Court Opinion

ID: 7889750
Source: CourtListenerOpinion
Date Created: 2022-09-08 21:47:29.555829+00
Date Added: 2024-06-11T16:31:52.279512
License: Public Domain

Archer, J.,
delivered the opinion of the court.
The answer admits that the buildings on the premises insured, were burned down, whereby the security of the mortgage was impaired ; and that the sum of § 12,000 remained due on the mortgage after the application to its discharge of the proceeds of the sale of the mortgaged premises. It is also admitted, that a decree in equity has been *378passed for the sale of the mortgaged premises, and that they have in pursuance of said decree been sold, and that the proceeds of the sale have been applied towards the payment of the mortgage.
From this statement of facts it will appear, that the power of Thomas, or his legal representatives, to comply with the covenant, by rebuilding, is gone; the right to the property having passed from them. Upon these admitted facts, it would seem only to be necessary to recite the covenant contained in the mortgage deed from Thomas to the defendants to decide the question. That covenant is as follows.
“That the said Daniel Thomas, his heirs, executors, and administrators, shall and will at all times during the existence of the lien hereby created, at his and their own proper cost and charge, cause and procure the insurance against loss by fire already effected on the buildings, improvements and fixtures and utensils aforesaid, to amount of $19,000, to be kept up, continued, and renewed; and that in case of loss,, the sum insured shall be immediately applied to the rebuilding, replacing, and putting the said property and premises in the like good order and condition, that the same now are in, so that the said Bernard J. Vonkapff, his heirs, executors, administrators, or assigns, shall in case of loss by fire, be benefitted by such insurance, or participate in the benefit thereof, to the extent of his aforesaid lien.”
The parties evidently looked to the mortgaged estate, if it remained without deterioration, as sufficient to satisfy the debt, which it was taken to secure. It is under this belief the above covenant is entered into. It was forseen that the security might be lessened by the calamity which actually befel it, and the design of the covenant was, by the insurance, always to have a fund for re-establishing the premises; so that the security should not be in any manner diminished; for they stipulate in case of loss by fire, that the sum insured shall immediately be applied to the rebuilding, replacing, and refitting the property, in the like good order, *379that the same was in at that time; so that in case of loss by fire, the mortgagee might be benefitted by such insurance, or participate in the benefit thereof to the extent of his lien.
The insurance, then, according to the express agreement of the parties, was one for the benefit of Vonkapff, to the extent of his lien. He was not, it is true, entitled to the money, but he was entitled to have it applied to the rebuilding of the premises, in the like good order which they were at the time of the contract, and it cannot be questioned but that such an application of it might have been coerced. When the mortgagor received the insurance money, a court of equity would have considered him in the light of a trustee of the fund, and would have caused the whole of it, or such parts thereof as might be necessary, to restore the premises to their former situation to be expended in rebuilding. The mortgagee had undoubted rights in the fund thus arising, which could not be over-reached by Thomas or his creditors, and if the property was thus clothed with a trust, his legal representatives must also take it subject to the same trust.
This being so, and the restoration of the buildings by Thomas, or his representatives, having become impracticable; the estate having passed from them, the question to be determined is, to whom the fund arising from the insurance belongs ?
Equity cannot administer relief in the terms stipulated for; that has become impossible. But shall it therefore be said, that although the insurance was taken for the benefit of the mortgagee, it shall go into the mass of the mortgagor’s estate, and be distributed to his creditors generally ? This would be doing great injustice to the mortgagee, who would thus be stripped of all advantages and priorities which he would otherwise have had by the contract; andthe insurance money, instead of being applied in conformity with the contract, to make good the lien, would in opposition to the agreement of the parties, be a fund for the benefit of Tho*380mas and his representatives, instead of being for the benefit of the mortgagee.
The whole insurance money, added to the sale of the mortgaged premises, it appears, is not sufficient to extinguish the mortgage, or in the language of the contract, if allowed to take the whole, he will not “be benefitted to the extent of his lien.” His lien will not be satisfied.
