Vermont Mutual Fire Insurance Co. v. Claude Van Dyke

• Decision Date: 02 May 1933
• Parties: VERMONT MUTUAL FIRE INSURANCE CO. v. CLAUDE VAN DYKE
• Court: Vermont Supreme Court

165 A. 906

105 Vt. 257

VERMONT MUTUAL FIRE INSURANCE CO. v. CLAUDE VAN DYKE

Supreme Court of Vermont

May 2, 1933

January Term, 1933.

Insurance---Law of Place Where Contract Made as Governing Its Validity and Construction---Right of Insurer To Maintain Suit Against Insured Where Payment of Loss Procured by His Fraud---Effect of Fraud of Insured on Mortgagee's Right To Recover on Fire Insurance Policy Containing "Open Mortgage" Clause---Right of Third Person To Retain Money Paid by Insurer on Insured's Order---General Assumpsit on Money Counts---Essentials To Maintain Such Action---Trial Errors Rendered Harmless by Decision in Supreme Court.

1. Ordinary rule that law of place where contract is made governs its validity, interpretation, and construction, held applicable to fire insurance policy executed in Vermont covering property situated in Canada, policy containing nothing to indicate contrary intention by parties.

2. Where insured under fire insurance policy obtained payment for loss thereunder by proof of loss false as to other insurance and as to other encumbrances, which under terms of policy rendered it void, insurer could maintain action against insured for amount so paid.

3. Where fire insurance policy was payable to mortgagee as his interest might appear, under so-called "open mortgage" clause, insurer made no contract with mortgagee, but latter's right to collect insurance was derivative only as insured's appointee; and, where insured had been guilty of fraud upon insurer, mortgagee could not maintain suit on policy for his own benefit.

4. Where insurer under fire insurance policy, payable to mortgagee as his interest might appear under so-called "open mortgage" clause, before discovering that insured had made proof of loss false as to other insurance and as to other encumbrances, which under terms of policy rendered it void, paid loss thereunder by check payable to mortgagee and insured which latter indorsed to mortgagee, insurer could not recover sum so paid from mortgagee.

5. Where person under mistaken belief of his indebtedness to another, on latter's direction, pays third person's claim against supposed creditor, person making payment cannot recover from such third person, whose rights are just what they would be if supposed creditor had himself made payment of amount to such third person.

6. Action of general assumpsit on money counts is equitable action, and, before it can be maintained, it must be made to appear that defendant has received money or its equivalent which, ex aequo et bono, belongs to plaintiff.

7. Trial errors, if any, held harmless, where judgment in Supreme Court was that plaintiff was without right to maintain his claim against defendant.

ACTION OF CONTRACT. Plea, general denial. Trial by court at the September Term, 1931, Washington County, Sturtevant, J presiding. Judgment for the plaintiff. The defendant excepted. The plaintiff also excepted to the allowance of defendant's exceptions taken during the trial, and to the refusal of the court to grant a certified execution. The opinion states the case.

Judgment reversed, and judgment for the defendant to recover his costs.

Harry B. Amey and Searles & Graves for the defendant.

Theriault & Hunt for the plaintiff.

Present POWERS, C. J., SLACK, MOULTON, THOMPSON, and GRAHAM, JJ.

OPINION

POWERS

Romauld Paradis, the owner of certain farm buildings in East Hereford, P. Q., took out a fire insurance policy thereon in the plaintiff company. By its terms, any loss thereunder was payable to the defendant, as mortgagee, as his interest might appear. This provision was embodied in an "open mortgage" clause, so-called. The policy contained the usual provisions against encumbrances, change of title, and concealment or misrepresentation before or after loss--breach of which was to render the policy void. While the policy was in force and without change material here, some of the buildings covered were destroyed by fire. In due time Paradis executed a proof of loss and therein made oath that there was no other insurance on the property except one policy which was mentioned in the plaintiff's policy. This was deliberately false. There was at that time a policy in the International Insurance Co., of Montreal, which Paradis had procured, covering a building insured by the plaintiff, to the amount of $ 3,500.00.

Paradis also swore in the proof of loss that there was no encumbrance on the property, except the mortgage to the defendant. This, too, was deliberately false. During the time the policy had been in force, Paradis had put three other mortgages onto the property covered, and these remained as encumbrances thereon at the time the proof of loss was executed.

