Case Name: The Farmers Bank v. The Mutual Assurance Society &c. and Others
Court: Supreme Court of Appeals of Virginia
Jurisdiction: Virginia
Decision Date: 1832-12
Citations: 4 Leigh 69
Docket Number: 
Parties: *The Farmers Bank v. The Mutual Assurance Society &c. and Others.
Judges: 
Reporter: Virginia Reports
Volume: 31
Pages: 867–875

Head Matter:
*The Farmers Bank v. The Mutual Assurance Society &c. and Others.
December, 1832.
ilutual Assurance Societies — Mortgage of Insured Building-Effect. — It buildings insured in the Mut. Ass. Society against fire &c. tie mortgaged, ttie policy of assurance is ipso facto assigned to the mortgagee.
ilortgage to Secure Debit — Renewal of Note — Effect. — Mortgage of leasehold property, to secure to Bank of Virginia the contents of a note discounted for mortgagor’s accommodation, with stipulation that the note shall he renewed only till a certain time; and then same subject is mortgaged to Farmers Bank, to secure a debt to it; the Bank of Virginia renews the note for three years after time stipulated: Held, such prolonged renewals of the note were only an extension of credit for the same debt, which no wise impaired the lien of the first mortgage, and the Bank of Virginia has priority oyer the Farmers Bank.
Mortgage of Term of Years — Liability of Mortgagee to Perform Covenants. — A mortgagee of a term of' years, though he never in fact enters into possession, is, like any other purchaser, bound to perform the covenants in the lease, after the date of the mortgage.
Term of Years — Assignee—Liability for Breach of Covenants. — In general, the assignee of a term of years is not liable for breaches of the covenants in the lease before the assignment — but, if the as-signee by express covenant with his assignor, bind himself to pay the rents, and perform all the covenants in the lease contained, and required to be done and performed on the part of the lessee,— such a covenant not only binds the assignee to fulfil the covenants during his own time, but makes him liable for breaches before Ms time.
The corporation of the Borough of Norfolk, being the proprietor of a parcel of land on Town Point in that borough, had the same laid off in lots in 1792; and by indenture, made in May in that year, leased two adjoining parcels thereof to Nicholas Booze, for a term of ninety-nine years, renewable forever, at a certain stipulated ground rent for each parcel respectively, payable yearly. And Booze covenanted for himself, his executors, administrators and assigns, — that he and they would pay the ground rents to the borough yearly, and would also pay the public and all other taxes — and that he and they would, within three years from the date of the .lease, improve the premises in such manner that the yearly ground rents should be thereby sufficiently secured; and, on failure so to improve the premises within the three years, would give bond with sufficient surety to the borough for the further payment of the yearly ground rents *and taxes, until improvements should be made sufficient to secure the same; and, in case such security should not be given within three months from the expiration of the three years, the borough might lease out the premises again, at auction, for the best price to be had, and Booze, his executors, administrators and assigns, would make good any deficiency in the rents obtained, and any difference between the first and last prices; the borough, on its part, accounting for and paying to him, his executors, administrators and assigns, any overplus that should be obtained on the re-letting of the premises —and further, if the ground rent and taxes should be in arrear and unpaid for three years, at any time during the term, in such case also, the borough might in like manner lease out the premises again, with all the improvements thereon, for the residue of the term, on ‘the best terms to be had; and Booze, his executors, administrators and assigns, would make good to the borough any deficiency between the first and last prices, together with the arrears of rents and taxes — And the borough covenanted on its part, that in case the improvements should be made as stipulated by the lessee, and the ground rents and taxes punctually paid, so as not to leave three years rents and taxes in arrear at any one time during the term, then, after the expiration of the term, it would renew the lease for a further term of ninety-nine years, and so on forever.
Booze proceeded to put improvements on the premises, according to his covenant in the lease. He sold the term in 1796; and, after passing through several hands, it was purchased by Henry M’Dowell in September 1815, who, not long afterwards; effected insurance of the buildings on the premises, with The Mutual Assurance Society against fire &c.
At the time the term was assigned to M’Dowell, the ground rents for above five years, that is, from the 10th May 1810 were in arrear, . and neither those arrears, nor any of the rents accruing in M’Dowell’s time, after the assignment of the term to him, were ever paid, or (it seemed) *demanded, though there was always, while the buildings remained, sufficient distress on the premises for the rents.
