to reimburse the company for the amount so advanced out of the moneys ultimately realized in satisfaction of its mortgage. The plaintiff so agreed, and the North River Company paid to it $821.09, and the Girard Company, $547.40. These proceedings were had without Schancupp's consent or knowledge.

The plaintiff did not apply these payments to the payment of the mortgage note, but brought this foreclosure action for the full amount, $3,000, and interest. The defendant Schancupp set up, as a defense, the transactions between the plaintiff and the insurance companies, and claimed that it was incumbent upon the plaintiff to appropriate the insurance money, so received by it, to the payment of the note. Upon the agreed facts, the trial court held that the plaintiff received the insurance money as the proceeds of collateral security for the mortgage indebtedness, that the defendant Schancupp stood in the relation of surety for the payment of the mortgage debt, and, as such surety, was entitled to have the payments credited upon that debt, and, while finding the amount due from Rindone to be $3,541.99, deducted therefrom, as to Schancupp, the $1,368.49 and interest, making the amount due $2,056.50. It is as to the validity of this deduction, only, that the plaintiff's appeal relates.

The distinction which the court made between Schancupp and Rindone, as to the amount of the debt, was based upon its holding that the former was, not only as to the latter, but also as to the plaintiff, surety for the payment of the mortgage debt, and that the money received by the plaintiff from the insurance companies was to be regarded as the proceeds of collateral security, to the benefit of which Schancupp, as such surety, was entitled. The appellant challenges the legal correctness of these conclusions.

As to the first, the rule in this state is that a conveyance, by the mortgagor, of mortgaged property to one who assumes and agrees to pay the mortgage debt, creates, as between the mortgagor and such grantee, the relation of surety and principal, but does not, of itself, and apart from the effect of subsequent dealings between the mortgagee and the grantee, change the relationship of the mortgagor to the mortgagee. The former remains liable to the latter as a principal debtor; both the mortgagor and the assuming purchaser are, as to the mortgagee, principals. Boardman v. Larrabee, 51 Conn. 39, 42; Waters v. Hubbard, 44 Conn. 340. See also State ex rel. McClure v. Northrop, 93 Conn. 558, 566, 106 A. 504, 7 A.L.R. 1014; Cacavalle v. Lombardi, 106 Conn. 339, 342, 138 A. 155; Chauser v. Cama, 106 Conn. 390, 393, 138 A. 157; 2 Jones on Mortgages (8th Ed.) § 923; annotator's note to Peters v. Lindley, 41 A.L.R. 318.

The reason that the relation of suretyship between a mortgagor and his grantee, created by the conveyance with assumption by the latter, of an obligation to pay the mortgage debt, does not, of itself, affect the relations between such mortgagor and the mortgagee lies in the clear distinction between a suretyship which is created with the express consent of the creditor, as in an original contract, and one which arises in a later transaction to which the creditor is not a party. " In the former case the creditor is, by his own act, bound to recognize all the distinctive rights of the surety, whose obligation to him exists in no other capacity, from the beginning. He must therefore do nothing which may lessen the surety's recourse, or chances for indemnification, in the event of his having to pay the debt. But in the latter case he has voluntarily assumed no such duty. It becomes a question, then, whether the law can cast it upon him without his consent, and thus, in effect, alter the terms of his original...