Sisk v. Rapuano

• Decision Date: 29 January 1920
• Citation: 108 A. 858,94 Conn. 294
• Court: Connecticut Supreme Court
• Parties: SISK v. RAPUANO et al.

108 A. 858

94 Conn. 294

SISK v. RAPUANO et al.

Supreme Court of Errors of Connecticut.

January 29, 1920

Appeal from Superior Court, New Haven County; William S. Case Judge.

Mortgage foreclosure action by Edward J. Sisk, Francis P. Sisk administrator, against Maria Rapuano and others. Judgment for defendants, and plaintiff appeals. No error.

One Grillo, owner of the premises in question, being about to build thereon, borrowed $2,500 for that purpose from Hannah Bowler, to be advanced as building operations required, and executed the mortgage in suit. At the same time the building was insured against loss by fire under a policy making the loss payable to the mortgagee as her interest might appear. In December, 1916, the unfinished building was destroyed by fire at a time when only $1,000 had been advanced to Grillo by Miss Bowler. The remaining $1,500 was credited on the note. Grillo sold the equity in the property to Ruby for $300, and Ruby conveyed to the defendant Rapuano. In March 1917, Grillo was adjudged a bankrupt, and one Podoloff appointed trustee. Meantime the fire loss had been adjusted at $2,200, and Grillo's claim against the insurance company constituted the only asset of his estate. At Podoloff's request Miss Bowler executed and left with her attorneys a release of the insurance company and a transfer of the mortgage to Podoloff, trustee and in May the insurer paid the loss to Podoloff who, as part of the same transaction, turned over to Miss Bowler's attorneys $1,017.43, being the amount of the mortgage debt, with interest, and received from them the above-mentioned release and transfer. Podoloff assigned the mortgage to the plaintiff, Sisk. Sisk died after this action was commenced, and his administrator has entered to prosecute. Other facts are stated in the opinion.

Where a mortgagee insures his own interest at his own expense, payment of a loss before the mortgage is paid is not a payment on the mortgage, and, conversely, a mortgagor, insuring his separate interest, is entitled to the insurance proceeds, but, where the mortgagor effects insurance payable to the mortgagee as his interest may appear, the policy is for the benefit of both parties.

Walter J. Walsh, of New Haven, for appellant.

William J. McKenna, of New Haven, for appellees.

BEACH J.

The underlying question is whether the transaction described in the finding of facts amounts to a purchase of the mortgage by the trustee in bankruptcy, or whether, as the trial court held, to a payment of the mortgage.

It is said that on the facts found the judgment is erroneous because it violates the rule that the intention of the parties should prevail; that in this case the manifest intention of the parties was that the note and mortgage should be kept alive and not extinguished, and that the court has no right to apply the payment in satisfaction of the mortgage, when the parties had already made a different application of it. These propositions assume that the trustee and the mortgagee were free to deal with this insurance money as they saw fit, and might make such application of it as they chose; whereas the defendant claimed, and the court so rules, that by the terms of the policy, the insurance money, or so much of it as was necessary for that purpose had already been applied, or agreed to be applied, in case of loss to the payment of the mortgage, and that if the mortgagee elected to accept it, she could not make any other application of the fund without the consent of the mortgagor.

The subject of insurance for the benefit of the mortgage is exhaustively treated in Jones on Mortgages, § § 400-417, and some of the principal phases of it are discussed by Chief Justice Shaw in King v. Insurance Co., 7 Cush. (Mass.) 1, 54 Am.Dec. 683. If a mortgagee insures his own interest at his own expense, the payment of a loss accruing before the mortgage debt is paid is not a payment on the mortgage, and authorities differ as to whether in such a case the insurance company on paying the loss is subrogated to the rights of the mortgagee. Mr. Justice Story, in Carpenter v. Insurance Co., 16 Pet. 495, 10 L.Ed. 1044, holds that the insurer is subrogated. King v. Insurance Co., supra, holds the other way. Conversely, the mortgagor may insure his separate interest without any reference to that of the mortgagee, and in case of loss is entitled to receive the insurance and to deal with it as he pleases. Carpenter v. Insurance Co., supra; 27 Cyc. 1263; Jones on Mortgages, 397.

But when the insurance is effected by or at the expense of the mortgagor, and the policy is made payable to the mortgagee as his interest may appear, it is evidently for the benefit of both mortgagor and mortgagee. The contract of indemnity is primarily with the mortgagor, but the mortgagee is a third party beneficiary. In this state it is held that the insertion of the so-called open mortgage clause will not of itself entitle the mortgagee to sue on the policy. Meriden Savings Bank v. Insurance Co., 50 Conn. 396; Collinsville Savings Bank v. Insurance Co., 77 Conn. 676, 60 A. 647, 69 L.R.A. 924. Also that before a loss occurs the mortgagee is only a conditional appointee of the property owner, and as such appointee entitled to receive so much of any sum that may become due under the policy as does not exceed his interest as mortgagee. Collinsville Savings Bank v. Insurance Co., supra. In this case a loss had already occurred and become payable while the mortgage debt was still outstanding, and thereupon the appointment and the right of the mortgagee to receive so much of the insurance money as would satisfy the amount of the outstanding debt became absolute.

It sometimes happens that the loss becomes payable before the mortgage debt is due, and then it is said that the mortgagee is entitled to receive the money and apply it to the extinguishment of the debt as fast as it becomes due. Thorp v. Croto, 79 Vt. 390, 65 A. 562, 10 L.R.A. (N. S.) 1166, 118 Am.St.Rep. 961, 9 Ann. Cas. 58, and cases cited. A difference of opinion arose in that case on the question whether the mortgagee might apply the insurance money to the payment of interest, and the prevailing opinion holds that he was bound to retain it and apply it on successive installments of the principal as they became due.

In this case, however, the mortgage debt was due when the insurance was paid on May 21, 1917, and no question can arise as to the proper application of the fund by the mortgagee. It will therefore be apparent that if Miss Bowler had received her agreed share of the insurance money directly from the insurance company after the debt was due, she would be bound to apply it in extinguishment of the mortgage. Conn. Life Ins. Co. v. Scammon, 117 U.S. 634,...