Hartford Fire Insurance v. Olcott

Mr. Justice Scholfield delivered the opinion of the Court: Since all the evidence that Avas offered or could have been admitted under the special pleas was admitted under the general issue, the ruling sustaining demurrers to the special pleas can not be urged as ground of reversal. If that ruling was error, it was such as in noAvise prejudiced appellant. Curtiss v. Martin, use, etc. 20 Ill. 557; Jones v. The Council Bluffs Bank, etc. 34 id. 313. All the questions of law essential to the determination of the rights of the parties arise upon a consideration of the evidence, in regard to which1 there is no material controversy. The question first to be considered is, was the suit rightly brought in the name of appellee? Appellant contends that the contract declared on and offered in evidence was a simple contract between appellant and Benjamin S. Prettyman, for the payment of money by appellant to Prettyman, and not to appellee; that it was based on a consideration moving from Prettyman alone, and gave no right of action in the name of appellee. This, in our opinion, results from a partial consideration of the evidence, and is not sustained when the full effect of all the evidence is considered. The intention of the parties here, as in other contracts, if it can be clearly ascertained from the evidence, must be carried into effect,—and in ascertaining this intention it is proper to take into consideration all the facts and circumstances legally constituting a part of the transaction in which the policy was issued. The facts and circumstances material to the present inquiry are: On the 16th day of November, 1872, Benjamin S. Prettyman executed his promissory note, due in five years, for $10,000, bearing interest at the rate of ten per cent per annum, payable semi-annually, to the Connecticut River Savings Bank. On the same day, Prettyman (his wife Sarah A. joining him therein) executed to appellee, as trustee, a deed of trust, to secure the payment of this note and accruing interest, on certain real estate near Pekin, which embraced the dwelling and outbuildings constituting Prettyman’s homestead. The deed contains, among other things, this declaration of trust: “In trust, nevertheless, that if default shall be made in the payment of the said promissory note or the interest thereon, * * * or to pay all taxes and assessments * * * assessed upon said property, or shall fail to keep the buildings on said premises constantly insured in some responsible insurance company to the amount of $10,000, for the benefit of said Connecticut River Savings Bank, or the holder or holders of said promissory note, as further security therefor, then,” etc., concluding with the usual power of sale. And at the conclusion of the covenants this language occurs: “And that they [the grantors] will, during the continuance of these presents, pay all taxes and assessments levied on the premises; * * * and in case said parties of the first part shall fail to pay any taxes or assessments levied on said premises before they are advertised for sale, or shall fail to keep said buildings "insured as herein required, then, and in that case, said party of the second part shall immediately sell,” etc. This can leave no doubt that it was understood and intended that Prettyman'should effect an insurance on the building to the amount of $10,000, and "that such insurance, when effected^ would be “for thé"benefit" of the bank, or the holder of the notes, as further security therefor.”' And since to keep property insured requires" the payment of the necessary premium, it must be equally free of doubt that it was understood and intended that Préttyman should pay the premium. But counsel for appellant argue that this language does not amount to a covenant by Prettyman to keep the property insured, and they say “that appellee lent his money to Prettyman, not on an agreement of Prettyman to insure, but on a deed with a power to sell the land, if Prettyman saw fit, as he lawfully might, to omit to insure,” and that “this being so, appellee’s remedy is confined to his contract with Prettyman, whatever would have been the case had he taken an agreement from Prettyman to insure, on a valid consideration paid Prettyman.” We are not now concerned to ascertain in what way or by what form of action Prettyman could" have been compelled to insure, or to respond in damages for not insuring had he refused to keep the property insured. He did keep the property insured, and the inquiry is to ascertain whether he did it of his own volition and for his own benefit, simply, or whether he did it because of his contract with the Connecticut River Savings Bank, and for the benefit of that bank. It is not true, in a legal sense, as counsel contend, that Prettyman had the option to insure or not, any more than it is true that the debtor has an option to pay"his creditor or