Planters' Bank v. Globe & Rutgers Fire Insurance ( 1930 )

May 16, 1930. The opinion of the Court was delivered by This is a case certainly of most novel impression in at least three particulars: The plaintiff was not the owner of the property insured; it was not a party, directly or indirectly, connected with the insurance policy; the amount of the policy has been paid by the company to the parties in whose interest it was issued. The plaintiff claims the right to a judgment requiring the company to pay again the amount of the policy to it, as the holder of a mortgage given to it by a party other than the insured, upon property whichits mortgagor did not own, for the reason that its mortgagor had agreed to insure the property covered by the mortgage, for its benefit; although the house insured was placed upon the mortgaged land after the date of the mortgage, under an agreement between the insured and the mortgagor that the house should be the property of the insured.

The evidence develops the following facts which are undisputed:

The Wagener Farms Company owned a tract of land containing about 500 acres.

On December 20, 1921, it mortgaged the land to the Prudential Insurance Company to secure a debt of $9,000.00; the mortgage was assigned by the Prudential Insurance Company to the Old Dominion Trust Company and by it to the State Planters' Bank Trust Company.

Later, on January 5, 1922, the Wagener Farms Company gave a second mortgage upon the land, to J.H. Hydrick Realty Company, to secure a debt of $7,237.25; expressly declared to be junior to the mortgage of the Prudential Insurance Company above referred to; the mortgage was assigned by the J.H. Hydrick Realty Company to Mary L. Hydrick and Wannamaker Wannamaker in consideration of $8,406.07; later it was assigned by the assignees named to the plaintiff, the Planters' Bank. This mortgage contained an agreement between the parties (Wagener Farms Company and Hydrick Realty Company), that the mortgagor, Wagener Farms Company, should insure the house and buildings on the property and assign the policy to the Hydrick Realty Company, and that upon default the mortgagee might cause the insurance to be taken out in its name and be reimbursed for the premiums paid by it.

Later, on January 14, 1922, the Wagener Farms Company gave a third mortgage upon the land to W.A. Whitlock, to secure a debt of $6,476.64.

Some time in the early part of 1924, one Tillman Jackson entered upon a portion of the mortgaged land and constructed a combination store-house and dwelling and other buildings, under an oral agreement with the Wagener Farms Company for a lease and for the right to remove the buildings constructed by him at the termination of his lease.

On July 19, 1924, after Jackson had completed the construction of the buildings, the defendant Insurance Company issued a policy insuring Jackson from loss by fire, of the buildings referred to, in the sum of $2,500. The policy covered other property not involved in the present controversy. The loss under the policy was made payable to W.A. Whitlock, the owner of the third mortgage above referred to, Why this was so can be explained only upon the theory that Whitlock was procuring the insurance for his protection as a third mortgagee, and doubtless was paying the premiums. It does not appear that Jackson owed Whitlock anything, or that there was any reason why he should personally take any steps for Whitlock's protection. It does not distinctly appear that Whitlock's mortgage contained an agreement on the part of Wagener Farms Company to insure for his benefit, but I assume that it did. Whether it did or not Whitlock had the right to procure the insurance.

On December 13, 1924, the oral agreement between the Wagener Farms Company and Jackson, in reference to the lease, was reduced to writing. In this agreement the following clause appears: "Whereas there are now certain improvements located on this property in the nature of one dwelling and store-house combined and one gin house and machinery and other small buildings, including one barn and stables, which were erected during the year 1924, by the party of the second part, under an agreement with the party of the first part which gave the right to the party of the second part to remove all buildings herein mentioned from the premises, as they were erected by him for his convenience and use under the agreement that they would be his. That agreement is hereby extended in line with this lease, and we therefore recognize the right of ownership of the party of the second part to these buildings and his right to remove the same as above stipulated."

On February 2, 1925, the insured property was destroyed by fire; on March 12th, Jackson furnished proof of loss as required; and on March 16th the company paid the amount of the loss by a draft drawn payable to Jackson and Whitlock jointly.

I do not deem it necessary to consider the objections raised by the company to the proof of loss or the grounds of forfeiture claimed, for the reason that the company in the most conclusive manner possible has waived them by paying the loss.

On February 16, 1927, the State Planters' Bank Trust Company, the holder of the first mortgage, brought an action in the Court of Common Pleas for Orangeburg County to foreclose its mortgage and Wagener Farms Company, W. A. Whitlock, R.T. Jackson (Tillman Jackson), Wannamaker Wannamaker, and the Planters' Bank along with others immaterial here, were made parties. The property was sold by the Master on salesday in December, 1927, and after paying the prior mortgage there was a deficiency judgment in favor of the Planters' Bank, the plaintiff herein, against Wagener Farms Company for the sum of $6,913.14. No question of this insurance seems to have been brought into this action when all of the parties of interest in the property were before the Court.

