Frontier Mortgage Corp. v. Heft

Diggu.s, J., delivered the opinion of the Court. This suit was brought in the Superior Court of Baltimore City by the Frontier Mortgage Corporation, assignee, on November 3rd, 1922, against the defendants Morris Heft and Bessie Heft, his wife. The declaration contains the money counts, and an additional count, declaring on the mortgage principal and interest notes. The defendants pleas were, “never indebted,” and “never promised as alleged,” and the third plea for defense on equitable grounds, in which equitable plea it is set forth- that ⁴ the defendants executed the said mortgage to the Linthionm Realty Company on June 11th, 1920; that on July 8th, 1921, defendants sold the property covered by the mortgage to Abel Rosenthal, and bought from Rosenthal property located on Madison Avenue, Baltimore City'; that Rosenthal purchased the Maple Avenue property subject to the mortgages thereon, and the defendants purchased the Madison Avenue property subject to the mortgages then upon it; that subsequently deeds were executed consummating the sale or exchange of properties between Rosenthal and the defendants, with knowledge of the Provident Savings Bank, holder of the first mortgage on the Maple Avenue property, and the Linthicum Realty Company, the holders of the second mortgage on said property; that the property on Maple Avenue was insured against loss by fire in favor of the first and second mortgages; that subsequently the building on the Maple Avenue property was burned and the insurance company refused to make payment therefor to the mortgagees, whereupon the holder of "the first mortgage foreclosed the same, at which sale Rosen-thal became the purchaser, and upon his refusal to pay the second mortgage the Frontier Mortgage Corporation made demand therefor to the insurance company, and the defendants have been informed, believe, and therefore allege that the said insurance company has duly paid to the Frontier Mortgage Corporation the amount of its mortgage and the indebtedness upon which suit is herein brought; that the Frontier Mortgage Corporation knew of the ownership of the property by the said Abel Rosenthal and of the circumstances under which he took title.

Filed February 27th, 1923. Replication of the Frontier Mortgage Corporation, filed April 27th, 1923, joined issue on the defendants first and second pleas, and to the third plea entitled “A defense on Equitable Grounds,” denied that the Central Fire Insurance Company had paid the defendants’ indebtedness to the plaintiff. On May 15th, 1923, the ease was tried ex parte, the defendants failing to appear, before Judge James P. Gorter, without the aid of a jury, and resulted in a verdict for the ⁵ plaintiff for the sum of $3,737. On the 16th day of May, 1023, the case was entered to the use of the Central Pire Insurance Company of Baltimore.

Subsequently the judgment was stricken out, by agreement, and later, on October 15th, 1923, the case was again entered to the use of the Central Pire Insurance Company of Baltimore. On October 15th, 1923, the case was- again tried before the court without the aid of a jury, resulting in a verdict and judgment for the defendants. Prom this verdict and judgment, the Frontier Mortgage Corporation, plaintiff, and Central Pire Insurance Company, equitable plaintiff, have appealed. The evidence as agreed for the purpose of the record is su bstantiallv as follows: On June 11th, 1920, the appellees, defendants below, executed a second mortgage on real estate belonging to them located on Maple Avenue, Avondale Park, Baltimore, to the Linthicum Eealty Company, to secure the payment of the sum of $4,500, said sum being a portion of the purchase price of the property covered by the mortgage.

The principal of the debt was evidenced by two promissory notes dated as of the date of the mortgage, signed by Morris Heft and Bessie Heft, his wife, the defendants, and payable to the order of the Linthicum Eealty Company. One of the principal notes was for the sum of $1,300, maturing July 1st, 1920 (which was paid at maturity), and the other for the sum of $3,200, payable three years after date. There were also twelve interest notes, each for the sum of $48 and payable quarterly. On April 27th, 1921, the Linthicum Eealty Company assigned the mortgage, together with the principal note for 353,200, and eight interest notes, to the Frontier Mortgage Corporation, for which the Frontier Mortgage Corporation paid the sum of $2,880.

This assignment was duly recorded and the notes were endorsed bv tbe Linthicum Eealty Company in blank. The mortgage is in the usual form and contains a covenant on the part of the mortgagors to keep the property insured for the benefit of the mortgagee and its ⁶ assigns. By deed dated July 20th, 1921, and promptly recorded, the defendants conveyed in fee to Abel Rosenthal and Howard S'. Kroh all of the lots and property described in the mortgage, subject to a first mortgage and the above described second mortgage.

