Appleton Iron Co. v. British America Assurance Co.

46 Wis. 23 | Wis. | 1879

Lead Opinion

The following opinion was filed at the August term, 1878:

Cole, J.

The question is, whether the policy was avoided by the proceedings in bankruptcy and the assignment or transfer made by the bankrupt to the trustee under the order of the district court. ' The counsel for the defendant insists that it was; that there was a transfer- or change of the title of the wood by legal process or judicial decree, within the meaning of the policy.

When considered with reference to the facts in this case, we can give no such effect to the bankrupt proceedings, for this reason. By the terms of the1 policy, the loss was made payable to the plaintiffs Smith, Donkersly cfe Smith, as their interest should appear. It is admitted that their interest ex- . ceeded the amount of the policy. They were the mortgagees of chattels; the whole legal title of the wood was vested in them conditionally, leaving no such interest in the bankrupt as would pass to the trustee under the deed of assignment. It is the settled law of this state, that the mortgagee of chattels has the legal title to the property mortgaged, even before the debt is due, and he may take immediate possession of the property, unless, by express stipulation, the mortgagor is permitted to retain possession. It is unnecessary to refer to the decisions of this court where these principles in regard to chattel mortgages are affirmed or recognized. It is sufficient to say that it is well established that such are the rights of the mortgagee of personal property. Consequently, we think the assignment by the mortgagor to the trustee, under the circumstances stated in the answer, really worked no change in the title or possession of the wood. The title remained in the same persons as before the assignment, and as when the property was insured. The interest of the parties in the same was unchanged, and the insurance company was not released thereby from its liability to pay the loss. Bragg v. The New England Mut. Fire Ins. Co., 25 N. H., 289. There is a plain ground for discrimination between this case and such cases as Adams v. The Rockingham M. F. Ins. Co., 29 Me., 292; Young v. Eagle Fire Ins. Co., 14 Gray, 150; Hazard v. Franklin M. F. Ins. Co., 7 R. I., 429, and Perry v. Lorrillard F. Ins. Co., 61 N. Y., 214; where it is held that an adjudication in bankruptcy against the insured, andan assignment under the bankrupt law, or an assignment by the insured under proceedings in insolvency, is an alienation or transfer of property within the meaning of such clauses in the policy, and defeats a recovery upon it. In those cases the insurance was upon real estate, and an assignment by the insolvent or bankrupt might well be held to operate as a transfer or change of title. A mortgage of real estate, under the modern doctrine in this country, does not convey the fee to the mortgagee, and in that regard is distinguishable from a mortgage of chattels, which passes the entire legal title conditionally to the mortgagee. It is, therefore, not necessary in this case to deny the correctness of the proposition that a transfer or assignment by a mortgagor of real estate under insolvent or bankrupt pi’oceedings does work a substantial change in the title of the insured property, and put an end to the policy, where it contains a condition similar to the one before us. But here nothing passed by the assignment to the trustee; neither the legal title nor the beneficial interest. It is clear that, had the trustee attempted to interfere with the wood, he would have been a trespasser and liable as such, the deed of assignment affording him no protection.

Of course, the insurance company will not be heard to say that the Appleton Iron Gomparvy had no insurable interest in the wood when it issued the policy. For it knew that the wood was mortgaged at the time, and agreed to pay the loss to the mortgagees. It is manifest that the insurance was for the benefit of the Iron Company; for it might pay the mortgage debt and become the owner of the wood. At all events, we must assume that when the contract was entered into, all the facts connected with the title were known to the insurance company, and it saw fit to issue the policy with full knowledge of the precise interest which the parties had in the property. Nothing, in fact, has occurred since the policy was issued, which in any way affects the rights of the parties, or has any bearing upon the liability of the company to pay for the loss, except the proceedings in bankruptcy already alluded to. Under these circumstances, we think the defendant is estopped from saying that the Iron Company had no insurable interest in -the wood when it issued the policy. Such company certainly had an equity of redemption, a right to defeat the title of the mortgagees by performance of the conditions of the mortgage.

There is a still further fact stated in the second defense, upon which considerable stress is laid by defendant’s counsel. It is alleged that the policy of insurance was specifically described by the Iron Company in its petition in bankruptcy; was mentioned as a part of its estate, and was transferred to the trustee by the deed of assignment. There is a clause in the policy that, if it should be assigned before loss, without the consent of the company indorsed thereon, this should avoid the policy. It is claimed that the deed of assignment transferred the policy, within the meaning of this clause. But we think otherwise. It does not appear that the policy was ever delivered to the trustee, or that there was any actual assignment of it. A general assignment by the bankrupt, under the circumstances, would not have the effect to transfer the policy to the trustee.

We therefore think that the demurrer to the answer was properly sustained.

By the Court. — Order affirmed.

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Rehearing

A motion by the appellant for a rehearing was denied at the January term, 1879, and the following opinion filed:

RyaN, C. J.

If the crafty conditions with which fire insurance companies fence in the rights of the assured, and the subtle arguments which their counsel found upon them, were always to prevail, these corporations would be reduced almost to the single function of receiving premiums for little or no risk.

