Wm. Skinner & Sons' Ship-Building & Dry-Dock Co. v. Houghton

Boyd, J., delivered the opinion of the Court: On the 18th day of February, 1899, Caroline S. Houghton and her husband entered into an agreement with Charles E. Savage by which they agreed to sell and convey to him or his assigns, upon written notice of the acceptance of the agreement within sixty days from its date, certain property in the city of Baltimore for the sum of fifty thousand dollars. It was agreed that the purchaser should pay the purchase-mon'ey within ninety days after the notification of the acceptance and two hundred dollars, paid when the agreement was made, was to be credited on the amount. Within the sixty days (on April 14th), Savage assigned his option to the appellant and notified Mr. and Mrs. Houghton of his acceptance and assignment, to which they gave their assent. On the 1 ith day of May, 1899, ⁸³ some of the improvements on the property were destroyed by Are, having been insured in eight companies prior to the execution of the agreement.

At the time of the Are the Hough- ,t tons were still in possession of the property, none of the pur-o chase-money, except the two hundred dollars, had been paid, ¶ and the deed had not been executed, but on the 27th of June, [ 1899, balance was paid and a deed was executed and de- | livered. At that time the Houghtons and the appellant entered into an agreement that the payment of the purchase-money and acceptance of the deed should not w'aive any right appellant might have to any moneys to be thereafter collected from insurance companies under the policies covering the property destroyed. Proofs of loss were duly furnished by Mrs. Houghton, and the eight companies were about to pay her the amounts ascertained to be due by them respectively, when the appellant notiñed them of its claim to the amounts due. The Westchester Fire Insurance Company, of New York, paid the amount due by it to Mrs. Houghton.

The Norwich Union Fire Insurance Society, of England; the Howard Fire Insurance Company, of Baltimore City; the Commerce Insurance Company, of Albany, New York ; the Royal Exchange Assurance, of London, and the Pacific Fire Insurance Company/of New York City, Aled bills of interpleader offering to pay the amounts due by them to the party entitled thereto, and the German American Insurance Company, of New York, and the Merchants’ and Manufacturers’ Fire Insurance Company, of Baltimore City, denied all liability for reasons, some of which will hereafter be stated. The appellant Aled a bill in equity against the Houghtons and the several insurance companies, praying that the companies be enjoined from paying the amounts to Mrs. Houghton, and that she be enjoined from collecting them ; that Mrs. Houghton and the Westchester Company be required to account for the amount paid by that company to her ; that the companies discover and set forth in detail all sums of money due under said policies issued by them; that the said companies be required to pay to the plaintiff the amounts due by ⁸⁴ them; that Mrs. Houghton be required to bring into Court the policies to be delivered to the companies upon payment of the money to the plaintiff and for further relief. The Houghtons demurred to the bill, and the demurrer having been overruled, answered, claiming the money was due Mrs. Houghton. The Westchester Company admitted payment to Mrs. Houghton and denied any liability to the plaintiff; the five companies mentioned above alleged that they had filed bills of interpleader which were still pending, and the other two denied any liability.

The Palatine Insurance Company, Limited, of Manchester, England, filed a petition asking to be made a party, as it had assumed the obligations and liabilities incident to and growing out of certain policies issued by the Merchants’ and Manufacturers’ Insurance Company, of Baltimore, and it was so ordered. Testimony was taken, and after hearing the bill of complaint was dismissed, the learned Judge who heard the case being of the opinion that the plaintiff had no claim to the funds arising from the policies of insurance. The facts we have stated, and others that will be hereafter referred to present several questions for our consideration. The points raised by the demurrer to the bill filed by the Houghtons were not pressed in this Court, and we understand it to be the desire of all parties to have their lights determined in this cause.

We are not informed by the record of the condition of the cases in which bills of interpleader have been filed, but as those companies could, if they saw proper, waive such defenses as the two contending companies have interposed, and pay the proportion of the insurance claimed from them to the vendor or vendee, as may be determined, and as we undei'stand that to be the position taken by them, we will first consider the questions between the appellant and Mrs. Houghton. i. Leaving out of view, for the present, the effect of the testimony in relation to the interviews of the president of the appellant company and Ira Houghton, the first inquiry to be made is : As between the appellant and Mrs. Houghton, who is entitled to such of the proceeds of the insurance policies as ⁸⁵ has been or will be collected ? There is nothing in the record to suggest that the property enhanced in value between February 18, 1899, the date of the agreement, and May the nth, 1899, the time of the fire. Nor is there anything from which we can infer that the price named in the agreement was not the full value of the property sold.