By deed of trust, dated the 20th March 1817, and duly recorded, — reciting that M’Dowell was indebted to the Bank of Virginia at Norfolk, in the sum of 4648 dollars by note dated the 18th of the same month, payable sixty days after date, indorsed by T. Powell for his accommodation, which note it was contemplated should be renewed from time to time till the 1st March 1818, aad that it was the intent of the deed to secure the payment of the debt at that time, or whatever sum should then be due to the bank, — M’Dowell conveyed the residue of the term of ninety-nine years held under the lease from the borough of Norfolk, to trustees, — “they, the trustees, or their assigns, paying the ground rents, and performing all the stipulations and covenants in the original deed [of lease] of the said land contained, and required to be done and performed on the part of the lessee:” upon trust, that if M’Dowell should fail to pay the bank the contents of the note then existing, or of such other note as might afterwards, from time to time until the period before mentioned, be given in lieu or renewal thereof, then the trustees, whenever requested by the bank, might enter on the premises, sell them at auction, and pay the debt out of the proceeds; and the trustees covenanted with M’Dowell, that they would execute and discharge the several trusts stipulated to be performed on their part.
M’Dowell remained in possession of the premises. And the bank not only renewed the loan to him, and he the note for the same to the bank, from time to time until the 1st March 1818, but continued to do so, upon the credit of the same indorser Powell, until July 1819, when Powell failed, and the note was protested for non-payment ; but in October following, it was again renewed, with the same indorser, until May 1822, when, M’Dowell having died, it was again protested for non-payment. The debt then due on the note to the bank was 4548 dollars.
^Meantime, by another deed of trust, dated the 7th October 1818, and duly recorded, M’Dowell conveyed his equity of redemption in the premises to trustees, in trust to secure a similar debt, to a large amount, contracted by him and due to the Farmers Bank at Norfolk.
The buildings on the premises were consumed by fire, on the 30th April 1822; and the amount of loss, for which the Mutual Assurance Society admitted itself to be liable on the policy of assurance, was 6262 dollars, with interest from the 6th January 1823, when the claim for the loss became demandable at the office of the society.
M’Dowell died about the time the fire happened; and the hustings court of Norfolk committed administration of his estate to the sergeant of the borough. The estate proved utterly insolvent.
In August 1822, the trustees for the Bank of Virginia offered the residue of the term of ninety-nine years in the premises, for sale at auction, under the deed of trust of the 20th March 1817, but no bid was made for it. It appeared, indeed, that, owing to the abandonment of that part of the town, the property, now destitute of improvements, was almost if not quite valueless, and certainly unsaleable.
The Farmers Bank exhibited a bill in the superiour court of chancery of Richmond, against the Mutual Assurance Society, the sergeant of Norfolk administrator of M’Dowell, the Bank of Virginia and its trustees, and the Borough of Norfolk,— setting forth the facts above stated; and that conflicting claims to the money due on the policy of assurance, were set up by the Farmers Bank and the several defendants respectively, and the society refused to pay the money till those conflicting claims were adjusted ; claiming satisfaction, out of this fund, of the debt due the Farmers Bank, in preference both to the Bank of Virginia and the Borough of Norfolk; and praying, accordingly, that the society should be directed to pay the Farmers Bank the amount of its claim, and that the premises should be sold, *and the proceeds applied as justice required, under the circumstances of the case ; and general relief.
The Mutual Assurance Society admitted the amount of the loss for which it was liable on the policy of assurance, and expressed its readiness to pay the money to the party or parties to whom the court should decree it. The society was a mere stake-holder.
The administrator of M’Dowell claimed this money, as assets of his intestate, applicable to his debts in due course of administration.
The Bank of Virginia, in its answer, insisted, that it had a specific lien on the fund, and was entitled to satisfaction of it in preference to the Farmers Bank; but as to the question of preference between it and the Borough of Norfolk, the answer was silent.
The Borough of Norfolk answered, and insisted, that the fund should be applied to the ground rents which had accrued and were in arrear since the 10th May 1810 (amounting to 1575 dollars in arrear in August 1821), in preference to the claims of both the banks. And it also insisted, that by the failure of the lessee or his assigns to perform the covenant for payment of the ground rents, so as to let them be in arrear for three years, the term was ipso facto forfeited, and the premises revested in the lessor.
The chancellor declared, that the Borough of Norfolk was entitled to priority over both the banks, and that the Bank of Virginia was entitled to priority over the Farmers Bank; and, therefore, decreed, that the Mutual Assurance Society should pay the borough, the sum of 2080 dollars (being the aggregate of the principal of the rents claimed, and interest thereon from August 1821 when the last of those rents accrued, to the date of the decree) with interest on 1575 dollars, part thereof being 'principal, from the date of the decree, and the costs of the borough in this suit; and then pay the residue of the money due on the policy of assurance, to the Bank of Virginia, in part satisfaction *of its claim, it being not enough to discharge the whole.
From this decree the Farmers Bank appealed to this court.
The cause was argued here, by Nicholas for the Farmers Bank, Leigh for the Bank of Virginia, and Johnson for the Borough of Norfolk: there was no counsel for M’Dowell’s administrator.
