Opinion
No. 27620.
January 28, 1929. Suggestion of Error Overruled February 11, 1929.
1. APPEAL AND ERROR. In suit by mortgagee to recover unearned premiums, where mortgage and insurance policies referred to in declaration were not attached as exhibits, Supreme Court cannot consider parts not pleaded.
In action by mortgagee against insurer to recover unearned premiums, where declaration did not set forth, as exhibits thereto, insurance policies nor the mortgage referred to therein, Supreme Court cannot consider that part of mortgage or those parts of insurance policies not set forth in declaration.
2. PLEADING. Where declaration states cause of action independent of writings referred to but not attached, demurrer will not lie ( Hemingway's Code 1927, section 531).
Where declaration states cause of action independent of writings referred to therein but not attached as exhibits, demurrer will not lie, under Hemingway's Code 1927, section 531 (Code 1906, section 734).
3. INSURANCE. As respects recovery of premiums, clause that mortgagee shall pay premium if mortgagor defaults creates independent contract.
As respects recovery of premiums, provision of mortgage clause attached to fire insurance policies providing that, if mortgagor neglected to pay premium due, mortgagee, on demand, should pay same had effect of creating contract between insurer and mortgagee, which contract was new and independent of contract between owner, the mortgagor, and insurer.
4. INSURANCE. Where insurer canceled fire policies after mortgagee paid premiums on insurer's demand, mortgagor being insolvent, mortgagee could recover unearned premiums; "privies."
Where fire insurance policies provided that if mortgagor neglected to pay premiums due mortgagee should pay same on demand, and mortgagor became insolvent and mortgagee paid premiums on demand, and insurer canceled policies, mortgagee was entitled to recover unearned premiums since there was privity of contract between insurer and mortgagee, "privies" being persons who are partakers of or having an interest in any action or thing, and by demand of insurer and payment by mortgagee there was created relation of debtor and creditor.
APPEAL from circuit court of Humphreys county, HON. S.F. DAVIS, Judge.
Montgomery Montgomery, for appellant.
There is privity of contract between the Refuge Cotton Oil Company and the Twin City Fire Insurance Company. In arguing this proposition, we are not unmindful of the fact that only a few of the courts have held that in the event the mortgagor fails to pay the premium that the mortgagee can be sued therefor. Boston, etc., Co. v. Thomas, 59 Kan. 470, 53 P. 472; St. Paul, etc. Ins. Co. v. Upton, 2 N.D. 229, 50 N.W. 702; Colby v. Thompson, 16 Colo. 271, 64 P. 1053. We admit that most courts have held that in such cases the mortgagee cannot be sued for the premium. Coykendall v. Blackmer, 161 App. Div. 11, 146 N.Y. Supp. 631; Home Ins. Co. v. Union Trust Co., 40 R.I. 367, 100 A. 1010, L.R.A. 1915F. 375; Ornsby v. Phenix Ins. Co., 5 S.D. 72, 58 N.W. 301; John N. Acuff Co. v. Bankers Trust Co., 7 S.W.2d 52; Whitehead v. Wilson Knitting Mills, 139 S.E. 456, 194 N.C. 281; Farnsworth v. Riverton Wyoming Refining Co., 35 Wyo. 334, 249 P. 555, 47 A.L.R. 1114.
But this case presents an entirely different situation. The declaration alleged that the usual mortgage clause was attached to these policies. This mortgage clause is sec. 5854, Hem. Code 1927, which automatically writes itself into every insurance contract. Bacot v. Phoenix Ins. Co., 96 Miss. 223, 50 So. 729. Under this mortgage clause, there is privity of contract between the mortgagee and the insurance company. A new contract is made directly between the mortgagee and the insurer. The mortgage clause creates a separate contractual status between the mortgagee and the insurance company. The contractual status between the mortgagee and the insurance company is wholly separate and different from, and entirely independent of the contractual status between the mortgagor and the insurance company. This is the plain language of the clause. The mortgagee is not to be prejudiced by any act or neglect of the mortgagor. Breaches of conditions by the mortgagor — even the nonpayment of premiums — do not affect the rights of the mortgagee. Of course, all of this depends upon the provision that the mortgagee, upon demand, pay the premium where the mortgagor has failed to do so. Our court, in the Bacot case, supra, permitted recovery by the mortgagee upon an insurance policy which, so far as the mortgagor was concerned, was void ab initio. The Bacot case, supra, has been followed in the following cases: Hartford Fire Ins. Co. v. Buckwalter Lumber Co., 116 Miss. 822, 77 So. 798; Scottish, etc., Ins. Co. v. Warren Gee Lumber Co., 118 Miss. 740, 80 So. 9.
