#### J. ROBERT LANDRETH v. AMERICAN EQUITABLE ASSURANCE COMPANY OF NEW YORK.

(Filed 2 July, 1930.)

Insurance J a — Where violation of provision of policy does not affect loss thereunder forfeiture will not be declared.

Where under a policy of fire insurance providing for a forfeiture if any foreclosure proceedings under mortgage or deed of trust be commenced against the premises with the knowledge of the insured, foreclosure proceedings are instituted without the direct knowledge of the insured, who *182hearing of the advertisement of the premises for foreclosure from a third person settles with the mortgagee and has the proceedings abandoned, and thereafter loss by fire is sustained during the life of the policy: *Held,,*under a reasonable construction of the provisions of the policy, a forfeiture will not be declared, the insured having no direct knowledge of the foreclosure proceedings, and the loss occurring after the settlement with the mortgagee the risk under the policy was not affected at the time of the loss by the violation of the provision, and the policy was revived upon the discontinuance of the violation.

Appeal by plaintiff from *Lyon, Emergency Judge,*at November Term, 1929, of Guilfoed.

Reversed.

This is an action brought by plaintiff to recover on a $3,000 policy issued by defendant to plaintiff on a dwelling-house that was destroyed by fire.

The policy, No. 192184, was issued by defendant to plaintiff on 24 February, 1928, and was for the term of one year. The premium' — • $27.90 — was duly paid by plaintiff to defendant. The plaintiff alleged that the policy was in full force and effect at the time the property insured was burned and all the terms, provisions and conditions contained in the policy were duly complied with on his part. That the loss suffered was $3,000; demand for payment made and refusal by defendant.

The defendant in answer sets up as a defense that the policy was a standard form and that certain of its provisions were violated, as follows :

“This entire policy shall be void, unless otherwise provided by agreement, in writing, hereto (ownership), etc.: (a) if the interest of the insured be other than unconditional and sole ownership; or (b) if the subject of insurance be a building on ground not owned by the insured in fee simple; or (c) if, with the knowledge of the insured, foreclosure proceedings be commenced or notice given of sale of any property insured hereunder by reason of any mortgage or trust deed; or (d) if any change, other than by the death of an insured take place in the interest, title or possession of the subject of insurance (except change of occupants without increase of hazard) ; or (e) if this policy be assigned before a loss.

There was no agreement in writing or otherwise waiving or changing or in any way referring to the foregoing provisions (a), (b), (c), (d) and (e) ; nor .was there any reference in the policy, by endorsement or otherwise, to any mortgage or deed of trust or other encumbrance upon the insured property nor to the ownership thereof by the insured and his wife by the entireties.”

The plaintiff introduced evidence of estoppel *in penis*and waiver of the policy provisions. Upon the close of plaintiff’s evidence, and at the *183close of all tbe evidence, defendant made motions as in case of nonsuit. At tbe close of all tbe evidence tbe court below granted defendant’s motion as in case of nonsuit. O. S., 567.

Tbe plaintiff duly excepted, assigned error and appealed to tbe Supreme Court.

*Harry B. Stanley for plaintiff.*

*Frank P. Hobgood for defendant.*

ClaeksoN, J.

“It is tbe well settled rule of practice and tbe accepted position in tbis jurisdiction that, on a motion to nonsuit, tbe evidence wbicb makes for tbe plaintiff’s claim and wbicb tends to support bis cause of action, whether offered by tbe plaintiff or elicited from tbe defendant’s witnesses, will be taken and considered in its most favorable light for tbe plaintiff, and be is entitled to tbe benefit of every reasonable intendment upon tbe evidence, and every reasonable inference to be drawn therefrom.” *Morris v. Y. & B. Corp.,*198 N. C., at p. 708.

Tbe defendant in its brief frankly says: “As to whether tbe foregoing facts were made known to defendant’s local agent, an incorporated insurance agency wbicb issued tbe policy, is for tbe purpose of tbis review of a judgment of nonsuit precluded by tbe testimony of plaintiff who swore that be gave tbe agent tbe information. Tbe circumstance that tbe agent denied that tbe information was given is upon tbis review immaterial. Defendant, appellee, contends that its argument ‘May be compressed within a narrow compass. Tbe policy provides that it ‘shall be void,’ ‘if tbe knowledge of tbe insured ... . notice (be) given of sale of any property insured hereunder by reason of any mortgage or trust deed.’ ”

Tbis presents tbe lone question on tbis appeal. Tbe defendant’s argument on tbis aspect was interesting and persuasive, but not convincing. Only one aspect of law we will consider. Tbe land was advertised for sale under tbe mortgage. Tbe testimony of plaintiff in regard to tbis was as follows: “Q. Well, you knew on 18 June, 1928, that W. W. Hobbs and wife began to advertise all of tbis property for sale under tbe power of sale in tbe mortgage from Mr. and Mrs. Lowdermilk to them? A. I was told one day about tbis, and I settled with Mr. Hobbs. I was told about it, but I bad no notice of it. Q. You knew it was advertised for sale ? A. I found it out, and then settled with him tbe day I found it out. I settled with him on another piece of property and I paid tbe cost of tbe advertisement. I never did see tbe advertisement wbicb appeared in tbe *Greensboro Patriot*on 25 June, 1928. My father-in-law told me it was running one morning, and I settled it that very day.”