I. As to the claim to the fund in question, set up by M’Dowell’s administrator in the court of chancery, it was clearly shewn,— by reference to the 8th section of the original act of incorporation of the Mutual Assurance Society (an abstract of which may be seen in the report of the M. A. Society v. Stone & others, 3 Leigh 219,) and by the rules and regulations of the society, to which all the assured are parties, — that when property there assured, is mortgaged, the policy of assurance is ipso facto assigned to the mortgagee.
II. Nicholas argued for the Farmers Bank, that it had a right to have satisfaction out of the money due on the policy of assurance, in preference to the Bank of Virginia; because M’Dowell’s notes, by the express provisions of the deed of trust of the 20th March 1817, under which the latter claimed, were only to be renewed until the 1st March 1818, and the security provided by the deed was only a security for the contents of the note existing at the date of the deed, or of such other note as might, afterwards, from time to time until the period before mentioned (namely', the 1st March 1818), be given in lieu or renewal thereof. But the Bank of Virginia continued the accommodation to M’Dowell upon notes renewed from time to time (with an interval of three months in 1819) until May 1822. Therefore, the note protested at the last date, was not a note whereof the contents were secured by the deed of trust under which the Bank of Virginia claimed; it was a wholly different note, the contents of which were not secured or intended to be secured by the deed, but on the contrary distinctty excluded from the security thereby provided.
*Beigh, for the Bank of Virginia,
answered, that the original note given for the debt due that bank, was not the debt, but only the evidence of the debt and personal security for it, and the notes renewed from time to time, were only renewed evidences of the debt and of the personal security; the debt itself, of which it was the purpose of the deed of trust to provide collateral security, remaining throughout one and the same. The original debt remained unpaid, acknowledgedly, till the 1st March 1818. The effect of the renewal of the notes for it from time to time afterwards, was to' give a further credit for it, beyond what was at first intended; but, notwithstanding the extension of credit, the same original debt, which was due the 1st March 1818, remained still unpaid. The giving such further credit nowise changed the debt, or impaired the collateral security for it: the rights of the Bank of Virginiá were exactly the same, in this regard, as if it had allowed the further credit, without a renewal of the notes. The Farmers Bank was the assignee of M’Dowell’s equity of redemption, and so entitled to redeem.upon the terms on which he would have been; and, surely, M’Dowell could not have been heard to object to the lien of the Bank of Virginia, that it had renewed his notes for a longer time than it had stipulated to renew them.
III. Beigh said, the chancellor erred in adjusting the question of.preference between the Borough of Norfolk and the Bank of Virginia, upon the bill and the pleadings in this cause; for they presented no such question between those parties. The bill, indeed, claimed a priority for the Farmers Bank over both ; but the only question it presented, was, whether that bank was entitled to such priority? It nowise concerned the Farmers Bank, which of the defendants was entitled to priority over the other; on this point, therefore, the bill presented no issue. Accordingly, the Bank of Virginia, in its answer, only controverted the priority insisted ' on by the Farmers Bank over its own claim, and properly avoided to put in issue the question of priority between itself and the borough..
^Johnson, for the borough,
answered, that the obvious purpose of the bill was to have the rights of all parties, as to priority of satisfaction out of the insurance money, adjusted. The claim of the borough to priority equally affected the interests of both the banks: that claim, therefore, the Farmers Bank contested; it claimed priority over the borough as well as over the Bank of Virginia; 'and the adjudication of the claim asserted in the bill, necessarily involved the examination, comparison and-adjustment of the rights of co-defendants.