At the time the mortgage was assigned to the Frontier Mortgage Corporation, there was no policy of insurance assigned to it, but subsequently that corporation applied to the Central Fire Insurance Company for a policy on the property described in the mortgage, in the name of Morris Heft and Bessie Heft, his wife, payable to it as assignee of the second mortgage. The Central Fire Insurance Company, on August 12th, 1921, issued a policy insuring Morris Heft and Bessie Heft, his wife, from loss by fire on the frame building located on the lots described in the mortgage, for one year to an amount not exceeding $3,200, payable to the Frontier Mortgage Corporation, assignee of second mortgage, as interest may appear. To the policy was attached the following mortgagee clause: “Mortgagee Clause Without Full Contribution. “Loss or damage, if any, under this policy, shall be payable to Frontier Mortgage Corporation of Buffalo, N. Y., assignee of second mortgagee (or trustee), as interest may appear, and this insurance, as to the interest of the mortgagee (or trustee) only therein, shall not be invalidated by any act or neglect of the mortgagor or owner of the within described property, nor by any foreclosure or other proceedings or notice of sale relating to the property, nor by any change in the title or ownership of the property, nor by the occupation of the premises for purposes more hazardous than are permitted by this policy; 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. “Provided, also, that the mortgagee (or trustee) shall notify this company of any change of ownership or occupancy or increase of hazard which shall ⁷ come io the knowledge of said mortgagee (or trustee), and, unless permitted by this policy, it shall be noted thereon and the mortgagee (or trustee) shall, on demand, pay the premium for such increased hazard for the term of the use thereof; otherwise this policy shall be null and void. “This company reserves the right to cancel this policy at any time as provided by its terms, but in such case this policy shall continue in force for the benefit only of the mortgagee (or trustee) for ten days after notice to the mortgagee (or trustee) of such cancellation, and shall then cease, and this company shall have the right, on like notice, to cancel this agreement. “Whenever this company shall pay the mortgagee (or trustee) aiiy sum for loss or damage under this policy and shall claim that, as to the mortgagor or owner, no liability therefor existed, this company shall, to the extent of such payment, be thereupon legally subrogated to all the rights of the party to whom such payment shall be made, under all securities held as collateral to the mortgage debt, or may, at its option, pay to the mortgagee (or trustee) the whole principal due or to grow due on the mortgage with interest, and shall thereupon receive a full assignment and transfer for the mortgage and of all such other securities; but no subrogation shall impair the right of the mortgagee (or trustee) to recover the full amount of its claim. “Attached to and made part of Policy No. 328298 of the Central Fire Insurance Co. of Baltimore.” Among others the policy contained the following printed stipulations: “This entire policy shall be void if the insured has concealed or misrepresented, in writing or otherwise, any material fact or circumstance concerning this insurance or the subject thereof; or if the interest of the insured in the property be not truly stated herein; or in case of any fraud or false swearing by the insured touching any matter relating to this insurance or the subject thereof, whether before or after a loss. ⁸ “This entire 'policy, unless otherwise provided by agreement indorsed hereon or added hereto, shall be void if the insured now has or shall hereafter make or procure any other contract of insurance, whether valid or not, on property covered in whole or in part by this policy; or if the subject of insurance be a manufacturing establishment and it be operated in whole or in part at night later than ten o’clock, or if it cease to be operated for more than ten consecutive days; or if the hazard be increased by any means within the control or knowledge of the insured; or if mechanics be employed in building, altering or repairing the within described premises for more than fifteen days at any one time; or if the interest of the insured be other than unconditional and sole ownership; or if the subject of insurance be a building or ground not owned by the insured in fee simple, or if the subject of insurance be personal property and be or become incumbered by a chattel mortgage or if, with the knowledge of the insured, foreclosure proceedings be commenced or notice given of sale of any property covered by this policy by virtue of any mortgage or trust deed; or if any change, other than by the death of an insured, take place in the interest, title, or possession of the subject of insurance (except change of occupants without increase of hazard) whether by legal process or judgment or by voluntary act of the insured, or otherwise; or if this policy be assigned 'before a> loss. “If, with the consent of this company, an interest under this policy shall exist in favor of a mortgagee or of any person or corporation having an interest in the subject of insurance other than the interest of the insured as described herein, the conditions hereinbe-fore contained shall apply in the manner expressed in such provisions and conditions of insurance relating to such interest as shall be written upon, attached, or appended hereto. “If fire occur the insured shall give immediate notice of any loss thereby in writing to this company, protect the property from further damage, forthwith ⁹ separate the damaged and undamaged personal property, put it in the best possible order, make a complete inventory of the same, stating the quantity and cost of each article and the amount claimed thereon; and, within sixty days after the fire, unless such time is extended in writing by this company, shall render a statement to this company, signed and sworn to by said insured, stating the knowledge and belief of the insured as to the time and origin of the fire; the interest of the insured and of all others in the property; the cash value of each item thereof and the amount of loss thereon; all incumbrances thereon; all other insurance, whether valid or not, covering any of said property; and a copy of all the descriptions and schedules in all policies; any changes in the title, use, occupation, location, possession, or exposures of said property since the issuing of this policy; by whom and for what purpose any building herein described and the several parts thereof were occupied at the time of fire; and shall furnish, if required, verified plans and specifications of any building, fixtures, or machinery destroyed or damaged; and shall also, if required, furnish a certificate of the magistrate or notary public (not interested in the claim as a creditor or otherwise, not related to the insured) living nearest the place of fire, stating that he has examined the circumstances and believes the insured has honestly sustained loss to the amount that such magistrate or notary public shall certify. “This company shall not be held to have waived any provision or condition of this policy or any forfeiture thereof by any requirement, act, or proceeding on its part relating to the appraisal or to any examination herein provided for; and the loss shall not become payable until sixty days after the notice, ascertainment, estimate, and satisfactory proof of the loss herein required have been received by this company, including an award by appraisers when appraisal has been required. “No suit or action on this policy, for the recovery of any claim, shall be sustainable in any court of law ¹⁰ or equity until after full compliance by tbe insured witb all of tbe foregoing requirements, nor unless commenced within twelve months next after the fire.” The premium on this policy was paid by the Frontier Mortgage 'Corporation, and the policy delivered to and held by that corporation. Oía September 8th, 1921, the property was totally destroyed by fire.