Prior thereto (in December, 1926), the Planters' Bank (the plaintiff herein) the holder of the second mortgage, having learned of the collection by Whitlock of the insurance money, had made demand upon the company for the payment of the insurance money based upon the single fact that it owned the second mortgage upon the property and that it provided that the mortgagor Wagener Farms Company should take out insurance for the protection of the mortgagee, which it had failed to do.

I cannot perceive the slightest foundation of the plaintiff's claim to the proceeds of the insurance which have been paid by the company in compliance with the terms of the policy.

It cannot be sustained upon the agreement of the Wagener Farms Company, contained in the mortgage, that it would insure the buildings for the benefit of the mortgagee. In the first place that agreement evidently referred to the buildings that were then upon the property; not to buildings thereafter constructed by a lessee of the mortgagor. While these buildings, placed after and with notice of the recorded mortgage, and in the absence of such an agreement as is referred to, may have become subject to the lien of the mortgage (1 Jones Mortg. [6th Ed.] § 681), I do not think that the mortgagor, if they had been constructed by him, would have been under obligation to insure them; much less where they were constructed by a lessee who by agreement owned them and had the right of removal.

I do not think that there is any doubt as to the correctness of the proposition that when the 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 in his own name, which is not assigned to the mortgagee or made payable to him in any way, the mortgagee is regarded as having an equitable lien upon the proceeds of the policy. 1 Jones Mtg. (6th Ed.) § 400.

Being an equitable lien, my impression is that the mortgagee would be obliged to enforce it upon the fund before it may have been paid over to the beneficiary of the insurance.

In reference even to such a situation Mr. Jones says, in the same action: "But these cases which support the claim of the mortgagee to insurance obtained by the mortgagor in his own name are regarded as resting upon special facts which justify the inference that the insurance in question was obtained by the mortgagor with the intent to perform his agreement to insure for the benefit of the mortgagee, or that the agreement had reference to the insurance already obtained. Accordingly, where there was no ground for such inference, and the insurance company paid the amount of loss to the mortgagor, the Supreme Court of Massachusetts held that the mortgagee had no equitable lien upon the policy, and could not recover in the name of the mortgagor" — citing Stearns v. Ins. Co.,124 Mass. 61, 26 Am. Rep., 647; Farmers' Loan Trust Co.v. Penn Plate-Glass Co. (C.C.A.), 103 F., 132, 56 L.R.A., 710.

It is manifest, therefore, that the right could not be enforced where the policy was taken out by some one not connected with the obligation of the mortgagor to take out insurance for the benefit of the mortgagee.

In the present case the Wagener Farms Company, mortgagor, did not comply or attempt to comply with its agreement (so far at least as the Jackson buildings were concerned), and the plaintiff which had the right upon its default to take out insurance, did not exercise its option. The policy was issued to Jackson, not to the Wagener Company, and it was made payable in the event of loss to Whitlock, a provision which he certainly had the right to have made. There is, so far as I can see, not the slightest ligament that connects the plaintiff with the policy.

In Farmer's Loan Trust Co. v. Penn Plate-Glass Co. (C.C.A.), 103 F., 132, 56 L.R.A., 710, it was held, quoting syllabus: "The rule that, where a mortgagor has covenanted to insure the mortgaged property for the benefit of the mortgagee, a Court of Equity may impress an equitable lien in favor of the mortgagee upon a fund arising from insurance taken by the mortgagor in his own name, is based upon the existence of an express contract by which the owner agreed to give a lien upon that particular fund, and upon the maxim that equity regards as done that which ought to be done; but, as equity cannot create the lien independently of contract, such rule cannot be applied to the proceeds of insurance taken for his own benefit by a grantee of the equity of redemption in the property subject to the mortgage, between whom and the mortgagee there is no contract with respect to such fund."

I do not think that the claim can be sustained upon the theory that one for whose benefit a contract has been made may sue upon it though not a party to the contract, for the reason that there is absolutely nothing to show that the contract of insurance was taken out for the benefit of the plaintiff or of any other than the third mortgagee, Whitlock.

In the opinion of Mr. Justice Carter occurs this statement: "The assured, Tillman Jackson, was a lessee of the owner and mortgagor, Wagener Farms Company, and in accepting the lease to the land on which the building in question was located took the same with notice and subject tothe said covenant in the mortgage in question; and when the policy of insurance was issued, the interest of the plaintiff attached thereto." (Italics added.)

