American Ice Company v. Eastern Trust Banking Company/Opinion of the Court

The appellants have made several assignments of error which have been argued before us, but the only one we think it necessary to notice is that which relates to the disposition of the moneys received by the assignee on account of the insurance effected by him upon the property destroyed by fire.

The assignee claims to be entitled to pay these moneys for the benefit of all the creditors, unsecured as well as secured, while the appellee, the trustee in the mortgage, demands that the moneys should be paid to it for the purpose of reducing the deficit which may arise from the sale of the mortgaged premises, and the courts below have so decreed. The claim of the appellee is founded upon the language used in the mortgage, by which the ice company was to keep the 'premises and property at all times insured. . . in such amounts as shall reasonably protect all the insurable property. . . . In case of loss the insurance money may be applied by the trustee toward the renewal of or additions to the property destroyed or injured, or, at the option of the trustee, the money may either be retained and invested in such securities as it approves, as a sinking fund for the redemption of the bonds when due, or to be applied to the payment of the principal' of such bonds, etc. This language, it is urged, takes the case out of the ordinary rule that a simple covenant to insure, contained in a mortgage, does not run with the land. The assignee appellant founds his claim upon the assertion that, as assignee, he was the owner of the equity of redemption, having an insurable interest in the premises as such, and that, in fact, he intended such insurance for the benefit of all creditors, and not as a fund for the security of the bondholders alone.

In Farmers' Loan & T. Co. v. Penn Plate Glass Co. 186 U.S. 434, 46 L. ed. 1234, 22 Sup. Ct. Rep. 842, we had occasion to examine the nature and effect of a covenant to insure contained in a mortgage, and we concluded that such a covenant does not run with the land, so that one taking a conveyance subject to the mortgage comes under a primary obligation to insure. In that case the mortgage was foreclosed and the property bid in at the judicial sale, and the grantee of the master took out insurance in his own name for the purpose of insuring his own interest in the premises which he had purchased, and he repudiated in terms any obligation to insure for the benefit of the mortgagee, and accordingly the policies were issued, and they stated they did not cover the mortgagee's interest in the premises.

Here there is in substance no difference between the mortgagor and its assignee for the benefit of creditors, so far as this question is concerned. The mortgagor had indeed failed to insure, as it had covenanted to do, but when it transferred the legal title of the property to its voluntary assignee, he stood in the shoes of his assignor, and when he took out insurance policies upon the property he in effect fulfilled the obligation which had rested upon the mortgagor to insure, and the insurance thus becomes by virtue of the covenant a security for the payment of the bonds secured by the mortgage. This does not make a case of a covenant to insure running with the land as against a subsequent purchaser of the property for value, but, as we have said, it is simply the case of a taking out of insurance by a voluntary assignee having no beneficial interest in the property, and when such assignee insures the premises under the circumstances herein stated, with such a covenant in a mortgage, the insurance moneys inure to the benefit of the bondholders secured by the mortgage.

It was conceded in the court below that, as a general proposition, a covenant to insure was a mere personal covenant, and did not attach to and run with the land, but it was held that the peculiar language of this mortgage took it out of that rule.

Mr. Chief Justice Alvey said in the court of appeals in this case:

'It is very clear that, by the terms of the covenant, it had relation to the land, and its principal object was to keep and maintain the buildings on the property in condition for carrying on the ice business. This was the great object of the insurance required, as means of security to the bondholders. Without this, the property, by fire, might be rendered of little value, and the bondholders be left without security. By means of the insurance it was intended that the property should be maintained as security; and hence it was provided, primarily, that the insurance money might be expended in renewal of or adding to the buildings. In such cases it has been repeatedly held that the covenant does run with the land,-at least in an equitable sense; and where an insurance has been obtained, though by an assignee, and a fire has occurred, and the insurance money has been received, a court of equity has held that the insurance money should be applied for the benefit of those for whose protection the original covenant was made.' [14 App. D. C. 331.]

The cases of Vernon v. Smith, 5 Barn. & Ald. 7; Thomas v. Vonkapff, 6 Gill & J. 372; Miller v. Aldrich, 31 Mich. 411; Ellis v. Kreutzinger, 27 Mo. 311, 72 Am. Dec. 270; Nichols v. Baxter, 5 R. I. 491; Masury v. Southworth, 9 Ohio St. 348, and Re Sands Ale Brewing Co. 3 Biss. 175, Fed. Cas. No. 12,307,-were cited by the chief justice in support of his contention.

In the case of Wheeler v. ''Factor's & T. Ins. co.'' 101 U.S. 439, 25 L. ed. 1055, it was held that where a mortgagor is bound by his covenant to insure the mortgaged premises for the better security of the mortgagees, the latter have to the extent of their interest in the property destroyed, an equitable lien upon the money due from the policy taken our by him, and that this equity exists, although though the contract provides that, in case of the mortgagor's failure to procure and assign such insurance, the mortgagees may procure it at the mortgagor's expense.

So in this case, we practically have a fulfilment of the mortgagor's covenant to insure, because its voluntary assignee, standing in its shoes, did himself insure the premises, and such insurance insures to the benefit of the mortgagee, because the assignee is a voluntary one, and is but carrying out an obligation imposed originally upon his assignor. The peculiar language of the mortgage upon the subject of insurance takes it out of the general rule governing such covenants.

We think the case at bar is not covered by the case of Farmers' Loan & T. Co. v. Penn Plate Glass Co. 186 U.S. 434, 46 L. ed. 1234, 22 Sup. Ct. Rep. 842, and that the court below made the proper decree in relation to the insurance moneys.

We have examined the other assignments of error argued before us, but are of opinion that they are clearly untenable and were properly disposed of by the court below.

Finding no error in the record, the judgment is affirmed.