IV. Nicholas and Beigh then contended, 1st. That the decree was erroneous in giving preference to the borough over the banks, for satisfaction out of the money due on the policy of assurance. The policy was a personal subject assigned to the banks as collateral security for debt: the borough "had no specific lien on the policy, or on the money due upon it: with respect to this fund, the banks were specific incum-brances; the borough a general creditor. There could be no question in equity, between the borough as lessor of the premises and creditor for the rents in arrear, and the banks as assignees of the policy of assurance: the only questions between the borough and the banks grew out of the relation of the borough as lessor, and the banks as assignees, of the term originally leased to Booze, and from him through M’Dowell derived to the banks; and these were questions which could property be controverted only in an action at law brought by the borough, upon the covenants in the lease. 2ndly. Supposing the first objection unfounded, yet, they said, the decree was erroneous in allowing the claim of the borough, and giving priority of satisfaction, for rents in arrear for which the banks as assignees of the terms were not bound, and which, therefore, were not property chargeable on this fund. The only breaches of the covenants in the lease, consisted in the non-payment of the ground rents reserved. The amount of about eleven years rents in arrear was claimed by the borough, and allowed by the decree; comprising the rents of about five years, *which accrued before the term was assigned to M’Dowell in September 1815; the rents of about two years following, which accrued before M’Dowell mortgaged the term to the Bank of Virginia; and the rents of about four years, which accrued after that mortgage was executed, but while M’Dowell, not the bank, held the possession. Now, M’Dowell was not bound to pay the rents in arrear, or liable for any breach of covenants, before the assignment of the term to him; nor were the banks bound to pay any rents which accrued before the term was mortgaged to them. For the assignee of a lease could not be held liable for any breaches of covenants before the assignment; he was only liable in respect of his possession, and for breaches during his own time. Walker’s case, 3 Co. 23; Grescot v. Green, 1 Salk. 199; Tovey v. Pitcher, Id. 80; Cook v. Harris, 1 Bd. Raym. 368; St. Saviour’s church wardens v. Smith, 3 Burr. 1271. Whether the banks were bound for the rents accrued during the four last years, which elapsed after the execution of the first mortgage of the term, but while M’Dowell the mortgagor remained in possession, was a doubtful point. In Pilkington v. Shaller, 2 Vern. 374, it was held, that the mortgagee of a term, though never in possession, was bound for breaches of the covenants in the lease after the execution of the mortgage; but the contrary was adjudged by lord Mansfield and the whole court of King’s Bench, in Raton v. Jaques, 2 Doug-. 455. And then, in Williams v. Bosanquet, 1 Bi-od. & Bing. 238, 5 Eng. C. L. R. 72, it was decided, that by the mortgage of a lease, the whole interest passed to the mortgagee, and he became liable on the covenant for rent, though he never entered into the possession; and it was said to have been the opinion of a great majority of all the judges, that Raton v. Jaques was not to be considered as having been rightly decided. This court would decide, between these conflicting authorities, which was the better opinion. But 3rdly, they insisted, that, whatever rents in arrear the borough was entitled to, the decree was erroneous in allowing interest on *those rents, even from the time the last of the rents in arrear accrued; for it appeared that, during the time when those rents were accruing, — until, indeed, the buildings on the premises were destroyed by fire in April 1822, — there was always sufficient distress on the premises. Cooke v. Wise, 3 Hen. & Munf. 463; Newton v. Wilson, Id. 470; Dow v. Adams, S Munf. 21; Michie v. Wood, 5 Rand. 571.
Johnson answered, 1st. That as the lease from the borough to Booze was a building lease, and the lessee covenanted, for himself and his assigns, to improve the premises within three years, in such manner that the yearly ground rents should be thereby sufficiently secured, and that in case the rents should be in arrear at a. y time during the term for three years, the borough might lease out the premises again, with all the improvements thereon, for the residue of the term, — it was, therefore, plain, that the lessor had a specific lien on the buildings erected on the premises in pursuance of the covenants, for the ground rents; and, in equity, after the destruction of the buildings by fire, the money due on the policy of assurance thereof, must be regarded as standing in the place of the buildings, and subject to the same specific lien for the securiy of the rents to the lessor. The assignees of the lease, too, were expressly bound for the performance of all the covenants, and took subject to all the rights of the lessor, and subject especially to the specific lien on the buildings to secure the rents. 2ndly. He went into an examination of the general doctrine, that an assignee of a lease is not liable for breaches of covenants before the assignment, in order to shew that it was inapplicable to this case. Here, there was an express covenant, that in case the rents should be in arrear at any time for three years, not only the lessor might lease the premises again for the residue of the term, and that the lessee and his assig'ns should make good any deficiency, but that he and they should make good the arrears of rents. Therefore, the assignees of the term were expressly bound to pay all arrears of rent, whether they accrued before or after the assignment. - And he considered it now settled, by the case of Williams v. Bosanquet, that there is no difference, in respect of liability to the lessor for breaches of covenants in a lease, between a mortgagee and any other purchaser of the whole term; and that the mortgagee is bound, like any other purchaser, though he never enters into the possession. But here again, he said, there was an express contract which obviated all doubt: it was expressly covenanted in the deed of trust executed by M’Dowell to secure the debt to the Bank of Virginia, tnat the trustees and their assigns should pay the ground rents, and perform all the covenants in the original lease contained, to be performed on the part of the lessee. 3rdly. As to interest on the rents, he said, the decisions of this court on the point, amounted in effect to this, — that interest on rents should be allowed or not according to circumstances. And under the circumstances of this case, he said, the decree was right as to the allowance of interest: or, at least, interest should be allowed from the time the buildings were destroyed, since, thenceforth, a distress would have been unavailing, and M’Dowell being dead insolvent, the borough had no means of recovering the rents: or, at any rate, interest should be allowed from the 6th January 1823, when the insurance money fell due; for that money ought to have been then immediately applied to the payment of the rents; and as it had not been so applied, and had been yielding interest all the time, that interest justly belonged to those to whom the principal ought to have been paid. Lastly, he himself objected to the decree, that it had not given to the borough what it had a right to insist upon: that the chancellor ought, undoubtedly, to have made provision out of the fund at his disposal, for the payment of all rents to accrue in future during the residue of the term; and more, he ought to have made provision to secure the future rents, in the manner in which it was intended and covenanted in the original lease that they should be secured; that is, by putting such new buildings on the premises as would suffice to secure them. He insisted, that the intent *and effect of the covenant for improving, was, not only that buildings should be erected on the premises, but that they should be erected and kept up during the whole term. Therefore, he contended, the whole insurance money should have been appro inflated to the erection of new buildings in lieu of those which had been destroyed by fire.