Therefore no equities of that character are suggested, even if they could be considered. As the purchase-money was paid in full, it is manifest that any amount Mrs. Houghton might receive from the insurance companies would be that much more than, by the terms of the agreement, she could have expected to get out of the property. On the 14th of April, the total moneyed interest she had in the property was fifty thousand dollars, less the two hundred dollars already paid, as by her agreement she had parted with all interest she had in it on payment of that sum. It is true she had an insurable interest in the property until the purchase-money was paid, but that was all she had in equity, and as this is a case in equity we must determine it from that standpoint, and it is unnecessary to discuss the rights of the parties as viewed by courts of law.

When she took out the policies, she was the sole owner of the property, but when the option was accepted her estate was divided into a legal and an equitable one. From that time she held the title as trustee for the appellant, under an obligation to convey it to it, upon payment of the purchase-money. Under a contract of this kind, in equity, “ the vendee is in fact considered as the owner of the land, and although the vendor may still retain the title, he holds it as a trustee for the vendee, to whom all the beneficial interest has passed, with a lien on the estate as security for any unpaid portion of the purchase-money.” McRae v. McRae, 78 Md. 283 . Or, as was said in Worthington v. Lee, 61 Md. 535 , “While at law contracts ape covenants to sell, lease or convey land are considered simply as personal and executory contracts, and covenants without reference to any trust or charge thereby created, yet, in the contemplation of a Court of equity, from the time of the contract or covenant, the vendor or lessor, and his heirs, or assigns, ⁸⁶ except where the latter may be protected for want of notice, are regarded as trustees for the vendee or lessee, and those who may represent him.” In Phelps' Juridical Equity, section 207, the learned author announces the same rule with clearness, referring to McRae v. McRae and other authorities.

After a contract of sale is made, the vendor’s interest is not real estate, and in case of his death the unpaid purchase-money is personal property and goes to his personal representatives. Hall v. Jones, 21 Md. 439 ; McRae v. McRae, supra. A judgment obtained by a third person against the vendor between the time of the making of the contract and the payment of the purchase-money does not defeat or impair the equitable interest thus acquired by the vendee, nor is it a lien on land to affect the rights of such cestui que trust. Hampson v. Edelen, 2 H. & J. 64 ; Valentine v. Seiss, 79 Md. 190 .

When, therefore, the purchase-money is paid to the vendor and all his interest in the property insured is extinguished, upon what principle should he be entitled to recover for himself any additional sum, paid by reason of the destruction of the property which he had already been paid for ? It would not only be contrary to .the well-established principle of the law which prohibits a trustee from using the trust.property for his personal gain, but it would be contrary to public policy to subject a vendor, remaining in possession, to the temptation of either destroying the property by fire or of being guilty of such gross negligence concerning it as might produce that result. It is true that a policy of insurance against loss by fire is only a personal contract of indemnity, but that indemnity is “ against a possible loss on account of the interest of the insured in the thing mentioned in the policy,” (Heller v. Marine Bank, 89 Md. 621 ), and when that interest no longer exists the indemnity, is likewise at an end, so far as he is concerned. When the purchase-money is paid, the vendor can sustain no loss by reason of the destruction of the property by fire, but that is not so with the vendee.

This Court held in Brewer v. Herbert, in 30 Md. 301 , that in case of loss by fire between the time of the contract of sale and the payment of the pur ⁸⁷ chase-money, the vendee must bear the loss and in that case the contract of purchase was enforced at the instance of the vendor by a Court of equity. ';/ Without reference to the authorities it would seem to be manifestly just and equitable that when a Court of equity is called upon to determine to which of the two parties a fund is to be paid, resulting from the destruction of a property in which both were interested, but the one has received payment from the other of all the interest she had, while the other is to be the sufferer by reason of the destruction of the property, that it should be awarded to the latter. If that be not so, the one would receive more than the contract contemplated, while the other would receive less. ^ For example, if the value of the property, worth, at the time of the sale, fifty thousand dollars, has been lessened by the fire to the extent of fifteen thousand dollars, the vendor would get sixty-five thousand dollars, and the vendee would get a property worth only thirty-five thousand dollars — the one thus getting thirty per cent more and the other thirty per cent less than they originally contracted for, under Mrs. Houghton’s contention. Such results would not only encourage carelessness in the use of property by vendors, but would materially increase the danger of incendiarism. The policy in the record, which we understand to be a copy of the others and is what is called a “standard policy.” gives the insurance company the option of repairing, replacing or rebuilding the property destroyed instead of paying the money.