Not only has our court held that there is privity of contract between the mortgagee and the insurance company, but our court has gone further, and has held that in the event of a loss, the legal title to the cause of action under the policy is in the mortgagee, and that the mortgagee can maintain, in his own name, an action upon the policy where, as here, the mortgage indebtedness exceeds the face of the policy and the whole value of the property. Lowry v. Ins. Co., 71 Miss. 43, 21 So. 664, 37 L.R.A. 65 Am. St. Rep. 587; Stuyvesant Ins. Co. v. Smith Motor Sales Co., 135 Miss. 585, 99 So. 575. The courts of other states are in line with our court. Eddy v. London Assur. Corp., 143 N.Y. 311, 25 L.R.A. 686, 38 N.E. 307; Ormsby v. Phenix Ins. Co., 5 S.D. 72, 58 N.W. 301; Home Ins. Co. v. Union Trust Co., 40 R.I. 369, 100 A. 1010, L.R.A. 1917F, 375; Farnsworth v. Riverton Wyoming Refining Co., 249 P. 555, 47 A.L.R. 1114.
The Refuge Cotton Oil Company did not pay the premiums under any obligation of its deed of trust from J.J. Cain. Such a provision in a deed of trust imposes no obligation on the mortgagee to pay insurance premiums. It is optional with the mortgagee whether he will do so or not. Being optional with the mortgagee, the payment of the premiums to the insurance company is not the discharge of any obligation owed by the mortgagee under the deed of trust. 41 C.J., Mortgages, secs. 627, 644.
The declaration shows that there were unearned premiums and that they were not returned to the mortgagee. It was certainly money had and received by the insurance company. It was certainly not a voluntary payment. We fail to see how it can be said that the insurance company is not called upon to come into court and make a defense, if any it has. We submit, therefore, that the declaration does show that the defendant insurance company is indebted to the plaintiff for money had and received amounting to one thousand two hundred thirty-nine dollars and twenty-two cents.
The last ground of demurrer attacks the declaration as not showing that the policies were effectually canceled. The declaration alleges that immediately after the Refuge Cotton Oil Company paid one thousand two hundred thirty-nine dollars and twenty-two cents to the insurance company, all of the said insurance policies were cancelled, and that said policies were immediately surrendered to the Twin City Fire Insurance Company by the Refuge Cotton Oil Company. This seems too clear for argument. We have alleged that the policies were cancelled. Certainly if there was anything defective about this cancellation, it would be a matter of defense to be pleaded by the insurance company. The Insurance Company is liable to the Refuge Cotton Oil Company for money had and received. 41 C.J., Mortgages, secs. 627, 643; Doty v. Oriental Print Works, 24 R.I. 102, 52 A. 802.
Chaney Culkin and R.L. McLaurin, for appellee.
The appellant, under the terms of the deed of trust, is entitled to recover the amount paid for the insurance, but this recovery must be from Cain. All of the authorities relied upon by appellant so hold. The fact, as alleged in the declaration, that the oil company permitted Cain to become indebted to it in a sum in excess of the value of the property covered by the deed of trust, could not be so construed as to change the terms and conditions of the deed of trust, whereby it was authorized to pay the premiums and charge them to Cain's account, and this is especially true when it is admitted in the declaration, that when the premiums were paid, they were, according to the provisions of the deed of trust, charged to Cain's account.
The court cannot pass on the stipulations in the insurance policies for, as stated, the policies were not exhibited and their production not asked for. Appellee, therefore, was not required to give notice or specially plead to the effect that, under the terms of the policies, in the event of cancellation, the unearned premiums would be returned to Cain, the mortgagor, and not to the mortgagee. The terms and conditions of the policies would be controlling, and the policies not being exhibited and their production not being asked for, the trial court necessarily governed by the agreement entered into by and between Cain and the appellant. Home Ins. Co. v. Newman, 147 Miss. 237.
For the purpose of showing privity of contract between the insurer and mortgagee, appellant cites a large number of authorities which hold that a mortgagee, when a loss occurs, may sue in his own name. We do not question the correctness of these authorities. They haven't the slightest application, however, to the question here involved. This suit is for the recovery of an unearned premium which was paid by the mortgagee, and the declaration not only concedes, but charges the fact to be that when it was paid it was charged to the account of the mortgagor by specific agreement with him. Under the allegations of the declaration couldn't Cain, the mortgagor, if the premiums had not been returned to him when the policies were cancelled have recovered therefor? That he could have recovered the full amount of the unearned premium, under the allegations of the declaration, had it not been returned to him, cannot be seriously questioned, and the authorities relied upon by appellant have no application whatever. When the premium was paid by the mortgagee the amount thereof, by agreement with Cain, was added to his account, the payment of which was secured by the deed of trust. Perhaps the security, as charged in the declaration, was not adequate. This fact, however, could not alter the contract and agreement with Cain, and, as above stated, the therefore, was not required to give notice or specially plead that, under the terms of the policies, in the event of cancellation, any unearned portion of the premium would be returned to the mortgagor.