If therefore the fund of $10,000 had according to contract been expended on the premises, it would not have placed them in the same condition they were at the time of that mortgage; for the parties then considered the premises to be worth $20,000. And if the whole extent of the insurance money would not have reinstated the premises, and Thomas was bound to lay it out for the mortgagee’s benefit, and that has become impracticable, would that not be an obvious equity, which would give him the right to the money itself, which was to be expended manifestly for his benefit solely.
If indeed, the expenditure of this amount, thus recovered, upon the premises, would have enhanced their value beyond the lien, then to the extent of such enhancement, the fund would be for the benefit of Thomas’ representatives. And if such had appeared to have been the case, we should have considered the mortgagee as only entitled to such sum as would have brought up his security to its former standard; or in other words, only to such portion of the insurance fund, as would have satisfied his lien; the rest would have belonged to Thomas’ representatives.
But we will examine this question in another view, which will be found to be equally conclusive of the rights of the parties.
The mortgagor as between him and the mortgagee, had in virtue of the covenant to keep up the insurance, a qualified lien on the amount of the insurance : that is, he had a right which attached itself to the fund, not a right to be sure, which could divest the mortgagor of its possession, but a right, which would cling to the fund until it was expended *381for his benefit,) to the extent of his lien under the mortgage. The mortgagor in his life-time could never have diverted this fund from its destined object. It would pass to his administrators, clogged with the same qualified equitable lien, with which it was encompassed in the mortgagor’s life-time. If indeed this fund had been passed over by the mortgagor, for a valuable consideration without notice, to a third person, such third person’s right would prevail, because he would have an equity also; and having the possession, he would he protected therein. For as the court of King’s Bench say, in 2 T. R. 210, the title of him who hath both a fair-possession, and an equitable title, shall be preferred to that of a mere equitable interest. But here, the administrators have a mere naked legal right, subject to the mortgagee’s equity. That the administrators represent the creditors, cannot change the character of this equity of the mortgagee, or weaken its efficacy. The particular creditor, and the general creditor, stand in different attitudes. The former never trusted to the personal credit of the mortgagor, but trusted and looked to this particular fund, to satisfy his debt or give him security for it. The general creditors trusted to a personal credit alone. What has produced this fund ? The advance of money upon its faith. Now if it be abstracted to the extent of the money advanced, the general creditors can have no right to complain, for their debtor is precisely in the same situation as if the money had never been advanced, and consequently the insurance effected. But again, the covenant is expressly for the benefit of the particular creditor, not for the benefit of the general creditors, and if they participate in it, they get that which they never could have looked to, and the extent to which they derive advantage from it, to the same extent, do they take from that creditor who looked exclusively to it. In this aspect of the case, there is another view against the pretensions of the general creditors. That this is a covenant running with the land, can, we think, scarcely be doubted. The covenants to *382repair and rebuild are admittedly so. And what is this, but in effect a modified covenant to repair and rebuild? The insurance is to be kept up, so that in case of loss by fire, the sum insured shall be immediately applied to rebuilding the property on the premises. Being of this character, it would run with the land, just as would an ordinary and absolute covenant to repair or rebuild; and running with the land, the record of the mortgage would be notice to all the general creditors, and they would, therefore, have no just pretensions to participate in the fund, to the prejudice of the particular creditor.
We have said that although a lien existed, it gave no right to the possession of the fund, as against Thomas; the design being to apply it for the purpose of reinstating the premises. But the facts show that the lien cannot in the terms of the contract be specifically enforced, owing to the sale of the mortgaged premises. A court of equity, however, is not on this account powerless. It must administer relief, in the only manner in which it can now be done. As the leading object in effecting the insurance, was exclusively a beneficial one to the mortgagee, its great spirit and object will be effectuated by decreing him the fund. The mode only, of giving relief, will be changed, and that has become inevitable.
We have not considered it necessary to express any opinion on the legal effect of the declaration of Thomas accompanying the deposite of the money, as the cause is settled by the above considerations.
DECREEE AEEIRMED WITH COSTS.