According to this declaration, if Jackson had not taken out any insurance, he would have been bound by the covenant of Wagener Farms Company and liable for a breach of it; a position that would hardly be advanced. A lessee of part of a tract of land would certainly run a great risk in assuming the obligations of his lessor in a previous mortgage.

The case of Swearingen v. Ins. Co., 52 S.C. 309,29 S.E., 722, cited in the opinion of Mr. Justice Carter, distinctly bases the right of a mortgagee to an equitable lien upon the proceeds of insurance, upon an agreement by the mortgagor to take out insurance for his benefit which, as a matter of course, would not be answered by the issuance of a policy to a stranger to the mortgage who had made no such promise. See the cases cited in the opinion of that case.

In the second appeal of the Swearingen case, 56 S.C. 355,34 S.E., 449, 450, the Court said: "The equitable lien of a mortgage on the proceeds of an insurance policy to the mortgagor, under an agreement to insure for the mortgagee's benefit, extends only to those having notice of such lien."

As the mortgagor, Wagener Farms Company, did not comply or attempt to comply with its agreement to take out a policy of insurance upon the Jackson buildings for the benefit of the mortgagee, it is impossible that a lien was ever created by any agreement between them.

In the opinion of Mr. Justice Carter occurs this further statement: "When Tillman Jackson, as lessee, procured insurance on the building in question there should have been inserted in the policy a clause to the effect that in case of loss by fire payment should be made to the holder of the mortgage plaintiff claims under, as its interest might appear, or to all of the mortgagees as their interest might appear, according to priority. But instead of doing this, he mentioned only W.A. Whitlock, who was a junior mortgagee. We find nothing in the record tending to show why Whitlock should be preferred, and according to our view it would be inequitable, under the facts of the case, to allow Whitlock, a junior mortgagee, to take the insurance money to the exclusion of a prior mortgagee."

This statement presumes an obligation on the part of Tillman Jackson, lessee, and of Whitlock, junior mortgagee, to take care of the interests of the mortgagees which were prior in rank to that of Whitlock. I do not see any possible ground for imposing this obligation upon either one of them. Both of the prior mortgagees, the State Planters' Bank Trust Company and the Planters' Bank, were amply protected by agreements on the part of Wagener Farms Company to take out insurance for their respective benefits, and upon its default to take out insurance themselves and charge the Wagener Farms Company with the premiums paid. Each of them neglected to enforce the agreement on the part of Wagener Farms Company and to exercise the option which the agreement gave it. Whitlock, who was the third mortgagee, took care of his own interest as he had the right to do without regard to the neglected interests of the two banks.

It occurs to me that if there should be any liability in the case at all, which I do not at all concede, it would be that of Whitlock to the plaintiff and not of the insurance company to the plaintiff, the insurance company having fully discharged its contract obligations evidenced by the policy of insurance which Jackson had the unquestioned right to procure and the equally unquestionable right to make the loss payable to Whitlock.

There is another matter that I think is worthy of consideration: It is questionable in my mind whether the Jackson buildings ever became subject to the plaintiff's mortgage. They were placed upon the land after the plaintiff's mortgage had been executed, and placed there under an agreement with the Wagener Farms Company that Jackson should be considered the owner of them and at the termination of the lease be entitled to remove them. The plaintiff's mortgage was not at all injuriously affected by this agreement, the effect of which was to constitute the buildings chattelsreal, not subject to the mortgage and removable by Jackson at the termination of the lease. He therefore, without regard to the covenants of the plaintiff's mortgagor in reference to insuring the buildings then on the land, had the right to have them insured and make the loss payable to whomsoever he pleased.

Upon the subject of chattels real, see 7 Cyc., 123; 1 Thomp. Real P., Sec. 58; 2 Thomp. R.P., Sec. 1270.

In Newhoff v. Mayo, 48 N.J. Eq., 619, 23 A., 265, 266, 27 Am. St. Rep., 455, the Court said: "When a building has been erected by one on the lands of another, upon an agreement, express or implied, that it may be removed at the pleasure of the builder or on the demand of the land-owner, the building is, no doubt, to be classed in that division of property which we call purely personal. Pope v. Skinkle, 45 N.J. Law,, 39. But in this case the building was attached to land in which its owners had an interest, classified, not as a mere chattel, but as a chattel real."

In Dame v. Dame, 38 N.H. 429, 75 Am., Dec., 195, it was held, quoting syllabus: "Where a building is erected by one upon another's land with the consent of the latter, under an agreement that it could be removed whenever the builder should choose, a recovery of the land in a real action by the owner or his assignee does not impair the right of the owner of the building to remove it."