The Frontier Mortgage Corporation demanded payment to it under the mortgage clause of the Central Fire Insurance Company, which first' denied liability and later paid the amount which the mortgage corporation had invested in the mortgage, with interest, amounting in all to $3,093.60. This sum was paid after the Frontier Mortgage Corporation had entered suit in the Superior Court of Baltimore City against the appellee, and that case entered to the use of the Central Eire Insurance Company. No claim was made by the defendants against the fire insurance company, and no proof of loss was furnished by any one, nor was there ever any demand made on the defendants by the insurance company for payment of the mortgage notes. The case was heard in the Superior’ 'Court before the judge sitting as a jury, and at the conclusion of the testimony the appellant offered four prayers, and appellees offered four prayers, as follows: First. — The plaintiff prays the court to rule as a matter of law that the uncontradicted evidence shows that the mortgage and notes offered in evidence were assigned for value to the plaintiff, a body corporate, and have not been paid by the defendants, and if, sitting as a jury, it finds that the plaintiff has not by act or word recognized the defendants' grantees as debtors in the place and stead of the defendants; and shall further find that the defendants did not have title to the property insured by the policy offered in evidence on and after the date it was issued by the equitable plaintiff, then its verdict must be for the plaintiff for the sum of $3,200, with interest from September 31th, 3923. ¹¹ Second. — The plaintiff prays the court to rule as matter of law that the uncontradicted evidence in this case shows that the indebtedness evidenced by the mortgage and notes offered in evidence was assigned for value to the plaintiff, a body corporate, and has never been paid by the defendants.

That at the time the equitable plaintiff’s policy of insurance, offered in evidence, was issued, the defendants were not the owners of the property insured, and liability under said policy was denied to both mortgagee and insured; that the plaintiff has not in any way recognized the defendant’s grantees mentioned in evidence as debtors in the place and stead of the defendants, and, therefore, its verdict as jury must be for the plaintiff for $3,200, with interest from September 11th, 19'21. Third. — The plaintiff prays, the court to rulo as matter of law that if, sitting as a jury, it finds that the defendants did not have title to the property insured by the policy offered in evidence,' on and after the date it was issued by the equitable plaintiff, and further finds that liability under said policy because of the fire mentioned in evidence was denied both to the defendants (the insured) and the plaintiff (the mortgagee), then payment