Northern Trust Co. v. Snyder

JENKINS, Circuit Judge, after this statement of the case, delivered the opinion of the court. The lease contained covenants that the lessees would keep the buildings insured for two-thirds of their value, and, in case of destruction by fire, would apply the proceeds of the insurance in rebuilding, or would pay over the amount of such insurance to the lessor, at their option. The rights of the Columbia Straw Paper Company and of the appellant were acquired with notice of and subject to these terms. This covenant was one running with the land, and bound the assignee of the lease and all who acquired rights under him. Thomas v. Von Kapff, 6 Gill & J. 372; Vernon v. Smith, 5 Barn. & Ald. 1; Spencer’s Case, 5 Coke, 17; Masury v. Southworth, 9 Ohio St. 340. The lessees covenanted that they would keep the buildings insured for an amount equal to two-thirds of their value. They did insure the buildings to the amount of $10,207, which amount, as against that company, in the absence of evidence, must be taken to [37] represent two-thirds of the full value. Particularly so in this case, since, by the trust deed, that company likewise agreed to insure the buildings for two-thirds of their value; and this insurance, being effected in compliance with their covenant, must be deemed to-represent the amount of two-thirds of that value. The trustee was not only constructively advised of this covenant in the lease, but the leases were particularly referred to in the trust deed, and were the bases of the title of its mortgagor. By the expressed terms of the lease, the proceeds of such insurance were to be used in rebuilding, or were to be paid over to the lessor, and this at the option of the lessee. It is clear, therefore, that it was in the contemplation both of the straw-paper company and its trustees that this insurance (although taken out in the name of the straw-paper company, and the loss thereunder, if any, made payable to the trustee) was a fund, to be applied in performance of the covenant of the lease, and was to be used in rebuilding, or paid over to the lessor. The trustees knew that the covenant in the lease required insurance to the amount of two-thirds of the value of the building. Their trust deed likewise required a similar amount of insurance. It may not be presumed that the trustees contemplated the insurance of the buildings to an amount in excess of their actual value. The stipulations of the trust deed contemplated, also, that the fund arising from such insurance was to be applied to rebuilding. Under such, circumstances, the court below was clearly right in awarding to the appellee the amount derived from insurance upon the building. The claim to the insurance upon the machinery and engine rests upon a different foundation. It is asserted that, as the lease gave an equitable lien upon the fixtures for unpaid rent and damages to the leasehold, in equity that lien is transferred to the proceeds of insurance upon the fixtures, and entitles the appellee to the fund in the hands of the appellant. This contention cannot he upheld. The tenant owed to the lessor no obligation to effect insurance upon these fixtures. Indeed, the doctrine by which the appellee becomes entitled to the insurance upon the buildings is to the effect that the bare covenant to insure is merely personal, and does not bind the assignee of the term, and, in general, gives the landlord no right to receive the insurance money from the receiver; and that the right obtains and the covenant runs with the land only when the lease provides for reinstating the premises with the insurance money. We are not aware that it has ever been held that a mortgagee of property, in the absence of proper covenant, is entitled to the insurance money upon the mortgaged premises taken out by the mortgagor in his own name. As has been generally held, the contract of insurance is a personal contract of indemnity between the insured and the underwriter. The mortgagor has an insurable interest in the mortgaged property, and may insure it for Ms own benefit. The mortgagee does not, therefore, acquire any right to claim the benefit of the insurance. Such equitable right in a mortgagee only arises when his contract with the mortgagor provides for insurance as further security. The right of the mort [38] gagee, as the right of the lessor, rests, in this respect, wholly upon contract. Jones, Liens, § 79; Jones, Mortg. (4th Ed.) § 401, and authorities cited; May, Ins. (3d Ed.) § 6; Insurance Co. v. Lawrence, 10 Pet. 507; Carpenter v. Insurance Co., 16 Pet. 495, 501; Carter v. Rockett, 8 Paige, 437. The contract of insurance does not attach itself to the thing insured, nor go with it when it is transferred. The City of Norwich, 118 U. S. 468, 494, 6 Sup. Ct. 1150. The court below sustained the claim of the appellee to this insurance upon the ground that, as the contract of lease gave an equitable lien upon the machinery which remained in the legal possession of the lessees, that the lessees and their successors thereby became trustees of the machinery, and, under the familiar doctrine that the trustee cannot deal with a trust estate in his own interest as against that of the cestui que trust, held that the insurance effected upon the trust property inured to the benefit of the lessor. This ground cannot, we think, be sustained. The lessees were in no proper sense trustees of this property. The machinery was theirs. They had simply contracted to give to the lessor an equitable lien thereon for such rent as should not be paid, and for damages by reason of any breach of the covenants of the lease. They were no more trustees than is a mortgagor a trustee for the mortgagee. The decision below was thought to be sanctioned by the decision in Parry v. Ashley, 3 Sim. 97. There a testator had created i general charge by way of annuity in favor of the plaintiff upon all of his general and personal property, subject to which it was given to the defendant, who was also made executrix of the will. The court held that whether, as executrix, she was bound to renew the insurance effected by the testator, she did, in fact, renew it, and that the court must hold prima facie that she renewed it in the character in which she was entitled to renew it, namely, as executrix, and therefore renewed it in behalf of all who were interested in the trust estate. We need,not consider whether the doctrine of that, case can be upheld. We think it affords no sanction for the decision under review. The decree will be reversed, and the cause remanded, with directions to the court below to enter a decree in favor of the appellee for the amount realized upon the insurance upon the buildings, with interest from the date of the decree reversed, and in other respects that it be dismissed upon the merits.