Opinion
Argued June 16, 1882
Decided October 10, 1882
D. Pratt for appellant. H. Burdick for respondent.
The first mortgage executed to the plaintiff as well as the one afterward executed to the defendant Egbert I. Avery, each contained a covenant to keep the buildings upon the premises insured, and that the loss, if any, should be paid to the several mortgagees. In the policy first taken for $2,000, the loss was made payable to the plaintiff. Subsequently another policy was issued for $3,000, without being made payable to the plaintiff, and after this a mortgage was executed to the defendant Egbert I. Avery, and a new policy was issued for the same amount, and the loss made payable to Egbert I. Avery, as his interest might appear. At this time all parties were amply secured. At a later date upon the expiration of the last-named policy of $3,000, another policy was issued for $2,000, loss, if any, payable to said defendant, which was delivered to and kept by him, and he thus became vested with the legal title to the same. Under these circumstances the question arises whether the plaintiff had such an equitable right to the money arising from the policy as entitled him to a priority over the defendant to whom the loss was made payable. The claim of the plaintiff rests upon the covenant by the mortgagor contained in the mortgage to him to insure the buildings, which, it is insisted, was given as security and part of the agreement for the loan, and which, in connection with the insurance, was a lien upon the buildings and a part of the mortgage lien on the land and buildings and the insurance money arising from the buildings in the event of their destruction or loss by fire. This position was sustained by the trial court, and the opinion of the General Term holds that Egbert I. Avery took the mortgage with imputed knowledge and notice of the covenant to insure which was contained in the record of the plaintiff's mortgage. We do not concur in this view, and are unable to perceive how the prior mortgage could without especial notice of its contents deprive the defendant of the right to the money under the policy which was payable to him. There is no doubt as to the correctness of the rule that when the mortgagor is bound by the terms of the mortgage to keep the premises insured for the security of the mortgagee, that as between him and the mortgagor an equitable lien arises in favor of the mortgagee for the money received upon the policy to the extent of the mortgage. In the case considered both parties had mortgages with similar covenants and if the policy had been sufficiently large the property furnished ample security for the loans. Had both been equally vigilant no loss would have accrued to either. The plaintiff failed to make provision by which the insurance was kept up so as to cover his mortgage. For three years he neglected that duty, while it may be assumed that the defendant was sufficiently alert to see that his mortgage was secured by a policy providing for payment to him in case of loss. The plaintiff could have been secured had he given the subject due attention. He failed to keep the policy alive, as he had a perfect right to do at the expense of the property under the covenant on this mortgage and the loss was caused by his fault and neglect.
The title to the insurance money under the provision in the policy was in the defendant, and the equities being equal between the parties, the legal title must prevail. ( Newton v. Clark, 41 Barb. 285; Grimstone v. Carter, 3 Paige, 421.) The equity of the plaintiff rests upon the covenant in the mortgage as to the policy of insurance. The defendant stands in precisely the same position with a right to the insurance money in case of the loss under the same, and thus his right is a superior one. The rule that when the mortgagor covenants to keep the buildings insured for the benefit of the mortgagee, that any insurance which may be effected in the mortgagor's own name or for the benefit of the mortgagor will be presumed to be in fulfillment of his covenant is well established, but this presumption arises only in the absence of proof to the contrary, and this is not the legal presumption when the policy itself provides for the payment of the loss to another incumbrancer.
The case of Cromwell v. The Brooklyn Fire Insurance Co. ( 44 N.Y. 42; 4 Am. Rep. 641), which is relied upon by the plaintiff's counsel, is not in conflict with this doctrine, but fully sustains it. In that case the plaintiff was the assignee of a vendor's interest under a contract for the sale of real estate which provided for an insurance by the vendee, for the benefit of the vendor, and it was held that he was equitably entitled to the moneys due upon a policy of insurance procured by the vendee in his own name. The same principle was upheld in Carter v. Rockett (8 Paige, 437). Neither of these cases furnish any ground for the rule that where the policy provides for the payment of loss to a subsequent mortgagee that a prior mortgagee can claim the insurance money. There was no fraud on the part of the defendant and nothing was unjust or inequitable in taking an insurance which covered the amount of his loan upon property which was of sufficient value to secure both of the mortgagees. Much more is the defendant entitled to priority, in view of the finding of the referee, that the defendant had no knowledge or notice of the covenant in the mortgage to the plaintiff to keep the premises insured for his benefit.
The counsel for the defendant cites several cases which, it is claimed, uphold the doctrine that the covenant to insure being included within the terms of the mortgage as much as other provisions is a material and necessary provision pertaining to the realty and affects the same, and becomes properly a part of the record and constructive notice to any subsequent incumbrancers or purchasers. ( Truscott v. King, 2 Seld. 147; Ackerman v. Hunsicker, 85 N.Y. 43; 39 Am. Rep. 621.) These cases have no relation to a covenant to insure, and do not bear directly upon the question here presented, but upon the effect to be given to judgments and mortgages under the Recording Act in reference to subsequent incumbrancers and purchasers. The Recording Act has, we think, no application to the covenant in question and notice of the covenant must depend upon proof without reference to its provisions. It does not contemplate that such a covenant in a mortgage shall be more effective from the fact, that such mortgage is placed on the record, or that the recording makes it an incumbrance upon the mortgaged property. The object of the Recording Act was to protect subsequent purchasers and incumbrancers against previous unrecorded instruments, and not against a covenant relating to the policy of insurance upon buildings upon the premises. Instruments which affect the land and the title to the same only are entitled to record, and not such as relate to collateral matters. ( Gillig v. Maass, 28 N.Y. 191.) Nor is there any force in the position that the covenant to insure runs with the land, and hence no assignment was required of the policy. In re Sands (3 Bissell [U.S.D.C.], 175) so far as it upholds such a doctrine it is not, we think, well founded. The covenant in question is entirely personal in its character, does not affect the land or run with it, and is collateral and incidental to the remaining covenants in the mortgage. A conveyance of the land by the mortgagor would not, we think, render the vendee liable on the covenant. (See Platt on Covenants, 183; 3 Law Lib. 181; Platt on Leases, 226-228; Newman v. Wells, 17 Wend. 150.) Nor is there any valid ground for the contention that the covenant in the mortgage operated as constructive notice.
Upon no sound principle was the defendant bound to examine the record, and thus become acquainted with the terms and conditions of the first mortgage, and the covenant as to insurance, and his omission to do so is not such neglect as gave priority to the plaintiff's claim for the insurance money. Even if it was established that the defendant had notice of the insurance clause in the mortgage, as he had none, that it had not been performed, it is not apparent how he could be made chargeable. Nor are the rights of the defendant affected even, although the provision in the policy making the loss payable to him was inserted at the request or by the procurement of the mortgagee. The mortgagee had the right to procure such a provision in his own favor, and so long as it was done without notice of the covenant in favor of the plaintiff in his mortgage, and without fraud on his part, it was legal and valid. The act itself was not fraudulent on its face and cannot deprive the defendant, in the absence of proof of any intention to commit a fraud, of the rights secured thereby.
No other point made requires examination, and we think that the referee erred in directing a judgment in favor of the plaintiff, and the General Term also erred in affirming the same, and such judgment should be reversed so far as it relates to the application of the insurance money, which should be awarded to the defendant Egbert I. Avery, with costs against the respondent personally.
All concur.
Judgment accordingly.