Hartford Fire Ins. v. J. R. Buckwalter Lumber Co. , 116 Miss. 822 ( 1917 )

Sykes, J.,

delivered the opinion of the court.

Appellee, J. R. Buekwalter Lumber Company, filed suit in the circuit court of Newton county against appellant, Hartford Fire Insurance Company, to recover the sum of seven thousand dollars and interest, upon an insurance policy issued by the appellant, payable to Mrs. J. E. Golden, insuring a hotel building in the town of Union,- Newton county, Miss. The policy contains the New York standard mortgage clause, making the loss or damage payable to the Pan-American Life Insurance Company. This mortgage clause is dated and was issued at the same time the policy was written, viz., April 2, 1915, for a period of one year. The property was burned on February 27, 1916. J. E. Golden, Jr., was the owner of the property on the 1st of January, 1913. On that day he executed a deed of trust on this property in favor of the Pan-American Life Insurance Company, to secure an indebtedness of seven thousand dollars. A short time thereafter Golden executed another deed of trust upon the same property to J. R. Buekwalter Lumber Company to secure an indebtedness due it. At a later period, viz., on May 26, 1913, Golden executed a deed to his wife, conveying to her the property.’ The policy in suit was issued by J. M. Cole, agent of the appellant company at Union, Miss., and the premium paid therefor was two hundred and ten dollars. Upon its issuance the policy was delivered to the mortgagee, the Pan-American Lifg Insurance Company. In October, 1925, after Golden had deeded this property, or his title apd equity in it, to his wife, Mrs. Golden, there was an attempted foreclosure sale of the same under the second deed of trust, the one of the J. E. Buckwalter Lumber Company, at which sale the appellee lumber company attempted to purchase it, subject, of course, to the prior or first deed of trust. The trustee’s •deed, after reciting that the trustee offered for sale the property, properly describing it, contains this clause:

“I therefore, as trustee, do hereby transfer, sell, and assign to the said J. E. Buckwalter Lumber Company, a corporation, all of the right, title, and interest of the said J. E. Golden, Jr., in and to said property.”

At the time of this attempted trustee’s sale, J. E. Golden, Jr., had already parted with whatever title or equity he possessed in the property, by deeding the same to his wife. It is therefore doubtful whether or not the purchaser at this trustee’s sale obtained a valid title to the property, subject to the first mortgage. We are not called upon to pass upon this question, however, in this case. There seems to have been no change in the possession of the property after this attempted trustee’s sale. On the 6th day of January, 1916, the appellee lumber company purchased the notes and security held by the Pan-American Life Insurance Company, and took a written assignment of the same, for which it paid a consideration of seven thousand, one hundred and eighty-nine dollars and forty-eight cents. When these papers and assignments were delivered to the appellee, the insurance policy in suit was delivered to it also. This policy was not mentioned in the written assignment, nor was there any written assignment on the policy itself. While the appellee was negotiating for the purchase of the notes and securities held by the Pan-American Life Insurance Company, according to the. testimony of its attorney, W. I. Munn, he called to see Mr. Cole, the agent of the insurance company, and explained to him that the appellee was about to purchase these notes and security, and asked him about this insurance. He testified that Mr. Cole told him “to go ahead, and that the insurance was all right, and that, if anything was to be done when the papers got here, he would fix it.” Mr. Munn further testified that, as soon as the papers arrived, the insurance policy was turned over to him; that he took it to Mr. Cole, and asked him either to issue a new policy or to attach a mortgage clause in favor of appellee to this policy. Mr. Cole told him it would be too much trouble to issue a new policy, but that he would fix this one by issuing a mortgage clause in favor of the appellee; that it was all right, and that the policy was in force, and to notify the appellee to this effect. It will be noted that at this time the policy had four months to run before its expiration. Mr. J. it. Buckwalter, president of the appellee corporation, also testified that he discussed this insurance matter with Mr. Cole both before and after, the fire, and was told by Mr. Cole at both times that the policy was all right and that he knew about the transaction. He also told him after the fire that there would be no trouble about collecting the insurance, Mr. Munn also testified 'that he explained in detail to Mr. Cole the various transactions relating to the title of this property. Mr. Cole denied having the conversations with Mr. Munn and Mr. Buckwalter. He did not deny, however, that he was familiar with the title to the property. The case was tried upon the second count of the declaration, which, in substance, set up the facts above enumerated.