Argued orally by M.V.B. Montgomery, for appellant, and A.A. Chaney, for appellee.
The Refuge Cotton Oil Company, appellant, filed its declaration against the Twin City Fire Insurance Company in the circuit court of Humphreys county, demanding a recovery of the sum of one thousand two hundred thirty-nine dollars and twenty-two cents with interest, the amount of unearned premiums paid by the former to the latter.
The declaration alleged, in substance, that on and before June 22, 1927, J.J. Cain owned certain gins in this state, upon which the appellant held a mortgage at that time, and procured the appellee, through its agents to deliver thirteen policies of fire insurance, and sets out the date, number, and amount of premium paid on each policy, each in force for one year from its date.
To each of these policies the usual mortgage clause was attached, payable to the appellant as its interest might appear.
Under the terms of the mortgage to the appellant, Cain, the mortgagor, covenanted to insure and keep insured, at his expense, the gins therein covered, with the mortgage clause attached, payable to appellant, and that the debt created for the insurance premium was the debt of Cain; and, further, the mortgage provided that if Cain failed to pay the said insurance premiums, the appellant might pay same for Cain, and charge same to his account. At the time the policies of insurance were taken out, Cain was, and now is, insolvent, and the security held by appellant against Cain was wholly inadequate; which insolvency of Cain and inadequacy of security continued to the date of the cancellation of the insurance by the appellee.
The declaration further charged: That Cain did not pay any of said premiums, and, that being true, the agents of appellee made out a statement covering insurance premiums due by Cain and attached same to a draft for the whole amount, drawn on the Refuge Cotton Oil Company, appellant, payable to the Citizens' Bank Trust Company, Belzoni, Miss., reciting on said draft, "For premiums J.J. Cain Gin Policies." This draft was paid by appellant on June 25, 1927. And that said agents were authorized to draw said draft.
It is also alleged that immediately upon the payment of said draft the appellee canceled all of the policies described, which were by appellant immediately surrendered to appellee, and that thereby there was due to appellant from the appellee the amount of said unearned premium, which became and was the property of appellant, and should have been returned to it.
The appellee interposed a demurrer to the amended declaration, as follows:
"First: The amended declaration states no cause of action against the Twin City Fire Insurance Company.
"Second: The amended declaration shows on its face that there is no privity of contract between the Refuge Cotton Oil Company and the Twin City Fire Insurance Company.
"Third: The amended declaration shows on its face that whatever premiums were paid for the insurance in question by the Refuge Cotton Oil Company were paid under the obligation of the contract between the Refuge Cotton Oil Company and J.J. Cain, and that by virtue of said contract, said amount so paid was to be and was charged by the Refuge Cotton Oil Company to J.J. Cain.
"Fourth: The amended declaration does not show that there was any unearned premiums due to be returned to plaintiff because of the alleged cancellation.
"Fifth: The amended declaration does not show that the policies were effectually cancelled as to all parties in interest.
"Sixth: And for other causes to be assigned."
The court below sustained the demurrer, and, the plaintiff declining to amend or plead further, the cause was dismissed and appeal prosecuted to this court.
First, in answer to the appellee's contention that the declaration did not set forth, as an exhibit thereto, the insurance policies, nor the mortgage referred to therein, and that this court cannot consider that part of the mortgage, or those parts of the insurance policies not set forth in the declaration, this is true.
Appellee is seen further to argue that the declaration is demurrable because the documents mentioned above were not made exhibits. To this contention, if it is argued, we only say that, if appellant has a cause of action, it is for money paid and received, and not upon the contract of insurance nor the various insurance policies; and the rule is that the failure to attach necessary documents as exhibits to a declaration renders evidence pertaining thereto inadmissible, upon objection; and where the declaration states a cause of action independent of writings referred to, demurrer will not lie. See section 734, Code of 1906, section 531, Hemingway's 1927 Code.
Second, the declaration alleges that the usual mortgage clause was attached to the insurance policies issued by the appellees and surrendered by the appellant for cancellation, and in this state thereby become a part of these policies, section 2596, Code of 1906, section 5854, Hemingway's 1927 Code, to which we do refer in order to determine whether or not the facts set forth above show privity of contract between the insurance company and the cotton oil company.