Leigh replied, that the covenant for improving, bound the lessee and bis assigns to make improvements once only; for the improvements which the lessee covenanted to make, were to be made within three years from the date of the lease, and there was no stipulation that they should be kept up. The claim to have the insurance money appropriated to the erection of new buildings was wholly untenable. And unless that proposition could be established, he thought it would be impossible to give the borough a specific lien on the insurance money for -any purpose. It could not be inferred from the covenant, that if the rents should remain in arrear for three years, the borough might sell the premises with the improvements, and the lessee and his assigns should make good the defi-ciencj', together with the arrears of rents: the borough had not sold, or attempted to sell, the premises, and so the casus foederis had not occurred. As to that covenant, he also insisted, that, in just legal construction, its obligation on the assignees of the lease, was, that they should make good the arrears of rent accruing in their own time. So, too, as to the covenant in the mortgage to the Bank of Virginia, it ought to be taken prospectively,^ that the bank should perform the covenants in the lease after the assignment of the term to it, as M’Dowell was bound to perform them before the assignment. In fine, he said, the borough, if it had any specific lien on the insurance money for any purpose, was only entitled, at the utmost, to have provision made out of it for the payment of the ground rents which should accrue during the residue of the term yet to come; and (having regard to the present state of the premises, which were now unsaleable and abandoned) he suggested, that this might best be accomplished, by considering the *'annuai ground rents, as an annuity to the same amount, for as many years as jret remained unexpired of the term; and decreeing to the borough, out of the insurance money, a sum equal to the present value of such an annuity.
Mutual Assurance Societies. — The principal case is cited in foot-note to Ingrams v. Mutual Assurance Soc., 1 Rob. 661. See monographic note on "Insur ance, Fire and Marine” appended to Mutual, etc., Soc. v. Holt, 29 Gratt. 612.
Mortgsges. — See monographic note on “Mortgages” appended to Forkner v. Stuart, 6 Gratt. 197.
Renewal of Notes — Effect.—The principal case is cited in Tardy v. Boyd, 26 Gratt. 638, and foot-note; Moses v. Trice, 21 Gratt. 568. and foot-note; foot-note to Blair v. Wilson, 28 Gratt. 165; Miller v. Miller, 8 W. Va. 550, 551; Feamster v. Withrow, 12 W. Va. 652; Bank v. Good, 21 W. Va. 465; Hopkins v. Detwiler, 25 W. Va. 748; Wolfe v. McGugin, 37 W. Va. 563, 16 S. E. Rep. 800; First National Bank v. Handley, 48 W. Va. 690, 37 S. E. Rep. 540.
See monographic note on “Bills, Notes and Checks” appended to Archer v. Ward, 9 Gratt. 622.
Covenants. — See monographic note on “Covenants” appended to Todd v. Summers, 2 Gratt. 167.

Opinion:
TüCKER, P.
I do not concur in the opinion intimated at the bar, that the present state of the pleadings in this case, neither calls for, nor permits, a decision upon the rights of the parties before us in all their different relations. The Earmers Bank being the juniour incumbrancer in point of time, and therefore prima facie inferior to the prior claimants, having filed its bill praying for the satisfaction of its demand out of the insurance fund, we cannot possibly decide upon its claim, without comparing the conflicting claims in the first place; and if, as I apprehend, that bank must yield in point of right to the Bank of Virginia, it then becomes all important to ascertain the validity and precise extent ol the rights of the Borough of Norfolk, upon which will depend the amount that can be decreed to the Earmers Bank out of the fund in question. If the borough has rights in this matter; if those rights have priority; if they entitle it not only to back rents but to interest, and to a demand of the investment of a principal sum so as to secure an interest adequate to the payment of the rent during the residue of the term; then it would seem, indeed, very probable that the struggle of the Earmers Bank has been for nothing; for nothing will remain to be paid to it. Hence it becomes absolutely necessary to look at the demands and rights of the borough in every aspect, before we scatter the funds out of which the counsel have supposed that it has a title to be secured in the payment of the rents reserved on its lease. I shall therefore proceed first to examine the title of the borough to the funds in court.
