Farmers' & Merchants' National Bank v. Moore

The opinion of the Court was delivered by Mr. Justice Cothran. This action was originally instituted for the purpose of foreclosing a mortgage executed by the defendant C. V. Moore to Bake City Bank on August 30, 1919, to secure a note for $2,376.31, past due. The record fails to state who were the other defendants in the case, but it is assumed from various portions of the record that they were the Federal Band Bank of Columbia and the Dixie Insurance Company, for reasons which will appear. It appears that in August, 1919, one J. Ed. Coker owned a tract' of land in Williamsburg County, containing 80 acres; that on August 30, 1919, he divided the tract into two parts, one containing 31.23 acres and the other 47.77 acres; he sold the one to E- P. McKnight and the other to the defendant C. V. Moore. At that time there was an outstanding mortgage upon the 80 acres executed by Coker to the Federal Band Bank of Columbia for $1,500. This mortgage contained the following provision for insurance: “And it is covenanted by and between the said parties that the said J. Ed. Coker and his heirs, executors, administrators or assigns, will insure and keep insured to the satisfaction of the Federal Band Bank of Coulmbia, S. C., all buildings and improvements now on said premises, the *403 value of which was a factor in' determining the amount of the loan secured hereby, against loss or damage by fire or windstorm, in such sum or sums as may be required by the Federal Band Bank of Columbia, and in such compay or companies as may be approved by the Federal Band Bank of Columbia, its successors or assigns, the loss, if any, to be payable to the Federal Band Bank of Columbia, as its interest may appear at the time of the loss, and will deliver said policy or policies of insurance to the Federal Band Bank of Columbia and will promptly pay when due all premiums for such insurance. In case any insured buildings or improvements on said premises are destroyed or damaged by fire or windstorm, the sum or sums collected from said insurance may at the option of the said J. Ed. Coker be applied either to the payment of the note secured by this mortgage or subject to regulations of the Federal Farm Eoan Board of Columbia and under the direction of the Federal Band Bank of Columbia to the reconstruction of the buildings or improvements so destroyed or damaged.” The deed from Coker to Moore contained the following provision: “The said premises are conveyed subject to a mortgage of the above-described premises and of the parcel of 3B23 acres (47.77 acres), * * * the said mortgage being in favor of the Federal Band Bank of Columbia, S. C., and is for the principal sum of fifteen hundred ($1,500.00) dollars, payable in thirty-five (35) annual payments and the said mortgagee above named hereby agrees to assume and pay one-half (}4) of said mortgage indebtedness as a part of the consideration of this conveyance, the one-half ()4) of said mortgage indebtedness having been deducted from the purchase price of said premises. The remaining one-half of said mortgage indebtedness is this day assumed by the purchaser of the said,” other tract. It does not appear that Coker took out any insurance upon *404 the property while he owned it, as he was obligated to do under the Federal Land Bank mortgage. When Moore acquired the property conveyed to him by' Coker, he executed two mortgages upon it; one to the Bank of Lake City for $2,376.31, and one to Severance and Williams for $1,578.80. The mortgage to the Bank of Lake-City was upon a printed form which contained the regular insurance form; the blank space upon which for the amount of insurance, however, was not filled out. On February 5, 1921, Moore applied for and obtained a policy in the Dixie Fire Insurance Company for $1,800 insurance upon the dwelling house. The Bank of Lake City afterwards went into liquidation, and the plaintiff Farmers’ & Merchants’ National Bank became the owner by assignment of the note and mortgage. A some time thereafter, during the life of the policy, 'the dwelling house was destroyed by fire, and the loss under the policy was adjusted at $1,750. Thereafter the Farmers’ & Merchants’ National Bank instituted the present action for the foreclosure of the mortgage executed by Moore to the Bank of Lake City and to subject the proceeds of the insurance to the payment of its mortgage. Whether the insurance company was a party defendant to this action does not distinctly appear, though we assume that it was, from the statement in the “case” that after the commencement of the action the insurance company paid the adjusted insurance, $1,750, into the hands of the clerk of Court, who still holds the funds pending- the determination of the right thereto. The several defendants answered setting up their respective claims by way of liens against the mortgaged premises, and all of these matters have been settled and the land sold. The only remaining issue in the case is that between the Farmers’ & Merchants’ National Bank and the respondent Moore, as to the right to the proceeds of the insurance in the clerk’s hands. The case was referred to John D. Britton, Esq., who filed *405 a report holding that the respondent Moore was entitled to' the insurance money. Upon exceptions to this report, his Honor, Judge Wilson, filed a decree confirming it. In his decree this statement occurs: “Upon the hearing before me, the plaintiff entered into an agreement with the defendant Federal Land Bank to pay the Land Bank the amount due it and take an assignment of its mortgage; and, this having been concluded, the money paid and the mortgage delivered, the same is hereby confirmed and all of the rights of the Federal Land Bank under the said mortgage are hereby confirmed in the plaintiff.” From this decree the plaintiff bank has appealed upon exceptions, which raise practically the only issue in this appeal —who is entitled to the insurance fund, the plaintiff bank, or the defendant Moore ? Considering first the rights and obligations of the Federal Land Bank and the original mortgagor Coker, growing out of the relations between them