The last clause of this section is as follows:
"Provided that in case the mortgagor or owner shall neglect to pay any premium due under this policy the mortgagee (or trustee) shall, on demand, pay the same."
In this case the mortgagor did not pay and, according to the allegations of the bill, was insolvent, not coercible, and unable to pay; and by drawing the draft on appellant, the appellee, the insurance company, made demand upon the mortgagee, to which demand the mortgagee responded by paying the full amount of the draft; and immediately the insurance company canceled all of the policies.
The insurance company seems to argue here that because, under the terms of the mortgage set out in the declaration, the cotton oil company had a right to hold Cain, its mortgagor, for the insurance premium so paid, and that by the payment Cain became its debtor, therefore the insurance company could not be the debtor of the cotton oil company, and says there is no privity of contract between appellant and appellee.
The section quoted, supra, has been several times construed by this court to the effect that this clause in a fire insurance policy has the effect of creating a contract between the insurance company and the mortgagee, which contract is new and independent of the contract between the owner, the mortgagor, and the insurance company, and that although the original policy was void as between the owner and the insurance company, that fact did not in any way invalidate the independent contract of insurance between the mortgagee and the insurance company. This court has also held several times that the mortgagee has a right to have an independent contract, protecting his insurable interest in the property insured. See Bacot v. Phoenix Ins. Co., 96 Miss. 223, 50 So. 729, 25 L.R.A. (N.S.) 1226, Ann. Cas. 1912B, 262, in which case the court said as follows:
"It seems to us that those decisions wholly misconceive the true principle which should control, and overlook the fact that the contract of insurance made with the mortgagee is independent; that is, free from the provisions and purposes of the contract with the owner, and made for the purpose of securing the interest of the mortgagee. . . .
"If, then, the contract between the mortgagee and the insurance company is a wholly independent contract from that of the original owner or mortgagor, how can it be that any but the conditions contained in the mortgagee's contract affect his rights? His rights are independent, not derivative from the mortgagor's contract. Under this independent contract, he is not a mere appointee of the mortgagor to receive the proceeds of the policy, in case of loss, by virtue of and under the contract of the mortgagor, but the mortgagee gets an independent right, an independent contract with the insurance company, whereby the insurance company insured his individual interest in the property. . . ." (Italics ours.)
To the same effect are the cases of Hartford Fire Ins. Co. v. Buckwalter Lbr. Co., 116 Miss. 822, 77 So. 798, and Scottish Union Nat. Ins. Co. v. Warren Gee Lbr. Co., 118 Miss. 740, 80 So. 9.
So thoroughly does this statute, written into an insurance policy, divorce the mortgagee from the mortgagor, as related to the policy, that this court has held that the mortgagee may maintain in his own name an action on the policy, where, as in this case, the mortgage indebtedness exceeds the face of the policy and the total value of the property. Lowry v. Ins. Co. of No. America, 75 Miss. 43, 21 So. 664, 37 L.R.A. 779, 65 Am. St. Rep. 587; Stuyvesant Ins. Co. v. Smith Motor Sales Co., 135 Miss. 585, 99 So. 575.
We have before us a case where the mortgagee has insufficient security for the debt of a mortgagor who is insolvent, and who cannot be made to carry out his contract and insure the property, and in that state of case the insurance company demanded payment by drawing a draft for a considerable sum, as premiums for insurance on the mortgaged property, the cotton oil company pays the draft, and immediately thereupon the insurance company, having invested itself with the mortgagee's money, cancels the policies and insists that it cannot be made to return the unearned premiums to the mortgagee, because there is no privity of contract, and because the mortgagor owes the money to the mortgagee.
The appellant paid the premiums to protect its insurable interest in this mortgaged property, and by cancellation of the policies the insurance company deprived it of this valuable and essential means of protecting itself; and, the insurance being canceled, the appellant was entitled to a return of its money, in order that it might seek protection elsewhere, or otherwise.
We think it clear that in this state of case there is privity of contract, that the action is one for money paid by the appellant and received by the appellee, and that by the demand of the insurance company and the payment by the mortgagee there was created under this independent contract the relation of debtor and creditor; and the fact that the cotton oil company might have the vain, useless, and futile right to charge this payment to the mortgagor could not operate to destroy the relation of debtor and creditor between the insurance company and the mortgagee. "Privies" are described as persons who are partakers of or have an interest in any action or thing. See case of Lillian Roarke v. Alfred Roarke, 77 N.J. Eq. 181, 75 A. 761; also, 32 Cyc. 388.
The demurrer in this case should have been overruled. Therefore the case will be reversed and remanded, with leave to the appellee to file its plea within sixty days after the rendition of this opinion.
Reversed and remanded.