A plea of the general issue was filed, and notice of certain matters was given by the defendant. It is unnecessary to set up in detail .what the notice of defendant and the counternotice of plaintiff contained. A verdict and judgment were rendered in favor of the-plaintiff for the amount sued for, from which judgment this appeal is prosecuted.

The appellant contends, first, that it should have been given a peremptory instruction in the lower- court. It is contended that one mortgagee cannot be substituted for another on a valid insurance policy without the express consent of the insurance company. The consent of the insurance company in this case was obtained through its general agent, Mr. Cole, who had the right to and did, write policies, mortgage clauses, and renewals. It has several times been decided by this court that an oral contract of renewal by an agent who has authority to write policies is valid and binding. Since an oral contract of renewal is good, then it must follow that an oral contract to substitute a mortgage clause in a policy is perfectly good. The mortgage clause is no more sacred nor formal an instrument than the insurance policy itself.

It is further contended by the appellant that, before this agreement to substitute a mortgage clause could be valid, it would be necessary for the insured, Mrs. Golden, to have assented thereto. No authorities are cited by counsel directly deciding this proposition. The issuance of this mortgage clause would in no way affect any interest of Mrs. Golden, and we see no more reason why she should be consulted about this matter than that she should be consulted about the transfer and assignment of the notes and deed of trust. There is no clause in the policy providing that an insured must consent thereto.

It is contended that there was no contract entered into between the agent of the insurance company, Mr. Cole, and Mr. Munn, about tbe issuance of the mortgage clause. The testimony, however, of Mr. Munn, is that the insurance agent agreed to issue a mortgage clause in favor of the appellee, and that he would keep the insurance in force. What this clause is was well understood by both Mr. Munn and the insurance agent. We think the agreejnent, therefore, was perfectly plain and unambiguous.

It is contended that no oral agreement can be made under the law of this state to attach a mortgage clause to a policy of insurance, for the reason that section 2596, Code of 1906 (section 5060, Hemingway’s Code), sets forth the statutory mortgage clause. The meaning of this section is, simply, that this mortgage clause is written by the statute into every policy containing any clause making any of the proceeds of the policy payable to a mortgagee. There is nothing in it prohibiting any oral agreement to issue a mortgage clause. When this oral agreement is made, the statute simply defines what the clause is. To that extent it becomes a statutory insurance policy.

It is next contended that the agreement was void and unenforceable, because there was no consideration passing from the appellee to the insurance company therefor. This contention of appellant is settled adversely to it in the opinion of this court in the case of Bacot v. Insurance Co., 96 Miss. 223, 50 So. 729, 25 L. R. A. (N. S.) 1226, Ann. Cas. 1912B, 262, in the following language:

“The consideration paid for the policy by the owner is a continuing consideration, day by day, and is not fully earned until the expiration of the full life of the insurance policy. That this is the case and is so understood by the insurance company is evidenced by the clause in the policy which permits either party to cancel the policy on certain conditions therein named, whereupon it becomes tbe duty of tbe company to refund a certain proportion of the unearned premium. No additional consideration is required to' be paid as a condition for the insertion of the mortgage clause in the insurance policy, nor is any additional risk incurred by the insurance company. The consideration paid by the original insurer constitutes a sufficient and valuable consideration for the contract between the insurance company and the mortgagee, since it imposes no increased hazard; nor does it increase the amount of the insurance contract, but merely imposes upon the insurance company the obligation of paying to the mortgagee, in the place of the insured and out of the proceeds of the policy, such sum, not in excess of the face value of the policy, as the interest of the mortgagee, in the identical thing insured, shall amount to.”

We also quote from the same opinion as to the effect of section 2596, Code of 1906 (section 5060, Hemingway’s Code), with reference to a mortgage clause in a policy of insurance:

“When a mortgage clause is inserted in an insurance policy, its effect is limited and controlled by section 2596 of the Code of 1906, and the rights of the parties are determined by the provisions of the above statute, which automatically writes itself into every insurance contract where the insurance company allows a mortgage clause to be inserted. . . . The effect of this statute is to make the contract between the insurance company and the mortgagee a new and independent contract, which is not in-any way dependent upon or subservient to the conditions of the original policy between the owner and the insurance company. It may be that the original policy was void from its inception; but this fact cannot in any way invalidate the independent contract of insurance between the mortgagee and the insurance company, if the mortgagee have really a valid and insurable interest in the subject of the insurance. Under section 2596 the -.mortgagee • does not take by assignment from the original owner of the policy, taking only the rights which the original owner has and subject to all the conditions imposed upon the - owner; but the very design and purpose .of the statute is to place the insurable interest of the mortgagee on a safer basis than it would be if it were subject to be defeated by all the uncertainties accompanying the tak-. ing out of insurance by the owner in stating correctly his title, etc., and the many other conditions imposed by the insurance company,’ the nonobservance of which work -a forfeiture 'of the policy in so far as the owner is concerned.”