not, as he may choose. Either, it is true, may refuse, but the act of refusal will not stay the hand of the law. In any view, Prettyman’s refusal here would have been followed by the immediate sale of property, exceeding in value several times the amount of his debt, and the appropriation of its- proceeds for the payment of his debt, although not due for five years,— or, in other words, as respected the security of the trust deed, a debt not due for five years would have been instantly collectible by the sale of Prettyman’s property. Under such circumstances, to say that there is no consideration for the payment of the premium on a policy for the bank, is simply to lose sight of what constitutes a consideration. If forbearing the sale of property held as security'for the payment of a debt is not a sufficient consideration to support an executed contract, what would constitute such a consideration? We know, from the common course of business, that contracting precedes the act of loaning money, especially when the loan is secured by securities collateral to the promise of the borrower. And when a deed of trust is executed in Avhich is conferred upon a trustee poAver to sell or convey in the event of omission to do a specified act, it is conclusive proof that such act is, by the contract of the parties, enjoined to be done; and Avhen, also, such specified act is, thereafter, done in proper time by the party whose property is liable to be sold under the deed of trust for the omission, it is conclusive proof that it Avas done pursuant to such contract of the parties. Counsel again say: “If it be true that Prettyman agreed with Olcott to pay Prettyman’s money to appellant, then Olcott must have contemplated the legal effect of such a payment, Avhich Avas that Olcott Avas to avoid becoming a party to the consideration.” This, in our opinion, is a misapprehension. Olcott here, of course, as elsewhere in the discussion, and as he is in fact, stands merely as the trustee or representative of the bank, having no separate or personal interest in the transaction. And if Prettyman, pursuant to a legal contract to keep the property insured “for the benefit of said Connecticut River Savings Bank, or the holder or holders of said promissory note, as further security therefor,” paid the premium and kept the property insured, it seems quite clear that the bank, which Olcott represents, was a party to the consideration. It made the loan. The security is in consideration of the loan, and this premium had to be paid to perfect the security. On the same day that the trust deed was executed, the policy in suit was issued, and another policy, by the Phoenix Insurance Company, was also issued at the same time, insuring the same property for the same term, and in a like sum, and upon like conditions. The premiums for both policies were paid by Prettyman, and both policies were issued and delivered by the respective companies directly to the agent of the bank. These policies were for the amount required by the deed of trust. The premiums were paid, as Prettyman says, in the same transaction in which the loan was obtained, and we can have no doubt the payments were made for the bank, and pursuant to the contract by which the loan was effected. We therefore assume there is shown a motive, a legal consideration, and an intention to issue a policy creating a legal obligation, in the event of loss, upon appellant to pay to the bank, as security for its loan. Was such a policy issued? Both the policy issued by appellant and that issued by the Phoenix company contain this language: “Do insure Benjamin S. Prettyman, of Pekin, for the amount of $5000, for the term of five years, as follows, viz: $3500 on his two-story brick, metal roofed dwelling house, occupied by assured as his family residence; $1500 on his two brick barns; * * * loss, if any, under this policy, payable to George Olcott, trustee for the Connecticut River Savings Bank, in Charleston, N. H., to secure a loan of $10,000.” Annexed to and forming a part of each policy is the following mortgage clause: “ It is hereby agreed, that this insurance, as to the interest of the said trustee or successors only therein, shall not be invalidated by any act or neglect of the mortgagor or owner of the property insured, nor by the occupation of the premises for purposes more hazardous than áre permitted by this policy. : : “It Is further- agreed/ that the.holder .of the nótes'or bonds secured by said mortgage or trust deed', shall notify said company of anyv.change of'ownership.' or increase of-hazard which' shall- come tó -his or. their knowledge, and that "every increase of hazard riot permitted by the policy to the -mortgagor or owrier, • shall be .paid- by such holder on reasonable demand,--(after .demand made by .this-company upon, and refusal;.by, the mortgagor or owner to pay,) according to the established- scale .