In Winner v. Williams, 82 Miss., 669, 35 So., 308, it was held, quoting syllabus: "A boiler on demised premises which, with the premises, was subject to a trust deed, became worn out, and on the landlord's refusal to replace it the tenant purchased a boiler under an express agreement with the landlord that the tenant could move it at pleasure. The tenant attached the boiler to the other machinery used, and disconnected the old boiler, but left it on the premises. Defendants foreclosed a trust deed to the property described, which description did not include the new boiler. Plaintiff purchased the boiler from the tenant. Held, that plaintiff took title to the boiler, which was a trade or tenant's fixture, excepted from the general rule as to fixtures."

In Paine v. McDowell, 71 Vt. 28, 41 A., 1042, it was held, quoting syllabus: "Where a mortgagor in possession of the secured land let a portion of it for the erection thereon of a sawmill, under an agreement that the mill was not to become a fixture, but might be removed, and where the erections could be removed so as to leave the land as good security as though the erection had never been made, the lessee had the right to remove the erections, as against the mortgagee — especially where the mortgagee knew of the letting about the time the mill was being built, and made no objection thereto."

In German Savings Loan Society v. Weber,16 Wn., 95, 47 P., 224, 38 L.R.A., 267, it was held that where certain improvement were made upon the inside of a building under an agreement with the vendor that, while ordinarily they might be considered fixtures, they would remain the property of the seller with the right of removal until paid for, such fixtures were not subject to the lien of the prior mortgage upon the property. A controlling factor in the decision of that case was that the prior mortgagee could not be considered a purchaser for value and was not injured in his security by the addition of the improvements.

In Binkley v. Forkner, 117 Ind., 176, 19 N.E., 753, 3 L.R.A., 33, it was held that "where one purchasing machinery gives a chattel mortgage for its price, and orally agrees that it shall be treated as personalty until paid for, and the realty to which it is afterwards attached by him will not be injured by its removal, the machinery will be considered as personal property, as against a prior mortgagee of the realty."

In Campbell v. Roddy, 44 N.J. Eq., 244, 14 A., 279, 6 Am. St. Rep., 889, it was held that "a prior mortgagee cannot occupy the attitude of an innocent purchaser. The interests and rights of the holder of a chattel mortgage upon property which is annexed to real estate upon which there is an existing mortgage, must be determined by the practical application of equitable principles to the rights of the respective parties. Whether the chattel mortgage shall be postponed notwithstanding the agreement between the owner of the land and the mortgagee, must depend upon the inquiry whether or not the preservation of the rights of the holder of the chattel mortgage will impair or diminish the security of the real estate mortgage as it was when he took it. If it will not, then it will be inequitable that the latter should defeat or destroy the security of the former."

In Tifft v. Horton, 53 N.Y., 377, 13 Am. Rep., 537, it was held: "Where chattels are annexed to real estate with the intent that they shall not thereby become part of the freehold. as a general rule the intent will control; to preserve their character as personalty a concurrent intent, on the part of a prior mortgagee of the real estate, is not necessary; and neither a prior nor subsequent mortgagee of the lands can claim, as subject to the lien of his mortgage, chattels brought upon and affixed to the lands under an agreement between the owner of the fee and the owner of the chattels, that the character of the latter as personal property is not to be changed and that they are subject to a right of the owner to remove them."

There is a sharp conflict of authorities upon this subject, as appears from 1 Jones, Mtg. (6th Ed.), Sec. 436-b. Judge Freeman, in 84 Am. St. Rep., 888, states that the weight of authority is in favor of the right of the mortgagor and vendor or improving tenant to preserve the character of the additions as personal property.

This appears to be the conclusion of this Court in Saye v.Hill, 100 S.C. 21, 84 S.E., 307, 308, where the Court said: "Houses are frequently built and expensive machinery installed therein with every appearance of permanency; yet it is done under a license from the owner of the soil or under a lease thereof, and under agreement for and with the intention of removal at the expiration of the license or lease. In such cases they are not fixtures" — citing Hughes v. ShingleCo., 51 S.C. 1, 28 S.E., 2; Hurst v. Craig Co., 95 S.C. 221,78 S.E., 960; Rawls v. American Central InsuranceCo., 97 S.C. 189, 81 S.E., 505.

For those reasons I think that his Honor, Judge Grimball, was entirely right in directing a verdict for the defendant, and that the judgment appealed from should be affirmed. A majority of the Court concurring, this opinion becomes the judgment of the Court.

MR. JUSTICE BLEASE concurs.

MR. JUSTICE STABLER concurs in result.

MR. CHIEF JUSTICE WATTS, and MR. JUSTICE CARTER dissent.