The borough being the proprietor of land at the Town Point, proceeded in 1792 to. have it divided' into lots, and to lease the lots for ninety-nine years, renewable forever, reserving a ground rent payable annually by the lessee and *his assigns. The object on the part both of lessors and lessees, was to build upon the property, since otherwise it would be useless to the latter, and to the former the payment of the rents would be precarious. Among other lessees was one Booze, under whom M'Dowell, the debtor of the banks, claimed to hold. By the lease to Booze, the borough reserved a certain rent on each of the lots leased to him: and Booze, for himself/ his executors, administrators and assigns covenanted, 1. to pay the rent annually: 2. to pay the taxes: 3. to-improve the land in the space of three years, in such manner as that the yearly rent should be thereby sufficiently secured; and 4. on failure thereof, at the expiration of three years, that he, his executors, administrators and assigns, would tender bond with sufficient security for the further [future, probably] payment of the yearly ground rents and taxes, until improvements should be made sufficient to secure the same; or 5. if such security should not be given within three months from the expiration of the three j'ears, the borough might lease out the premises again, for the best price to tie had, and the lessee, his executors, administrators and assigns would make good the deficiency, or be entitled to the surplus if the new lease brought a higher rent: and 6. if the rent should be in ar-rear at any one time for more than three years, there was a like privilege to re-let, and a like obligation on the lessee, his-executors, administrators and assigns, to make good the deficiency, together with the arrears of rent. Such were the terms of this lease, which Booze parted with, it seems, in 1796, and which M'Dowell did not acquire until September 1815; froip. which time he became liable for the accrm-ing rents. Previously, it seems, the covenant as to the erection of buildings had been complied with; but, if the account filed by the mayor of Norfolk be correct, there were, at that time, more than five years rent in arrear and unpaid; and, of course, two years before his purchase, it had been lawful for the borough to have leased out the premises again to some other tenant.
*This provision, however, had not the effect of avoiding the lease, ipso-facto, without some act on the part of the lessor. The answer of the borough, in this regard, misinterprets the lease. A lease for years, indeed, may be avoided without entry, if it be so provided, though a lease for life cannot. But a prudent landlord will so provide, as to give him an option to avoid the lease or not; for if it be an advantageous lease, it may be better for him to waive the right to enter and be reinvested with his old estate. So, in this case; the draftsman has secured the power to re-let; but it was a power which might be waived or not at the lessor's pleasure. That pleasure has never been exerted to defeat this lease, although it may at any moment be exerted. But it is obviously not their interest; for it seems the time has gone by when this property could be leased for a cent, with provisions like those of this lease.
M'Dowell having purchased the property, proceeded to insure it. He then, in 1817, executed a deed of trust of it to secure the Bank of Virginia, and another in October 1818, to secure another debt to the Farmers Bank. In 1822, the houses were burned down; and about the same time he died. The insurance company are ready to pay the insurance money; and four claimants are competitors for it, — M'Dowell's administrator (whose claim however is not urged), the Borough of Norfolk, the Bank of Virginia, and the Farmers Bank.
In the examination of the rights of the Borough of Norfolk, I shall take it for granted, for the present, that the Bank of Virginia, though a mere mortgagee, is to be looked upon as an assignee of the term; for, however the general doctrine may be on the subject, if the bank takes the benefit of the lease, it must assume its burdens, to the same extent as if it was assignee of the term out and out. But as such, it is very manifest, that, unless there is something in the lease which varies its case from that of ordinary assignees, the bank is not chargeable with any breach which occurred anterior to its title. For an assignee is only liable *in respect of his possession; he bears the burden while he enjoys the benefit, and no longer. In particular, the assignee cannot be liable for rent in arrear before his title accrued. Rents due and in arrear are considered as debts severed from the realty sub modo. Moreover, it is inconsistent with any principle of the law. that one man should bind any other than his heir or his executor; and they are only bound in respect to the assets passing to them. He cannot bind his as-signee ; but the assignee, by the acceptance of the estate, binds himself to fulfil the obligations of the contract devolving upon him during his occupation. By law he is bound for nothing more. In the present case, however, a doubt hangs over this question from the peculiarity of the covenants. The difficulty is to say, whether the breach has occurred, or may be made to occur, in the time of the bank or not. The breach in non-payment of the rents, certainly occurred even before M'Dowell's time; for when he purchased in September 1815, there were five years rent in arrear. Now, I have much doubt, whether M'Dowell, or those who come after him, could have been bound for the rents in arrear, or to give security for deficiency in price, for rents to become due after their possession and estate might have been passed away. Booze certainly and his estate are bound, that his assigns shall do what is provided; for he is bound for the performance of all his express covenants, during the continuance of the whole lease, notwithstanding the assignments; and this, although the lessor accepted the assignee as tenant: But after assignment and acceptance, he is not liable on covenants merely implied by law. 2 Bac. Abr. Covenant, J3. 4, p. 72, and the cases there cited.
