133 Misc. 233 | N.Y. Sup. Ct. | 1928
The second mortgagee defends the foreclosure of a first mortgage solely upon the ground that it has been reduced by the payment of a sum by an insurance company under a fire policy. The plaintiff became the holder of the first mortgage by assignment from the Lawyers Mortgage Company, dated May 27, 1927. The mortgage was placed on the property in 1909. After that mortgage was made the property was sold to the answering defendant Horn
A fire insurance policy covering the interest of the first mortgagee was issued and later the building on the premises burned and on May 23, 1927, the insurance company sent to the Lawyers Mortgage Company a check representing the loss. This was for an amount less than the amount of the first mortgage. At that time that company either owned the mortgage or was the agent of its owner and authorized to represent him. That company indorsed the check and delivered it to the owner of the property, knowing at the time that the second mortgage was under foreclosure. The owner of the property turned the check over to the husband of the plaintiff. There is no proof that the building was rebuilt or that the second mortgagee had any insurance protecting her interest.
The question is whether the Lawyers Mortgage Company had the right to pay the insurance money to the owner of the property instead of applying it upon the principal of the first mortgage.
The statement is sometimes made that insurance moneys received by a mortgagee under a policy procured for his benefit by the mortgagor must be applied in payment of his mortgage, if due. (See Cases in Notes in 11 A. L. R. 1298; 9 Am. & Eng. Ann. Cas. 66.) But this is put too broadly. What is meant is that insurance moneys so received must be so applied unless the mortgagor and mortgagee otherwise agree. (Sherman v. Foster, 158 N. Y. 587, 595; 19 R. C. L. 407, § 186.)
But if a mortgagee insures for his own benefit and at his own expense and not under any provision in his mortgage, the mortgagor has no interest in the policy and any money paid under it to the mortgagee is his, and neither the mortgagor nor the owner of
So where the insurance policy is payable both to the first and the second mortgagees and the amount of the loss is paid to the first mortgagee, the latter, in the absence of a provision in his mortgage giving him the right so to do, may not turn over the insurance money to the owner. (Carlin v. Frey, 157 App. Div. 84.) That is because the second mortgagee is a party to the policy and has an interest in it. In the case cited the court said it was the duty of the second mortgagee to protect his mortgage by insisting upon a distribution of the insurance money according to the terms of the policy, and added (p. 87): “ No written condition of any contract gave the plaintiff [first mortgagee] the right to turn the insurance money over to Frey [the owner]; on the contrary, the insurance policy forbade her to do so and commanded her to apply it first upon her mortgage and then upon Orton’s [second mortgagee] mortgage.”
In the instant case the first mortgage, by its terms, required the owner to procure insurance for the mortgagee and gave the latter the right to turn over the insurance money to the owner for any purpose whatsoever. The plaintiff’s assignor, therefore, in making such payment, did so in accordance with the contractual relations of the parties. The second mortgagee cannot complain, because she took her mortgage subject to the first mortgage with all its provisions. If she did not wish to be placed in the situation in which she finds herself, she should have refused to take the second mortgage. It is immaterial whether the owner used the insurance money to rebuild, and whether the plaintiff’s assignor knew at the time the insurance money was paid to the owner that the second mortgage was under foreclosure. The second mortgagee had no interest whatever in the insurance money that resulted from the policy; that money was payable to the first mortgagee.
Nor is the case of Connecticut Mutual Life Insurance Co. v. Scammon (4 Fed. 263) at variance with the rule stated. There, the insurance was obtained by the mortgagors, and the loss was paid to the mortgagee, which turned it over to one of the mortgagors to be used in rebuilding, but the money was not so used. It was held that the other mortgagors could urge as a defense to a foreclosure that the amount of the insurance should have been credited on the amount of the mortgage debt. Had the payment been made to all the mortgagors, of course there could have been no such holding. Payment to one of them evidently was not in accordance with the provisions of the mortgage.
Judgment for the plaintiff, with posts. Submit findings and judgment on notice.