It is further contended by the appellant that the insurance policy became void as to Mrs. Golden by virtue 'of the trustee’s sale, and that the mortgage clause therein became void when the Pan-American Life Insurance Company sold its note and deed of trust to the appellee. The policy provided, among other things:

“This entire policy shall be void if . . . foreclosure proceedings be commenced or notice given of sale of any property covered by this policy by virtue of any mortgage or. trust deed, or if any change other than by death of the insured take place in the interest, title or possession of the subject of insurance, whether by legal process or judgment or by voluntary act of the insured or otherwise.”

It is further provided in the policy as follows: “This policy shall be canceled at any-time at the request of the insured, or by the' company by giving five days’ notice of such cancellation. If this policy shall be canceled as hereinbefore provided, or becomes void or ceases, the premium having been' actually paid, the unearned portion shall be- returned on surrender of this policy or last renewal, this company retaining the customary short rate; except when this policy is canceled by this company by giving notice, it shall retain only the pro rata premium. ’ ’

The amount of this insurance policy was seven thousand dollars. This is less than the amount due under the mortgage to the Pan-American Life Insurance Company. Whether or .not the policy became void as to the insured, Mrs. Golden, would malee no difference as long as the mortgagee in the same was the Pan-American Life Insurance Company. Under the above section of our Code, it is expressly provided that none of the above-enumerated things would avoid the mortgage clause. The policy being perfectly valid as to the interest of the Pan-American Life Insurance Company, before the transfer took place, the attorney of the apXiellee discussed the matter with the agent of the insurance conrpany and was told by him that the policy was all right and that he would keep it effective, provided the notes and collateral were purchased by the appellee. In pursuance of this agreement, he made the same statements that the policy was effective as to the interest of the appellee, and that he would make out the necessary mortgage clause. He had the áuthority to do this, and waived the actual writing of the mortgage clause. The insurance company is therefore estopped to make any of these contentions. Bacot v. Insurance Co., supra; Insurance Co. v. Lumber Co., 72 Miss. 555, 17 So. 445; Insurance Co. v. Dobbins, 81 Miss. 623, 33 So. 504.

It is also contended by the appellant that, by the purchase of the notes and collateral by the appellee, there was, an extinguishment of this debt secured by the first mortgage on the hotel property, and that, for this reason, appellee is not a mortgagee. The uncontradicted testimony in the record shows that it was not the intention of appellee to extinguish this debt or satisfy this first mortgage. The testimony shows that there was uncertainty and doubt about whether or not the appellee acquired title to the property subject to the first mortgage; that it was the intention of the appellee to keep the first mortgage alive. If it be the intention of parties in purchasing a prior deed of trust on property, upon .which they have some claim, to keep a prior mortgage or deed of trust alive, then this intention should govern.

“The passing of any consideration, even the due amount of money from the mortgagor to the mortgagee, may or may not discharge the mortgage, according to their intention, and it will not be held to operate as payment if the parties meant to keep the security alive and not to extinguish it.” 27 Cyc. 1393.

“ 'Where a mortgage incumbrancer becomes the owner of the legal title, or of the equity of redemption, a merger will not be held to take place if it be apparent that it was not the intention of the owner, or if, in the absence, of any intention, the merger would be against his manifest interest.’ ” Jones on Mortgages (7 Ed.), volume 2, section 848.

“Where the purchaser of the equity of redemption takes an assignment of the mortgage, manifestly intending that there shall thereby be no merger of estates, a merger will not result unless the justice and equities of the case demand it. But where the purchaser simply pays the mortgage debt without having the mortgage assigned to him, or otherwise manifesting an intention to keep it alive, the mortgage will be extinguished.” Id., section' 856a.

It is also argued that the court committed error in the admission of certain testimony. The admission of this testimony, however, we do not consider reversible error, if error at all.

The case is affirmed.