The next question under these covenants, is, Whether the covenant to improve is satisfied by the erection of the first buildings, or is a continuing covenant, binding the parties to renew the buildings from time to time, in case they should be destroyed by flood or fire? The language of the covenant affords no ground for this latter construction. If an action for breach of the covenant were brought, the plea *of covenants performed would bo sustained, by proving that the party has once improved or built according to his engagement. A different construction cannot be given to the lease in a court of equity. It is the misfortune of the landlord, indeed, that by the burning oí the houses, the lot is reduced to its originally naked condition, and still more that the change of times has reduced its value to nothing. But the conflagration fell more heavily upon the tenant than upon the landlord, and if the holders are bound for prospective rents forever, upon these valueless lots, the change of times, which has desolated that part of the town, will prove ruinous to them. These are losses which the parties must be content to bear in proportion to their respective interests. The tenant must put up with the loss of his house, and the landlord with the loss of his rents. Neither can throw his share of the loss upon the shoulders of the other. It is said, that the houses were insured, and that the insurance money stands in the place of the buildings. And what is the sequitur? Is it that the rents are to be paid out of it, or that a court of equity may compel the rebuilding out of this fund, because of its supposed relation to or substitution for the buildings which have been destroyed? I think not. Whatever the supposed relation may be between the houses and the insurance money, the landlord has no sort of equity in this case to demand its application to the payment of arrears, orto rebuilding the premises. The tenant was neither bound to rebuild, nor to insure. Had he been so bound, the case would have been otherwise. As it is, the insurance money is the price paid by the insurance society for the consideration of the premiums and quotas advanced by M'Dcwell out of his own pocket. Upon what pretext could the borough claim the benefit of this covenant purchased by M'Dowell's funds for his own benefit, if he was not bound to purchase it for their benefit? If they had bound him to insure, or had borne the charges of insurance in proportion to their interest, the case would have been widely different. As they did not, it would be iniquity instead *of equity, to take from him what has been acquired by his own advances.
If the case, then, stood solely upon the original lease, and there was nothing in the deed of trust to the bank, which couid enure to the benefit of the borough, I should be clearly of opinion that the borough had no rights whatever in relation to this fund. But that deed, I conceive, changes the whole aspect of the case, and would have rendered unnecessary an investigation of the questions I have been considering, but that the earnest discussion of them at the bar, forbad that they should be passed over in silence.
What, then, were the rights and obligations of the Bank of Virginia? By the operation of the deed of trust, the bank became assignee of M'Dowell of the lease; for it seems to be now settled, that when a party takes an assignment of lease by way of mortgage, the whole interest passes to him, and he becomes liable on the covenant for payment of rent, though he had never occupied or become possessed in fact: Eaton v. Jaques, which had determined otherwise, is now considered as not tightly decided; Williams v. Bosanquet, 1 Brod. & Bing. 238. This case is certainly in strict analogy to the doctrines of courts of law, which look upon a mortgage as the conveyance of the title, and not as a mere security for money. And as they also consider the mortgagor as tenant at will only of the mortgagee, the mortgagee must be the tenant for years, unless the estate for years is gone by the assignment, which cannot be. In this case, moreover, the Bank of Virginia is before the court, claiming the benefit of this lease, and demanding to be paid its debt out of funds to which it could have no title except as assignee of the lease; and if they take the benefit, they must be content to bear the burden. But this is not all. When M'Dowell encumbered this property to the Bank of Virginia, it was a valuable tenement. Its insurance amounted to 7000 dollars. M'Dowell was aware, that by the terms of the lease under which he held, the Borough of Norfolk had a right, if the rent was three years in arrear, to re-let *the tenement upon such terms as they could, and to hold him responsible, moreover, for the back rents accruing in his own time a lease. He, therefore, expressly provides in the deed of trust for the rights of the borough. He assigns the premises to the trustees, — they or their assigns paying the ground rents and performing all the stipulations and covenants in the original deed of lease for the said land contained, and required to be done and performed on the part of the lessee. Is this a covenant? Then the trustees of the bank covenant, that they will perform all that the original lessee was bound to do and perform. Is it a condition? Then they took the estate upon the condition that they should do and perform all that he was bound to do and perform. Is it a trust? Then this deed enures to the Borough of Norfolk, as a security for the payment of the ground rents, and the performance of all the stipulations and covenants in the original lease, required to be done and performed on the part of the lessee. One of these is, that if the rent be behind for three years, the landlord may re-let; and upon re-letting, the lessee bound himself to pay up and make good the deficiency, together with the arrears of rents and taxes. This obligation, then, rests upon the assignees here. The rent is now three years and more in arrear; and in the language of the books, having been due then, and there having been no tender, it has been due and payable every day since; 6 Bac. Abr. 29. The borough may therefore now, at its pleasure enter and re-let. If it do so, it is obvious the property will bring nothing, and the assignees of the term, who have assumed to do and perform what the lessee had bound himself to do, will be bound to pay up and make good the deficiency, together with the arrears of rent. The arrears of rent, and the future payment of the rents stipulated, are thus secured by this deed of trust. The consciences of the trustees for the bank, are as much affected by this part of the undertaking, as by any other. Indeed, from the language of the deed, this is anterior to all others; for provision must be made for the payment *of past and future rents, before the bank can take any thing. This may be effected by decreeing the amount of the rents due, and that the Bank of Virginia be permitted to retain a capital sum equivalent to the production of an interest equal to the annual rents, or in some other way, — leaving this matter, however, to be arranged by the court of chancery, upon the principles I have laid down.