Relying upon the facts set forth in the proof of loss, and knowing nothing to the contrary, the plaintiff paid its share of the loss by a check payable to Paradis and the defendant. Paradis indorsed the check and turned it over to the defendant. The latter indorsed it, and passed it to the Colebrook Guaranty Savings Bank to which he was indebted on a loan for which he had pledged the Paradis mortgage. The check was credited accordingly.

Later on, the plaintiff discovered Paradis' fraud and false swearing; and having made an unsuccessful demand on the defendant for a return of the amount paid as aforesaid, brought this suit. The complaint is in the form of general assumpsit, with the money counts relied upon. On a general denial, the case was tried below by the court, and on facts found judgment was rendered for the plaintiff to recover the amount of the check referred to, with interest thereon. The defendant excepted. The plaintiff also excepted to the allowance of the defendant's exceptions taken during the trial, and to the refusal of the court to grant a certified execution.

The defendant claims that this policy covering property in the Dominion of Canada was to be governed by the Canadian law. To this we cannot agree. There being nothing in the policy indicating that the parties intended anything to the contrary, the ordinary rule that the law of the place where the contract was made is to govern its validity, its interpretation, and its construction, applies. Richards on Ins. § 76; 26 C. J. 38; Kustoff v. Stuyvesant Ins. Co., 160 Tenn. 208, 212, 22 S.W.2d 356; Liverpool, etc., S. Co. v. Phenix Ins. Co., 129 U.S. 397, 453, 458, 32 L.Ed. 788, 9 S.Ct. 469; Smith v. Anderson, 70 Vt. 424, 426, 41 A. 441; Hartford S. B. Inspection & Ins. Co. v. Lasher Stocking Co., 66 Vt. 439, 446, 29 A. 629, 44 Am. St. Rep. 859.

The policy was executed in Vermont and is a Vermont contract, though this fact makes little if any difference, as we view the case.

That the plaintiff could maintain a suit against Paradis to recover this money is too plain to be denied. That it made no contract with the defendant, that the latter's right to collect the insurance was derivative, only, and that he was Paradis' appointee, are propositions fully established by Girard v. Vermont Mutual Fire Ins. Co., 103 Vt. 330, 154 A. 666. That, because of Paradis' fraud, the defendant could not have maintained a suit on the policy for his own benefit, necessarily results from that case. It is generally so held. Dawson v. Insurance Co., 192 N.C. 312, 317, 135 S.E. 34; Jaskulski v. Citizens' Mutual Fire Ins. Co., 131 Mich. 603, 605, 92 N.W. 98; St. Paul F. & M. Ins. Co. v. Ruddy (C.C.A.), 299 F. 189, 197; Wyley v. Federal Ins. Co., 136 Wash. 686, 689, 241 P. 292; Keith v. Royal Ins. Co., 117 Wis. 531, 538, 94 N.W. 295.

It does not follow, however, that this suit can be maintained. The rule by which a recovery could be had from Paradis is, ordinarily, limited to payments inter partes and has no application to third persons to whom a debtor has paid what he supposed he owed his creditor. The rule is thus stated by Prof. Williston: " When A, under a mistaken belief in his liability to B, on direction of the latter, pays C a claim which C has against B, A cannot recover the payment from C. If the payment was voluntarily and intentionally paid by A to C to satisfy the latter's claim against B, and C had a genuine claim against B, it seems clear that no recovery should be allowed. C is a purchaser of the money for value and in good faith." 3 Williston, Contracts, § 1574.

In such cases, when the money is received by C, his rights are just what they would be if he had received it from B, as we shall presently see.

This action of assumpsit is an equitable action; and before it can be maintained, it must be made to appear that the defendant has received money or its equivalent which, ex aequo et bono, belongs to the plaintiff. Claflin v. Godfrey, 38 Mass. 1, 6; Winslow v. Anderson, 78 N.H. 478, 102 A. 310, L.R.A. 1918C, 173, 175; Williamson v. Johnson, 62 Vt. 378, 385, 20 A. 279, 9 L.R.A. 277, 22 Am. St. Rep. 117.

This defendant was paid the amount of the check by appointment of Paradis. So far as the receipt of the money is concerned, he represented Paradis to the extent that in legal effect the payment discharged the plaintiff. But that is as far as the representation went. The defendant...