-of rates,, for the use of such increased hazard, during..the theh current year. . ' • " flit is also. agreed-,;that whenever-the. company shall pay the holder okanysuch notes:or:bonds any Sum for loss under this ¿policy,.;and shall claim that,' as -to the mortgagor or Owner, no liability therefor, existed, it shall at onqe be legally subrogated: to..all the rights of such holder, under all the securities held as collateral to the. debt, to the extent of such payment, or, at his p.ption, may pay to such holder the whole principal duej or to grow due," on the inortgage, .with -interest, and shall thereupon receive a full assignment and transfer of the securities held as collateral to the debt, but no such subrogation shall impair the right of the holder of such securities to recover the:full amount'of his claim. James Haikes, Agent.” Pekin, Ill., Nov.16, 1872. - The language' declaring, who is insured and on what property, if taken by. itself, undoubtedly discloses a contract with Benjaihin S. Prettyman to insure him' against loss on: his property. But that language is not to be taken by itself.- . It - must :be_ taken in connection with the other language, that “the loss, if any, under this policy, is payable to George Olcoit/? .etc., to secure loan of $10,000,” and in ¡connection' with -the mortgage clause. -In that clause it is clearly and-amply. recognized that Oldott, as: trristee, has", an interest "in the policy, to the amount due upon the deed of -trust-, distinct .from that of Prettymari. . His interest, or that of his successor, is not to be invalidated by any act or negr lect of the mortgagor. or ownei’ of the-property insured, nor by the occupation of the .premises for purposes 'more hazardous than, are, permitted by the policy; while Prettyman’s interest' is - to .be invalidated by such' acts:: or' neglect' - as aré -specified in the policy, and by the occupation" 'of the premises for purposes more hazardous than aro-permitted by the-policy. ■' An increase of; hazard; which tvould avoid the policy :as to Prettyman, only imposes upon the" holder ;of the note secured by the deed of trust the burden of notifying appellant of the fact of such increase of hazard, when it homes to his knowledge; and tó pay, after reasonable demand, to appellant," according to the established scale of ratesj for the use of such increased'hazard, during the then current year. ■ .' And, when the insurance company shall, pay the holder of. the noté "any sum for loss finder the. policy, and shall claim that, as" to Prett'ytnan, no liability thérefor existed, it shall at once.be legally subrogated to all the rights of such holder, under all the" secufities'held as collateral to the debt, to the extefit of sfich payment, orj fit its option, may pay tó such holdér the" whole principal due, with interest, and shall thereupon receive a full assignment .and transfer of the securities held as collateral to the debt. Now, in these respects, there is- an express contract directly between appellant -and. the bank. ■ It. has not been and we do not think it can be claimed- that such contract is not legal. For any infraction thereof, why will an action at law not lie between these parties? We perceive no reason.. , . . . It clearly appears, that to the extent of its indebtedness .as secured by the; de'ed of trust,'the. bank has. an Interest distinct from thfit. of Prettyman'; .and any loss to "that ¡interest accruing "under the.policy is- payable, by the express; language of the;policy, tó George Olcott, trustee. ... This promise^ in connection with the ■ other evidence wé have been - considering, is -wholly unlike that inthe class ofi cases .of which Grosvenor. v. Atlantic Fire Ins. Co. 17 N. Y. 391, may be taken as a type, and to which Illinois Fire Ins. Co. v. Stanton, 57 Ill. 354, belongs. In those cases there is a mere appointment, without any legal consideration, to pay the mortgagee or trustee. There is no legal contract by the insurance company, with the mortgagee or cestui que trust, or its representative, the trustee. In the case at bar, on the other hand, appellant, for a consideration paid to it by Prettyman pursuant to a contract between him and the bank, by which he obtained a loau of $10,000 of the bank, and in part the consideration of that loan, promised the bank to pay its trustee the loss, if any occurred, under the policy. That such a promise, even if it had not been in writing, and the Statute oí Frauds had been pleaded, would have been valid and binding, is clearly settled by decisions of this court, and a fortiori must it be so when reduced to writing and no question of the statute is involved. In Eddy v. Roberts, 17 Ill. 505, Williams sold and delivered certain property to the defendant, and the defendant, as a part of the transaction, agreed with Williams to pay his debt to the plaintiff. It was held this promise was supported by a sufficient