Forfeitures are not encouraged in the law. When forfeitures of insurance policies rest on substantial grounds, going to the risk, this court will uphold them. Fuller v. Ins. Co., 36 Wis., 599. But when forfeitures are alleged on purely technical grounds, not going to the risk, the rule is universal, that the contract of insurance is to be upheld, if it can be without violation of any principle of law.

Here the forfeiture claimed rests upon an assignment of the insured in bankruptcy of the chattels insured and of the policy. Under the circumstances of this case, the claim is purely technical, having no bearing whatever on the risk.

There are highly respectable authorities holding that an assignment in bankruptcy violates such a clause as that relied on in the policy before the court. But it may still be matter of grave doubt, whether such a clause is not void, as against public policy. It operates as a restraint upon the freedom of judicial procedure, and in restraint of judicial jurisdiction. It operates to extinguish an essential right of property by obedience to judicial decree. It operates to defeat the custody of the law of valuable things in action. It is in conflict with the policy of the law. The court is not prepared to pass upon this question here, and there are other grounds quite sufficient to defeat the forfeiture claimed.

This policy is not a contract between the insurer and the insured only. There is a third party to it, with beneficial interest in it from the beginning; in the circumstances, with the chief or only beneficial interest. The policy makes the loss, if any, payable to the coplaintiffs of the insured, as their mortgage interest might appear. This is not the case of a loss made generally payable to a third person. The insurance was upon chattels. And the policy recognizes that the chattels were mortgaged; that the 'legal title was in the mortgagee; and that the mortgagor had only an equity of redemption. The rights of both parties were insurable interests. And the thing, the body of the chattels, was insured for the benefit of both. The policy operated to cover the mortgagee’s interest, through and under the mortgagor, to the extent of the policy. The mortgage debt exceeded the value of the thing insured. And the policy is susceptible of no other honest construction.

It is now contended that nothing was insured except the mortgagor’s nominal equity of redemption. The body of the chattels was insured for the benefit of both mortgagor and mortgagee; the loss payable to them according to their relative rights as mortgagor and mortgagee; the legal title of the mortgagee, and the equity of redemption of the mortgagor. The premium was paid for this insurance of these interests, in this order; not for a policy of delusion, virtually insuring nothing. And no party should be tolerated in forcing such a construction of bad faith upon his own contract.

If the mortgagor had power to forfeit the policy, and had forfeited it, it might be that the insurance company had waived the forfeiture, as against the mortgagee. It is well settled in this court, that upon such forfeitures the policy becomes voidable at the election of the insurance company, not void. And an insurance company cannot sleep upon its intention to avoid the policy, to the prejudice of the insured. The forfeiture may be waived by laches of the insurance company, misleading persons interested in the policy, to their prejudice. Miner v. Ins. Co., 27 Wis., 693; Webster v. Ins. Co., 36 Wis., 67; N. W. M. L. Ins. Co. v. G. Fire Ins. Co., 40 Wis., 446; Gans v. Ins. Co., 43 Wis., 108; Palmer v. Ins. Co., 44 Wis., 201. In this case, if the insurance company had intended to rely upon the alleged forfeiture, good faith would have required it to notify the mortgagee, to give him an opportunity of protecting himself by other insurance.

But the mortgagor did nothing to violate any of the conditions of the policy, or to forfeit it; perhaps could do nothing. As it is above stated, and is very clearly shown in the opinion on the hearing, the legal title of the chattels insured was in the mortgagee. The policy recognizes this upon its face, by recognizing the mortgage. So far, therefore, as the thing insured is concerned, the mortgagor could transfer no title. He might indeed assign his equity of redemption; but that is not what the policy prohibits. The'policy prohibits the sale or transfer of the title or possession of the body of the property insured.

And so it is with the policy also. The legal title of the policy vested, upon its execution, in the mortgagee, as fully as if it had been subsequently assigned to him. Grosvenor v. Ins. Co., 5 Duer, 517; S. C., 17 N. Y., 391; Ennis v. Ins. Co., 3 Bosworth, 516. This is not precisely the view taken in Massachusetts, but is not essentially different. Barrett v. Fire Ins. Co., 7 Cush., 175; Lowell v. Fire Ins. Co., 8 Cush., 127; Fogg v. Fire Ins. Co., 10 Cush., 337; Hale v. Fire Ins. Co., 6 Gray, 169; Loring v. Ins. Co., 8 Gray, 28.

So that, when the policy was delivered to the insured, there was no title, either to the thing insured or to the policy insuring it, which the mortgagor could assign in violation of the restraining clause, which the restraining clause could operate upon. He might perhaps have violated the restraining clause in reference to the possession; but of that there is no question here. His assignment in bankruptcy operated to violate nothing in the policy. The legal title of the thing insured, and of the policy, being in the mortgagee, the restraining clause, so far as it is here in question, could operate upon him only. And he does not appear to have done anything in violation of it.

By the Court.— The motion for rehearing is overruled.