With respect to interest on the rents in arrear, the court is of opinion, that no interest whatever should have been allowed.
A few words are now necessary as to the rights of the Bank of Virginia. As assignee of the term, it would have been clearly entitled to »the benefit of the policy of insurance, which is a covenant real, running with, and entered into for the purpose of upholding, the estate, even if there had been no provision on this subject in the insurance regulations. These however expressly provide for the case, and that the mortgagee shall be paid out of the insurance money. As against M'Dowell's estate, therefore, there can be no difficulty.
But it is contended for the Farmers Bank, that the lien of the deed of trust of the Bank of Virginia, did not extend to any note renewed after the 1st March 1818. To this it might be a sufficient answer, that it indisputably extended to the note that was due and unpaid on the 1st of March 1818; and, to say the least, it is questionable, whether the new credit ought in equity to be considered as a discharge of the debt. Equitj' looks to the substance, not to the forms, of things. Equity sees that when a dealer at bank pays off a note by renewal, the debt is the same; the debt remains unpaid, and the credit only is extended. The Farmers Bank, conversant with such transactions, must also have known this. It had full notice of the deed of trust of the Bank of Virginia, and therefore stands, as to this question, precisely in the shoes of M'Dowell. It knew the contents of the deed, and was bound to know the legal operation of it. If it did not know that the note was renewed, *then as the debt was not paid, it knew there was a lien for its amount. Had it inquired, it would have learned, indeed, that there were subsequent renewals; but it would have found also that the debt was not paid; and it was bound to know the legal inference from that fact. It was bound to know, that until it was paid, M'Dowell could not be received to say that the additional indulgence granted by the bank, discharged the lien. Upon what equity could he have demanded a reconveyance of the legal title, before the payment of the debt, which it was conveyed to secure? Upon none. The property would have been bound in his hands, and it is equally bound in the hands of the subsequent incumbrancer, with full notice of the prior lien.
In this opinion of the president, the other judges concurred. And the decree of the court was as follows:
"The court is of opinion, that by the deed of trust executed by H. M'Dowell deceased to the trustees of tne Bank of Virginia, that bank became entitled to the benefit of the insurance fund, subject nevertheless to the obligation of discharging the arrears of rent on the leasehold premises, and to the further obligation of paying and discharging all future rents which may accrue during the continuance of the lease; that the rents in arrear should, therefore, not only have been decreed to be paid by the said bank, but provision should have been made for securing the payment of future rents; that this should have been effected, either by decreeing, that the said banks should retain, or should invest, so much of the said fund as would be equivalent to the production of an interest equal to the annual rents, or in such other way as might be deemed most convenient and advisable ; and that the decree is, therefore, erroneous in having made no such provision: that, under the circumstances of this case, no interest whatever ought to have been allowed upon the rents in arrear; and that the decree is accordingly erroneous in allowing such interest: that the insurance fund ought to be applied, 1. to the satisfaction of *the rents in arrear and unpaid on the leasehold premises; 2. to making a provision for future rents; 3. to the satisfaction of the debt secured by the deed of trust to the Bank of Virginia; 4. to the satisfaction of the debt secured by the deed of trust to the Farmers Bank; and the residue, if any, ought to be paid over to the administrator of M'Dowell. Therefore, it is decreed &c. that the said decree be reversed and annulled, and that the appellants pay to the appellees, as the parties substantially prevailing, their costs &c. and that the cause be remanded &c."