consideration, and the plaintiff might recover upon it, declaring as upon a special contract made by the defendant with the plaintiff. In Brown v. Strait et al. 19 Ill. 88, Collins sold the defendants a mill, for which they paid him some money, and verbally promised to pay his debt to the plaintiff. It was held that the consideration was sufficient, and an action lay on the promise. In Bristow et al. v. Lane et al. 21 Ill. 194, real estate was conveyed by the debtor of the plaintiffs to the defendants on their written undertaking to compromise with his creditors in Philadelphia and New York, and take up the notes held against him in those cities, for debts contracted in the spring of 1856. It was held that an action lay, in the name of the plaintiffs, on this undertaking, they showing that they belonged to the class embraced by its terms. See also, to the same effect, Schemerhorn v. Vanderheyden, 1 Johns. 139, and same case in 3 American Decisions, 304, and note on pp. 305-6. We regard, also, Westchester Fire Ins. Co. v. Foster, 90 Ill. 121, and Chamberlain v. New Hampshire Fire Ins. Co. 55 N. H. 249, to which the opinion in that case refers, so far as the present question is concerned, as precisely analogous. To the like effect are, also, May on Insurance, § 447, and Barrett v. Union Mut. Fire Ins. Co. 7 Cush. 175. In Hastings v. Westchester Fire Ins. Co. 73 N. Y. 141, a mortgage clause, in the precise phraseology of that in the policy before us and in that of the Phoenix company, was added, by the consent of all parties, sometime after the original policy was issued. It was said: “The legal effect of the mortgage clause was, that the defendant agreed that in case of loss it would pay the money directly to the mortgagees, and they were thus recognized as a distinct party in interest. * * * It was an independent agreement, partaking in no sense of the character of an assignment of a policy of insurance, but one in which .the mortgagees were recognized as a separate party, having distinct rights, and entitled to receive the full amount of insurance money, without any regard whatever to the owner of the property.” If this be the effect of adding a mortgage clause, like that before us, after a policy is issued, we are unable to perceive any ground upon which it can be said to have a different effect if made contemporaneously with and as a part of the policy. This case, regarded as an authority, is conclusive not only as to the present question, but as to every question raised in the case before us. The next question is, conceding the action rightly brought, is the Connecticut Fiver Savings Bank bound by the acts of Benjamin S. Prettyman and Sarah A. Prettyman, his wife, in obtaining to themselves and for their own benefit the four additional policies of insurance, and in submitting the question of the amount of damages to appraisers? . If it is thus bound, it is-manifest that, notwithstanding the bank had á separate and distinct legal interest in the insurance, that . in-, terest might, be. so. impaired by the. acts of Prettyman, over whom it had no legal control, as to be practically worthless.By the policies delivered to the bank, it was entitled to. all the .loss on the dwelling, but if it is bound by the acts-of Prettyman and-wife'in obtaining additional insurance, it can only recover the-amount that appellant and the Phoenix com-; pauy will have to. pay on pro rating with the other companies," and will, consequently, be the loser-of the -aqiount the other companies .will -have to .pay on such pro rating. ■ . . !. ' - This will be the actual’ loss,- but the' principle, recognizes in Prettyman the" right to have multiplied' the policies with; which the-policies delivered to the-bankwould have to be pro rated indefinitely, each additional- polidy diminishing; proportionally, the'amount'-to which the bank would be en-; titled in the eventof the destruction or injury of the.property insured. . So,' also, the same -clause in the policy which authorizes" Prettyman to agree to. an appraisal, authorizes him" to:agree, without an appraisal, to the-amount of -damages. ' ; ■■ The claim made by appellant is, therefore, in effect,.that although the-bank -has a substantial legal interest in this insurance, which may be enforced in an" action at law, Prettyman may, by his own'acts, without the knowledge-or consent of the" bank,-practically annihilate that interest, and substitute other insurance for his own benefit; • This, surely,-can not be the- law. The- mortgage clause distinctly- recognizes, as we have befoi'e seen, an-interest separate from that of Prettyman imthe insurance, and that-this interest is for the security of-the holder df -the- note, whoever he may be.- It further, -in substance, declares, that the policy, as to the mortgagor, is one thing, and as to the holder of the note another and very different thing.