*184The language of the policy, “The entire policy shall be void . . . if with the knowledge of the insured foreclosure proceedings be commenced or notice given of sale of any property insured hereunder1 by reason of any mortgage or trust deed.” The question arises if plaintiff’s testimony is found to be true by the jury is the policy void? We think not. The record discloses that the advertisement was started 15 June, 1928, and the sale to take place 21 July, 1928; that the property was destroyed by fire on 24 August, 1928. Before any sale of the property plaintiff, when informed by his father-in-law, immediately settled with the mortgagees and the advertisement of sale was discontinued. The provision in the policy has relation to the fact that when a sale is commenced with the knowledge of the insured, the risk is thereby increased, as the temptation arises to burn the property to procure the insurance money, so as to discharge the lien. The plaintifE immediately on getting outside information, other than certain and direct information from .the mortgagees or their attorneys that the land would be advertised, which a reasonable construction of the policy seemed to require, settled the matter. A forfeiture under the facts and circumstances of this case would be too narrow and technical and contrary to the spirit of the provisions of the insurance policy.

We think this case is governed by *Morton v. Insurance Company,*122 N. C., at p. 502-3. It is there said: “This brings before us a pure question of law, founded upon the charge of the court, in which we see no error. Admitting the validity of a provision rendering the policy void upon a contingency beyond the control of the assured, the only reasonable construction we can give to it is that it was intended to compel the assured to give notice to the company of any such proceedings or advertisement so that the company could exercise its right to declare the policy void, and return the unearned premium, which it was required to do by the very terms of the policy. But the assured could not be required to give information which she did not possess, and which came to her only in the same manner and through the same means that it came to the agent of defendant, whose knowledge is in law that of the defendant. It is probable that, as the agent lived in the same town where the newspaper was published, he saw the advertisement before the plaintiff, who lived in a different town. In any event she has violated no provision of the contract of insurance either in letter or in substance, as the notice of sale *was given without*her knowledge. If the defendant stands upon the letter of the contract, ignoring the equities of the plaintiff, he must be satisfied with what is given him by a literal interpretation. If he demands his full pound of flesh, he must take that and nothing more.”

The cases, pro and con, are annotated in 50 A. L. R., p. 1122 *et seq.*The case of *Mayes v. Insurance Co.,*132 N. C., 702, may be distinguished *185on tbe ground that tbe mortgagee under tbe terms of tbe policy gave notice of tbe sale to tbe insured as contemplated by tbe policy. Tbe fire in tbat ease occurred during tbe period tbat tbe property was being advertised for sale. Tbe sale took place 3 December, 1900, and tbe fire occurred 1 December, 1900. In tbe present case, tbe loss by fire occurred some two months after. We tbink tbe *Horton case*is tbe logic of tbe situation and authority in this case.

In *Cottingham v. Insurance Co.,*168 N. C., at p. 260, we find: “Tbe loss occurred as above stated, after tbe deed of trust was paid off and canceled. 2 Cooley Ins., 1780, citing many cases, says: ‘The general rule tbat a breach of tbe condition against encumbrance is ground for forfeiture must be modified where tbe encumbrance is merely temporary and is not in existence at tbe time of tbe loss. It may be regarded as settled by tbe weight of authority tbat tbe effect of tbe encumbrance is merely to suspend tbe risk, and on cancellation or discharge of tbe encumbrance tbe policy is revived.’ Elliott on Insurance, sec. 205, collating tbe authorities, also says: ‘The weight of authority seems to support tbe view tbat a violation of a condition tbat works a forfeiture of tbe policy merely suspends tbe insurance during tbe violation, and if tbe violation is discontinued during tbe life of the policy and does not exist at tbe time of tbe loss, tbe policy revives and tbe company is liable, although it bad never consented to tbe violation of tbe policy, and tbe violation was such tbat tbe company could, bad it known of it at tbe time, have declared a forfeiture therefor.’ To same purport, Phillips on Insurance, sec. 975, and 1 May Insurance (3 ed.), sec. 101; 2 A. and E., 288, and note. A case almost exactly in point is *Strause v. Insurance Co.,*128 N. C., 64, where tbe defendant set up a defense tbat tbe mill was operated at night, contrary to tbe provisions of tbe policy, and this Court said: 'The fire occurred more than three -months thereafter and was in no wise traceable so far as tbe evidence shows, to tbe work at night, which bad long ceased.’ ”

We tbink perhaps there was sufficient evidence of knowledge on tbe part of defendant’s agent as to tbe advertisement and tbe fact tbat no steps were taken to cancel tbe policy and some time elapsed before tbe fire, but this is immaterial. This matter has been recently written about in *Smith v. Insurance Co.,*198 N. C., 578. Tbe judgment of tbe court below is

Eeversed.