Chipman v. Carroll

The opinion of the court was delivered by HortoN, C. J.: The judgment upon the mortgage of Prank S. Carroll and wife to Daniel L. Chipman was rendered November 27,1889, for $1,636.64. The insurance policy which is involved in this case was obtained by Frank S. Carroll on March 29, 1890. The dwelling was burned and loss occurred on the 13th of April, 1890. The judgment rendered has not been paid or satisfied in whole or in part. The insurance company issuing the policy admitted that it was ready to pay $1)200, due under the policy, to the party entitled to receive it. 1' mortgaged011 premises— rights of mortgagee. The question that we are called upon to decide in this case is, whether Chipman has an equitable claim or lien upon the money due on the policy. If there was no covenant in the mortgage or agreement between the parties that the premises would be insured for the benefit of the mortgagee, the mere fact that Chipman’s mortgage covers the property insured and the insurer is personally liable for the debt gives Chipman, the mortgagee, no corresponding claim upon the policy or the proceeds of it. (1 Jones, Mort., § 401; Lees v. Whiteley, L. R. 2 Eq. 143; Ames v. Richardson, 29 Minn. 330; Stearns v. Insurance Co., 124 Mass. 61.) But where a mortgage provides that the mortgagor shall keep the premises insured for the benefit of the mortgagee, and in fulfillment of this covenant he takes out a policy of insurance . . . . , . _ . m bis own name, which is not assigned to the 7 ° mortgagee or made payable to him, the mortgagee is regarded as having an equitable lien upon the proceeds of the policy. (1 Jones, Mort., § 400, and cases cited.) It was expressly ruled in Mills v. Aldrich, 31 Mich. 408, that [167] “ Where the agreement to keep insurance for the benefit of the mortgagee was merely verbal, but the mortgagor had acted upon it by obtaining such insurance, and his grantee, having knowledge of the agreement, subsequently surrendered this policy, and took another, which was not payable to the mortgagee, it was held that he was nevertheless entitled in equity to have the insurance money applied in payment of the mortgage debt.” In this case the mortgage stipulated, “ If the insurance is not kept up thereon, then this conveyance shall become absolute.” To explain this provision, it was competent for Chip-man, the mortgagee, to prove, if he could, that there was a verbal agreement between the mortgagors and the mortgagee that the insurance refered to in the mortgage was for the benefit of the the mortgagee. This agreement would not vary or contradict the terms of the mortgage. It would tend to explain the language of the mortgage and show what the parties intended ' thereby. Again, if there was no insurance clause in the mortgage, yet if, to obtain the loan secured by the mortgage, it was verbally agreed between the parties that insurance was to be kept up on the mortgaged property by the mortgagors for the benefit of the mortgagee as additional security, and subsequently the mortgagors, acting upon this agreement, obtained insurance, with loss payable to the mortgagee, and, after this expired, took out another policy, not payable to the mortgagee, the latter would be entitled to an equitable lien on the proceeds of the policy, if any loss by fire occurred. The court committed error in refusing to receive the evidence offered tending to show the verbal agreement, if any, at the time of the loan between the parties, concerning the application of the insurance, which was to be kept up on the mortgaged premises. It is insisted that, as the mortgage was merged in the judgment, any agreement to keep up the insurance on the premises for the benefit of the mortgagee lapsed. The agreement to keep insurance for the benefit of the mortgagee, if any such agreement was made, was for the protection of the mortgagee, or rather, as an additional security for his debt. [168] The judgment did not extinguish the mortgage debt, either in whole or in part. The mortgagee, after his mortgage was merged in the judgment, was as much interested in protecting the property by insurance as prior thereto, and if the mortgagee would have had an equitable lien upon the proceeds of the policy if taken before judgment, he would clearly have a lien upon the proceeds after judgment, if no sale had taken place. It was decided in National Bank v. Insurance Co., 26 Pac. Rep. (Cal.) 509, that “Where the loss is payable to the mortgagee of the property, and occurs after sale under foreclosure, but before the time for redemption has elapsed, the mortgagee is entitled to recover the loss, as the foreclosure is no extinguishment of his debt until the deed has been made and the time for redemption has expired.” (Dunlop v. Avery, 23 Hun, 509; Ames v. Richardson, 29 Minn. 330.) 2 Homestead_ onpMceedííf pohoy-The claim that the proceeds of the policy are exempt, because obtained from a policy upon the homestead, is not tenable. If the dwelling house had not been destroyed by fire, it and the premises with which it was connected could have been sold in satisfaction of the judgment, as both the husband and wife jointly executed the mortgage. If the insurance company had rebuilt and replaced the dwelling house after its destruction by fire, it could also have been sold with the premises to satisfy the judgment. The proceeds of the policy of insurance merely take the place of the dwelling house destroyed by fire, and while they would be exempt as against general creditors, they are not exempt if Chipman, the mortgagee, has an equitable lien thereon under the mortgage given by the husband and wife and the agreement, if any exists, with them to keep up insurance for his benefit. The judgment will be reversed, and cause remanded. All the Justices concurring.