- As to Prettyman, the policy is- to be read "without the "mortgage" clause,—as to the bank, it is to be read as affected by-that clause.- - In" effect, there are two distinct contracts- of- insurance^—one by. the - mortgagor—the other by the mortgagee,.—and this view gives full force to all the language, and none other will. . The mortgagor is the assured in the four policies issued on the first of . May, 1876,-as wejl as’ in the policy issued by ap~ pellaut and that issued by the. Phoenix, while the bank is also the assured in the latter two” policies, but in those policies only. As to those, they are entitled to pro rate with each other, because such was the contract between the companies and the bank. - But the bank not being the assured in the four other policies, it has no contract with the appellant and the Phoenix that1 they shall pro rate with those. Prettyman, the mortgagor, however, has such a contract, and, as to his interests, the contract should be enforced. ' It is the assured, not Prettyman nor- the bank, or holder of the note by name, but whichever is seeking to recover under the policy for loss, who must-be held entitled to recover loss or damage “ not exceeding the sum insured nor the interest of the assured in the property; ” and who was authorized to effect re-insurance, upon condition that he should not be “entitled to recover of appellant” “any greater portion of the loss or damage than the amount” insured by this policy “bears to the whole sum insured;” and, also, whose “dancH age to the property not totally destroyed, unless the amount of said damage is agreed upon between the assured and the company, shall be appraised by disinterested and competent persons, mutually agreed upon by the-parties.” And, hence, in a suit by Prettyman on the policy, he could not recover a sum exceeding his interest in the property, and he would be limited to a recovery of the pro rata share of this company when .pro rated with the other companies in which he had effected additional insurance, and would also be bound by his act of submitting the amount of damages to appraisal; and the bank, in a suit by itself or its trustee on the policy, would be limited in its recovery to its interest in the property, but would not be limited to a recovery of appellant’s pro rata share with the four -companies issuing policies.to Prettyman and wife, nor would it be bound by the selection of appraisers, because in these additional, policies it w.as not the assured, and it did not, as the assured, join in selecting, the appraisers, and so is not within the contemplation of the clauses in the policy relating to those questions. That this is the correct view will be quite apparent, as we think, by a careful examination of the mortgage clause. = That clause does not call the mortgagor the assured, as it doubtless would, if he," in fact, were the only assured, but it calls him mortgagor simply, and, as repeatedly before observed, speaks of him and the trustee or the successor of the trustee, as having distinct separate interests in the insurance. In the second branch of that clause, a duty is imposed upon the holder of the note secured by the mortgage, by which the insurance shall be preserved for his benefit, although it may be forfeited as to the mortgagor. And, in the last branch, the holder of the note and the mortgagor are still regarded as having rights under the policy, under different states of fact, and it is assumed there may be a liability to the holder of the note when there would be no' liability to the mortgagor, under such circumstances that it would be to the interest of the company to be subrogated to the rights of the holder of the note. And, to further repel the idea that the assured, throughout the policy, stands for mortgagor, or that the .mortgagor’s acts should bind^the holder of the note, it is expressly provided that the “insurance, as to the interest of the trustee or successors only therein, shall not be invalidated by any act or neglect of the mortgagor or owner of the property insured, nor by the occupation of the premises for purposes more hazardous than are permitted by this policy.” This language is as broad and comprehensive as it well could be, so far as relates to the acts or neglects of the mortgagor. We perceive no reason for holding, as contended by counsel for appellant, that the word “'invalidate” should be,held to mean a forfeiture of the policy for every purpose, and not simply its impairmeut. The same reason existed for not allowing it to be thus impaired, as totally forfeited. One of the definitions given of the word, by Webster, is, “to weaken or lessen the force of,” and, to our minds, it is clear this is the sense in which the word is here used. The bank nor the holder of the note could have no control over the acts or neglect of Pretty man, and any weakening or lessening the force of the security held for the note would work