Court Opinion

ID: 8636664
Source: CourtListenerOpinion
Date Created: 2022-11-24 19:46:23.581773+00
Date Added: 2024-06-11T16:55:57.015274
License: Public Domain

BLODGETT, District Judge.
The petitioner claims that the covenant in the trust deed gives him an equitable lien upon the proceeds of the insurance to the exclusion of the general creditors, while on the part of the as-signee and the general creditors it is insisted that the policies in question, not having been assigned to the trustee, nor made specifically payable to him in case of loss, he has no higher right to them than the other creditors, and that the fund, therefore, belongs to the assignee. The bankrupt being a corporation, I do not conceive that any changes which may have taken place in the ownership of its stock since the trust deed was given can affect the question at issue. No matter who buys or sells the stock, or who holds the offices or manages its affairs, the corporate entity remains the same. Its covenant to insure is binding, on all stockholders and officers, and all persons in privity with it, and, being on record, is notice to all its creditors. The as-signee can hold nothing in this case which the grantor in the trust deed could not have held if bankruptcy had not intervened. His relation is purely representative. Creditors who have trusted the bankrupt must be held to have done so with full notice of the covenant to insure, and of the legal and equitable effect of that covenant. The covenant to insure runs with the land, as much so as a covenant to repair, or rebuild, or for another term, because it is a charge upon the land. Vernon v. Smith, 5 Barn. & Ald. 1, 3; 1 Washb. Real Prop. 426; 4 Kent, Comm. 558; Spencer’s Case, 1 Smith. Lead. Cas. Eq. 137.
What then was the effect of that covenant, so far as the right to this insurance money is concerned?
The bankrupt covenanted to insure to the *353fair insurable value of tbe buildings, and to cause tbe insurance to be made payable, in case of loss, to tbe petitioner or bis successors in the trust. Tbe insurance was effected, but not assigned, nor made payable to the trustee. Can this make any difference? This court must be governed in disposing of this question by substantially the same rules as a court of equity. In 2 Pars. Cont. 440, it is said: “There is authority, strengthened, as we think, by reason, that when a mortgagor is bound by the mortgage contract to keep the premises insured for the benefit of the mortgagee, and does, in fact, keep them insured by a policy which contains no statement that the mortgagee has any interest therein, the mortgagee, nevertheless, has an equitable interest in and a lien upon the proceeds of the policy which a court of equity will enforce for his benefit.” See. also, to same point, Thomas’ Adm’rs v. Von Kapff’s Ex’rs, 6 Gill & J. 372; Carter v. Rockett, 8 Paige, 437; Lazarus v. Commonwealth Ins. Co., 2 Hare & W. Lead. Cas. 834; Nichols v. Baxter, 5 R. I. 491; Norwich Fire Ins. Co. v. Boomer, 52 Ill. 446; Providence Co. Bank v. Benson, 24 Pick. 210; Miltenberger v. Beacom, 9 Pa. St. 198; King v. Insurance Co., 7 Cush. 1; Fland. Ins. 367.
NOTE. Where the assured has agreed to insure for the protection of another person having an interest in the property insured, such person has an equitable lien in case of loss upon the money due upon the policy. Ellis v. Kreut-zinger, 27 Mo. 311; approved by the New York court of appeals, in Cromwell v. Brooklyn Fire Ins. Co.. 44 N. Y. 42, where it is also held that the insurer, having notice of the assignment of a contract providing for such insurance, is liable to the assignee, even though it has actually paid the insurance money to the original vendee,
The principle announced in all these cases is but a practical application of.the maxim that equity will consider as done what the parties have covenanted to do. But it is objected that the mortgagee, under this covenant, must first select or indicate the companies in which he wishes the insurance effected, before the covenant becomes binding or effective to vest any right in him to the proceeds of the insurance. It would seem a sufficient answer to this objection, that the covenant being to insure to the full insurable value for the benefit of the mortgagee in this case, and the insurance having been effected, it does not lie in the mouth of the mortgagor to say'that the mortgagee shall not have the benefit of it because he has acted without the selection or contrary to the selection of the mortgagee. Suppose the mortgagee had selected the companies, and notified the mortgagor, and the latter, in disregard of the selection, had effected insurance in other companies, could such violation of his contract devest the mortgagee of his rights? I think not. But the mortgagor, having effected insurance to nearly,' if not quite, the insurable value of the propert3', has put it out of the mortgagee’s power to further insure, because the property can only carry a limited amount. And, therefore, the mortgagee must hold what has been effected, or none. But there seems another answer to this point, arising from the facts in this case. Insurance was effected and assigned, in compliance with the covenant, the first year, and perhaps the second. Was not this a sufficient selection, and was it not the duty of the mortgagor to renew the policies thus effected until notified otherwise by the mortgagee, and if the underwriters have since been changed by the mortgagor, without the mortgagee’s consent, this act of the mortgagor cannot be pleaded in equity to defeat the effect of his covenant.
My conclusion then is, that the covenant by the bankrupt to insure operated to assign in equity to the petitioner the benefit of any insurance effected by the bankrupt on the mortgaged property. It is no answer to say that the mortgagee might have insured in default of insurance by the mortgagor, because the mortgagor had insured, and his insurance inured at once to the benefit of the mortgagee. It is urged by way of argument in behalf of one creditor — the Union National Bank — that if all or part of these policies had been assigned to that creditor, it could have been held then as against the petitioner, and that the assignee, holding for the benefit of all creditors, occupies the same position; but this argument is fallacious, because it overlooks or ignores the fact that all creditors had notice of the petitioner’s equitable right to this insurance money, and could acquire no valid interest therein as against him. Equity made the assignment the moment the insurance was effected, if the mortgagor did not do it. It is true courts in this country and in England have said that all general liens infringe upon the bankrupt laws, the object of which is to distribute the bankrupt’s estate equally, and that equality is equity. But if any one point is carefully guarded by the bankrupt law now in force, it is the protection of all fairly obtained liens, whether legal or equitable in their origin. The authorities quoted, and many others I have consulted in the examination of this case, leave no doubt in regard to the effect to be given this covenant. The lien is neither doubtful nor general, but is clear, and specific. It is but carrying out the intent of the parties, and giving the mortgagee the security he had bargained for, and which he had given the whole world notice he was entitled to. The assignee will, therefore, pay to the petitioner the insurance money collected by him on these policies.