Creem v. Northwestern Mut. Fire Assn.

The rule by which the provision in this insurance policy, quoted in the majority opinion, should be construed is thus stated in Watkins v. Federal LifeIns. Co., 54 Idaho 174, 176, 29 P.2d 1007, 1008:

"Contracts of insurance are to be construed in view of their general objects and strict, technical interpretation is to be avoided. Where language may be given two meanings, one of which permits recovery and the other does not, it is to be given the construction most favorable to the insured. (Sweaney SmithCo. v. St. Paul etc. Ins. Co., 35 Idaho 303, 206 P. 178; Santv. Continental Life Ins. Co., 49 Idaho 691, 291 P. 1072;Maryland Casualty Co. v. Boise Street Car Co., 52 Idaho 133,11 P.2d 1090.)"

There is conflict among the authorities on the question of the effect of a mortgage on property covered by a policy of insurance containing that provision. Western Assur. Co. v.Bronstein, 77 Colo. 408, 236 P. 1013, is a case exactly in point, and what seems to me to be the true rule, and the reason for it, may be extracted from the following quotation therefrom:

"It will be seen from the above quotation, if the insured, without the insurer's consent, procures any other contract of insurance on the property covered in whole or in part by this policy, the entire policy shall be void. In the latter clause, if 'the subject of insurance' be personal property, and it is incumbered by a chattel mortgage, the policy shall be void. It will be observed that the clause against additional insurance makes the entire policy void, if the property covered by the policy, either in whole or in part shall be reinsured, while the clause against an incumbrance by a chattel mortgage makes the policy void only if 'the subject of insurance,' not merely a part of it, is incumbered.

"We need not indulge in speculation why the language employed is different in the two clauses. The company framed this language for itself. If there is any ambiguity or uncertainty as to the meaning, it must be resolved in favor of the insured."

In Ransom v. Potomac Ins. Co. of District of Columbia,226 Mo. App. 664, 45 S.W.2d 95, it is said:

"Attention must be centered upon the specific words constituting the condition of the policy which is alleged to have been broken by the insured. To repeat, it provides: 'This entire policy, unless otherwise provided by agreement indorsed hereon or added hereto, shall be void . . . . if the subject of insurance be personal property and be or become incumbered by a chattel mortgage.' What meaning is to be attributed to the foregoing? 'The policy is to be construed liberally in favor of the assured and against the insurer. . . . . The law does not favor forfeitures, and contracts of insurance must be so construed, if possible, as not to defeat the claim to indemnity. The provisions in a policy, limiting or avoiding liability, must be construed most strongly against the insurer.' Kimbrough v. National Protective Insurance Assn.,225 Mo. App. 913, 35 S.W.2d 654, 658, and cases cited.

"The subject of insurance in the instant case is 'household and personal effects.' Personal effects are as much a part of the subject of insurance as any other property covered by the policy. Personal effects other than household goods were not included in the chattel mortgage. The company in preparing its policy selected the words by which it sought protection against liability in case of incumbrance. The words which it selected afford protection against liability if the subject of insurance be incumbered. The words 'subject of insurance' are unqualified and must be held to mean the whole subject of insurance and not merely a part of the property insured. In order to render the condition of the policy effective under the facts in the case, it would be necessary to supply something not expressed in the condition and cause it to read that the policy would be void 'if the subject of insurance, or any part thereof, be or become incumbered by a chattel mortgage.' We are not at liberty to do this, but must interpret and apply the condition as written, in accordance with the rules heretofore announced. The company did not protect itself against liability in the event a part only of the subject of insurance be incumbered, and we cannot amplify or extend the meaning of the words used to have such significance to the disadvantage of the insured. A strict construction against the insurer and a liberal construction in favor of the insured compels the conclusion which we have stated above."

See, also, Peterson v. Pacific Fire Ins. Co., (La.App.)148 So. 283; Fitzgibbons v. Merchants' Bankers' Mut. Fire Ins. Co., 126 Iowa, 52, 101 N.W. 454, 70 L.R.A. 243;Merchants' Mut. Fire Ins. Co. v. Harris, 51 Colo. 95,116 P. 143; Sullivan v. Mercantile Town Mut. Ins. Co., 20 Okl. 460,94 P. 676, 129 Am. St. 761; Hibernia Ins. Co. v. Bills, 87 Tex. 547,29 S.W. 1063, 47 Am. St. 121, 29 L.R.A. 706; NorthBritish Mercantile Ins. Co. v. Freeman, (Tex.Civ.App.)33 S.W. 1091; Hartford Fire Ins. Co. v. Walker, (Tex.Civ.App.) 60 S.W. 820; Mecca Fire Ins. Co. v. Wilderspin, (Tex.Civ.App.) 118 S.W. 1131.

