Thorp v. Croto

Miles, J., for the majority of the Court. The question raised in this case is, must the mortgagee receiving money on a fire insurance policy procured by the mortgagor for his benefit, hold that money until some part of the mortgage debt is due and thereafter apply it as fast as it falls due and no faster \ 1 I At the time the money was received by the mortgagee no part of the principal nor interest was then due upon the mortgage indebtedness, which then consisted of six promissory notes of two* hundred dollars each, bearing date November 16, 1901, and made payable six, seven, eight, nine, ten and [392] eleven years from’ date, with interest annually from January i, 1902. At the time this money was received by the mortgagee, he indorsed it as-a payment upon the note first falling due, to the extent of two- hundred dollars, thereby extinguishing the principal of that note, if treated as a payment, and leaving due thereon only the interest which had accrued upon It to that date, the first year’s interest on all the notes having been paid previous to the receipt of the insurance money by the mortgagee. The balance of the money the mortgagee indorsed generally upon the note next falling due. No direction was given by the defendant mortgagor, to the orator as to what disposition he desired to have made of that money, until some time after the application had been made. His contention now is, that, as no part of the debt was due at the time the money was received, the orator had no right to indorse it upon the debt without his consent until some part of it fell due. It is undoubtedly true that such is the law, and the Court are all agreed that money so received cannot be applied as a payment upon the mortgage debt, if no part is due at the time of application, without the consent of the mortgagor, and a majority of the Court hold that when the debt does fall due, the mortgagee not only may. but must apply the money to the extinguishment of the debt as fast as the same falls due; that the mortgagee holds such money for the payment of the debt, and the application must be made as the law requires in cases where money is received on a pledge. In Lewis v. Jewett, 51 Vt. 378, which was a suit upon two-notes against the defendant, secured by the pledge of other notes on which was received a sum of money during the pendency of the suit, it was said by the Court, Ross, J. delivering the opinion: “When the sum came into the plaintiff’s hands, by [393] force of the relation in which he held the Mower notes, • it was to be -used, so far as was necessary to effect that purpose, to extinguish the balance due the plaintiff from the defendant on the notes in suit. The receipt of this sum- by the plaintiff effected and operated upon the suit the same as it would if the plaintiff had received the same sum in payment of the balance due him on the notes in suit.” In the case of Hunt v. Nevers, 15 Pick. 500; S. C., 26 Am. Dec., 618, Shaw, C. J., says: “It is a general rule, that where collateral security is received for a debt, with power to convert the security into money, this is specifically applicable to>- the payment of such debt; the same person being the party to pay and receive, no act is necessary, and the law makes the application; if the proceeds equal or exceed the amount of the debt, it is de facto paid; no action would lie for it; and proof of these facts would support the defense of payment.” T’o the same effect is the case of Prouty v. Eaton, 41 Barb. 409, in which the Court say: “This, as a matter of law, is a payment upon the principal debt. Prima facie there is nothing else upon which the money paid could apply.” The last named case was'one in which the money received was a payment upon a mortgage held as collateral security. Similar cases can be found in other states besides Massachusetts and New York, but no useful purpose could be served in collecting cases upon this point, as the rule for the application of payments received in such cases is well settled and rests upon principle as well as upon authority. Applying this rule to- the case at bar, it follows that the orator had no right to apply the money as he did, but that he should have held it until a part of the mortgage debt fell due, and then should have applied it to- the part which had fallen [394] due, and as it fell due, and upon his failure to make that application, the law will make it. The master has found that if such application is made, there was nothing due on the mortgage debt at the time the petition was brought and that the petition should be dismissed. Some question was made on the trial of this cause before the master respecting the defendant’s failure to insure the buildings on the mortgaged premises in accordance with the condition of the mortgage, and the master has found that the mortgagor failed in some respects to insure strictly in accordance with that condition; but he also' finds that such failure was the. result of a misunderstanding on the part of the mortgagor, and his inability to perform the condition in that respect any sooner than he did, after he learned that the insurance had expired and the buildings were not insured as the condition of the mortgage required. He also finds that no damage was occasioned the orator in consequence of this failure, and that after the insurance was effected, the orator has had the possession of that policy and still has it. In view of the fact that the orator has made in his brief no point of this failure to keep the buildings on the mortgaged premises insured strictly in accordance with the condition of the mortgage, and no- damage having resulted from it, we consider it unnecessary to< say anything respecting that matter; but pass by it as the orator has done. Decree reversed with costs in this Court, and cause remanded with mandate that the bill be dismissed.