injury, against which protection would be desired. ¡Naturally, it would be the fact of impairment, and not alone total loss, which would cause anxiety. We have already seen the taking of additional insurance, in which the bank or the holder of the note would have no right to share, but with which appellant and the Phoenix company would be entitled to pro rate, would necessarily invalidate this insurance as to the interest of the bank, or the holder of the note, in proportion as appellant and the Phoenix company would thereby be relieved. This is by an act of the mortgagor, and, so, clearly within the clause. And, as has been before seen, this additional insurance is not authorized by any language of the policy applicable to the bank or the holder of the note, because the language allowing additional insurance can have no application to others than those who will occupy the position of assured in all the policies. Obviously, it does not include strangers, and the principle that excludes them will exclude all not occupying , the position of assured in all the policies. The reason why additional insurance, to be pro rated in the event of loss, is allowed is, it does not diminish the amount payable to the assured, and, at the same time, lightens the burden upon the insurers. And the mere statement that an amount is to be pro rated, of necessity implies there is a common debt or liability due from several parties to the same party. Pro rating debts due to different parties on separate contracts has never been heard of. We are fully sustained in these views by Hastings et al. v. Westchester Fire Ins. Co. supra. There, in speaking of the mortgage clause:and -its use 'of the.;word“ invalidate/’ ifc.is said“ Where 'it-provides thafc.it. shall not be' ‘invalidated,? it' means' that it shall continue valid. for ibhe full'amount named,"despite of .any;act or rieglecfc:;:of:.the oXvner "or -morfe gagor.” P. 149.And, again, in speaking of subrogation, as provided .for in that, clause* it-,.is- said; “.There are, more4 oyer, strong- reasons ,-for claiming that the insertion, of. the clause in. regard to súbí’ogation is evidence ;.o‘f ah.-.-intention that the- plaintiff shoúld be exonerated from the-application of. the .provision.in .the. pdlicy as. to.other insurance, and..that the defendant should be protected by subrogation. .By the latter provisión,--whenever the defehdant.paid the-mortgagee any sum for .loss,.'and .claimed, that.as-to. the mortgagor bn owner, no liability existed.therefor, the right to be - subrogated was complete.' - If the full "amomit of the policy..had been- paid, and it exceeded' .the liability of, the defendant to: the owner, as was.the fact if the right to contribution existed,1 then the defendant ,was . fully' protected, by the mortgage plause. - . Such right would-not have "existed if the plaintiffs were within the provision as to other insurance, and hence it follows that-.it was-the intention of the'parties to restrict.its operation, and to .provide, against its effect -by a full and suffi-; cient stipulation entered into .for that express purpose. The contract is complete, by placing such".an interpretation .upon its” provisions,.and a contrary one would.Fe adverse .'to its plain meaning.arid import.” Page 151—2. ... .Thé fact that. Prettyman may have, received moré, than he was entitled.to, from the different companies,-.can. no.t^ affect the hank. It,' neither in its own acts. nor:.in those :of its trustee, did anything legally, authorizing Prettyman to receive' such excess. . ^ :............. . The sarnie reasoning which shows- that the bank is not to. be affected .by the, act of Prettyman in. obtaining-the. add!-1 tional insurance, a'lsoishows. that it-is not to be affected by his .act in. submitting the question of loss arid - damage-to. the appraisers. .By .such^ act, no . more than by the .other, .could he “ invalidate ” the insurance as to the interest of the bank therein. The only remaining question to be considered is, was there a variance between the contract alleged and that proved. The respect in which it is claimed a variance existed is, it is alleged that the consideration ¡for the policy was paid" by appellee, whereas the proof shows that it was paid by Pretty-man." We have already seen that Prettyman, in paying such consideration, was acting under and in compliance with his contract with the bank, whereby he obtained the loan of §10,000, and that the payment of the premium by him was, in fact, for the bank, and as a part of the consideration for that loan. Under these circumstances, it might properly have been alleged the consideration was paid by appellee. Eddy et al. v. Roberts, supra, on p. 508, 17 Ill. But the declaration alleged the facts at length, precisely as we understand them to have been proved. We think the judgment of the Appellate Court right. It must, therefore, be affirmed. Judgment affirmed. .