It is contended the evidence is insufficient to establish the stock of merchandise destroyed in the building which was burned was included in the mortgage given to secure the payment of Rambo's indebtedness to Nampa-Weiser Company and George Shellhaas. The evidence shows, without conflict, that negotiations leading up to the making of the mortgage were conducted by Charles Rambo, owner of the mortgaged property, and Samuel Creem, who represented the mortgagees in the transaction. Creem. was manager of Nampa-Weiser Company, and he testified it was not his intention that the merchandise be included in the mortgage. Rambo also testified he did not intend to mortgage the merchandise, both witnesses agreeing it was included therein by mistake and that it was their intention that only the furniture and fixtures in the store be mortgaged. Shellhaas did not participate in the negotiations. His wife testified she and her husband were engaged in the bakery business in Weiser. She further testified:

"Q. In conducting that business, what part do you have to do?

"A. I do clerical work, have charge of all books and look after accounts, collecting and everything in that work."

With respect to a conversation with Mr. Creem, over the telephone, at the time the mortgage was made, Mrs. Shellhaas testified:

"Q. Go ahead with the conversation.

"A. Well, this morning Mr. Creem called up and of course we had talked about taking this mortgage before, and he said, 'Mrs. Shellhaas, I am up at Mr. Carter's office and I want to talk to you about this mortgage,' and sort of laughingly I said 'we want the cash' and he said that would be out of the question of course, and I said 'yes, well, I am just leaving it up to you about the mortgage' and of course in the conversation there wasn't anything said about it would be but of course I thought it would be the fixtures.

"MR. MARTIN: I move to strike 'I thought it would be on the fixtures.'

"THE COURT: It may be stricken.

. . . . . . . . . . . .

"Q. May it please the Court, Mrs. Shellhaas, just tell what was said by Mr. Creem to you in this conversation and speak a little more slowly please.

"A. Yes. Mr. Creem. said 'Mrs. Shellhaas, I am at Carter's office and I wish to speak with you concerning this Rambo mortgage' and I stated in a sort of laughing manner 'for our part of it we will take the cash' and he said 'of course, that will be out of the question,' and I said 'well, I am just leaving this mortgage up to you,' so he said, 'well, all right,' and to my knowledge that is all that I recall out of the conversation. . . . .

"Q. On what property were you intending to take a chattel mortgage? . . . .

"A. On the fixtures of Mr. Rambo's store and his Chevrolet truck.

"Q. Anything else?

"A. Nothing."

It is said in 26 C.J. 185, sec. 226:

"A mortgage, either on real or personal property, is of course an encumbrance within the meaning of a condition against encumbrances. But in order to constitute such encumbrance the mortgage must be valid; . . . ."

If the merchandise was included in the mortgage by mutual mistake it was not a valid encumbrance thereon, and only the property intended to be included was mortgaged.

The rule recognized and followed in Idaho is that evidence of mutual mistake in making and executing a written contract must, in order to vary the terms of the instrument, be clear and satisfactory. Defendant would have been entitled to an instruction to that effect had it asked for one, but it made no request for instructions.

There is no conflict in the evidence that the merchandise included in the mortgage was so included by mistake. The question is as to the sufficiency of the uncontradicted evidence on this point to meet the requirements of the rule that it must be clear and satisfactory in order to overcome the presumption that the parties, or one of them, intended that the merchandise be included in the mortgage. As heretofore pointed out, both Rambo, the mortgagor, and Creem, the representative and agent of the mortgagees, testified it was not their intention to include it.

The evidence that Creem, in taking the mortgage, not only represented Nampa-Weiser Company, for which he was manager, but also Shellhaas, is established by his testimony and that of Mrs. Shellhaas, and is without contradiction. Whether Mrs. Shellhaas was the agent of her husband with power to authorize Creem to take the mortgage is a question, like all other questions of fact, for the jury. (Carron v. Guido, 54 Idaho 494,33 P.2d 345.)

The evidence that the merchandise was included in the mortgage by mutual mistake was sufficient to take the case to the jury, and its finding is conclusive. Even if the evidence in this particular was insufficient, a considerable portion of the insured property, of substantial value, which was unencumbered by mortgage, was destroyed by the fire, which makes applicable the rule that encumbering only a part of the insured property does not vitiate the insurance on any of it covered by such a policy as we have here under consideration.

Respondents were entitled to recover for all the insured property destroyed because mortgaging a portion of it, without the knowledge or consent of the insurer, did not, according to the terms of the policy, invalidate the insurance on any of it. The jury was not correctly instructed in this particular, but respondents did not appeal and are, therefore, not entitled to have the error corrected. The judgment should be affirmed.

Justice Holden concurs in this dissenting opinion.