created by the mortgage from Coker to that bank: The mortgage contained the insurance clause which has been set forth above. And while Coker did not respond to the obligation imposed upon him by that clause and the Federal Land Bank did not enforce it, it is clear that if Coker had taken out a policy of insurance and had made the loss payable to himself, the bank would have had a equitable lien upon the insurance money, in the event of loss by fire. As is said in 14 R. C. L., 1367: “It is settled by many decisions in this country that if the mortgagor is bound by covenant or otherwise to insure the mortgaged premises for the better security of the mortgagee, the .latter will have an equitable lien upon the money due on a policy taken out by the mortgagor to the extent of the mortgagee’s, interest in the property destroyed.” See, also, Swearingen v. Ins. Co., 52 S. C., 309; 29 S. E., 722. Wheeler v. Factors’ & T. Ins. Co., 101 U. S., 439; 25 L. Ed., 1055. *406 Now, if Moore had bought the entire property, and had assumed the payment of the mortgage which Coker had executed to the Federal Band Bank, he would have assumed all of the obligations contained in that mortgage; he would have stepped into the shoes of Coker; and the bank would have acquired a lien upon the insurance proceeds although the policy may have been made payable to Moore. In 1 Jones, Mtg. (6th Ed.) p. 771, it is said: “The assumption of the mortgage covers all the incidents of the mortgage debt, as for instance a stipulation for the payment of an attorney’s fee in case of foreclosure; or a covenant to pay all taxes on the mortgage and on the mortgaged property.” In 27 Cyc., 1347, it is said: “A purchaser assuming a mortgage takes the incumbrance as' it stands, subject to all its conditions and limitations.” “Where a grantee assumes a mortgage on the property granted, his liability depends on, and is coextensive with, the personal liability of his grantor.” Howard v. Robbins, 67 App. Div., 245; 73 N. Y. S., 172. In Johnson v. Northern Minnesota Land & Investment Co., 168 Iowa, 340; 150 N. W., 596, it is held (quoting syllabus) : “A purchaser of land subject to a mortgage thereon, which he assumes to pay, thereby assumes the mortgage according to its terms, including a stipulation for insurance for the benefit of the mortgagee, and insurance procured by the purchaser inures to the benefit of the mortgagee.” “The liability of a bank which has assumed a mortgage is measured by the terms thereof.” Kinyon Ins. Co., v. Bank, 69 Mont., 282 ; 221 P., 286. “Successor bank, by assuming mortgage debt of predecessor bank, became bound by all conditions of mortgage deed, such as a covenant to insure, with option to declare *407 debt due for breach.” People’s Sav. Bank v. Jordan, 200 Ala., 500; 76 So., 442 “Avendee, assuming an existing trust deed or mortgage, takes the incumbrance as it stands, subject to all the conditions touching the mortgage debt.” Merrimon v. Parkey, 136 Tenn, 645; 191 S. W., 327. In Farmers’ Loan & Trust Co. v. Penn Plate Glass Co., 186 U. S., 434; 22 S. Ct., 842; 46 L. Ed., 1234, the question whether the grantee or the mortgagor, who had taken out insurance for his own benefit, was responsible to the mortgagee for the proceeds of the insurance, was decided in favor of the grantee upon the specific ground that there was no obligation upon the mortgagor, in the mortgage, to take out insurance for the protection of the mortgagee, and no evidence of a personal assumption of the mortgage by the grantee. The implication is clear that if both these conditions existed there would be no doubt of his liability. The Court says: “The Penn Company [the grantee and the insured] had the right to insure its own interest, and unless there was some contractual obligation on its part on the subject, which bound it, or some conduct on its part, or on the part of Kann, its immediate grantor, which would estop it from setting up the fact that it had procured the insurance for itself, the moneys arising out of the contracts which it made with the various insurance companies, cannot be taken from it and bestowed on the complainant for the benefit of the bondholders secured by the mortgage in suit.” It is a 'common, if not invariable, condition in a fire insurance policy that a change in the title to the property insured will avoid the policy. If therefore the grantee of the premises, who has assumed the mortgage debt, may be allowed to take out insurance payable to himself and collect it for himself, he will by the change of title have avoided the outstanding insurance which the mortgagor has taken out for the protection of the mortgagee and repudiated *408 an incidental obligation in the mortgage which he assumed when he assumed its payment. In the deed, however, from Coker to Moore, the latter assumed the payment of only one-half of ’the mortgage to the Federal Land Bank, and, of course, is not liable beyond that limitation. The Federal Land Bank should be decreed entitled to a lien upon the insurance fund to the extent of one-half of the amount due upon the Coker mortgage to it; and that would inure pro tanto to the benefit of the Lake City Bank mortgage which is owned by the Farmers’ & Merchants’ National Bank. It appears, however, from the foregoing extract from the circuit decree, that the plaintiff bank has bought, paid for, and had assigned to it, the Federal Land Bank mortgage, which assignment, by the decree, has been confirmed and “all of the rights of the Federal Land Bank are hereby confirmed in the plaintiff,” and is therefore entitled to what the Federal Land Bank would have been entitled, as above stated. The interests of the assignee of the mortgage executed by Moore to Severance and Williams do not appear to have been considered in the decree or in the appeal. What effect the failure of the assignee to appeal from the decree may have upon those interests is not before the Court. The judgment of this Court is that the decree of the circuit Court be reversed, and that the case be remanded to that Court for further proceedings in harmony with the conclusions herein announced. Messrs. Justice Beease and StabEr concitr.