If that was done then the purchaser, and not the vendor, would necessarily get the benefit of it, and while it is correct to say that a fire insurance policy is a personal contract of indemnity, the subject mátter of the insurance is the property and the indemnity is against loss by fire as to that and nothing else.? When the insurance was taken, Mrs. Houghton owned the property, and the policies were never changed so as to only insure the debt she had against the property, and as the indebtedness to her is extinguished and all her personal interest in the property is gone, she must hold any money she has received, or may yet re ⁸⁸ ceive, in the only other way she could hold it, namely, as trustee for the vendee. It must be remembered we are not now considering the question between her and the insurer, but between her and the owner of the property insured. As she no longer had any interest of her own in that property for which she can receive indemnity, it must be assumed that she took it for her cestui que trust.

But we are not without authorities on the identical question. In Brewer v. Herbert, supra, this Court said on page 313, in speaking of a policy the vendor had permitted to lapse after the sale but before the fire, “If the policy had existed at the time of the loss, the vendor could have recovered from the insurance company, but being trustee of the premises for the vendee, he would be bound in equity to account to the latter for the money so received.” That cannot properly be said to be an obiter dictum, for it was said in considering the effect of the failure of the vendor, to continue in force a policy on the property, on his right to specific performance of the contract. Even if it could not be regarded as the judgment of the whole Court, it would be entitled to great consideration, as the opinion of the learned jurist who delivered it, but he was not announcing a principle that others have refused to adopt or follow. In Joyce on Insurance, section 3525, it is said : “If property is destroyed between the time of effecting the contract for the sale and delivery of the deed, the proceeds of an insurance policy upon such property belongs to the vendor as between him and the company, but the former is held to act as trustee for the vendee and must therefore account to his cestui que trust in equity.” To the same effect are the cases of Insurance Company v. Updegraff, 21 Pa.

St. 513; Reed v. Lukens, 44 ib. 200; Hill v. Insurance Company, 59 ib. 474; Purcell v. Grosser, 109 ib. 617; Gilbert v. Port, 28 Ohio St. 276 ; Williams v. Lilly, 67 Conn. 50 . In Rayner v. Preston, L. R. 18 Ch. Div, 1, a contrary view was adopted by two out of the three Lords Justices who sat. One of them expressly repudiated the doctrine that a vendor was under such circumstances as we have referred to, a trus ⁸⁹ tee for the vendee, and the other admitted that he was in a qualified sense, but said he could not be trustee of the money-recovered.

Lord Justice James recorded his dissent in a vigorous and convincing opinion which, as to the relation of the parties being that of trustee and cestui que trust, is in accord with our own decisions as well as the great weight of authority in this country. The case of Carpenter v. P. W. Insurance Co., 16 Peters, 496 , relied on by the solicitors for Mrs. Houghton, does not militate against the contention of the appellant. There a mortgagee obtained insurance to secure his debt and nothing more. In Callahan v. Linthicum, 43 Md. 97 , this Court quoted at length from that decision and adopted the rule therein expressed, but the facts were different in the two cases and hence different results were reached.

In Callahan v. Linthicum, the appellee sold the property to the appel- ' lant and took a mortgage to secure the balance of the purchase money. Before the sale the appellee had insured the property and when he conveyed it to the appellant the insurance was continued under the same policy’ in the same manner and for the same amount as before. This Court said; “While it may be conceded that this arrangement could not give to the appellant the right to sue at law upon the policy, for want of legal privity with the contract of insurance, yet, under such circumstances, the mortgagee would be treated in a Court of equity as trustee for the mortgagor, and in the event of the payment of the mortgage debt by the latter, he would be entitled to maintain a suit in equity, to recover the money received by the former under the policy of insurance,” and cited Insurance Company v. Updegraff and Reed v. Lukens. Nor is the case of Heller v. Marine Bank in conflict with the doctrine we have announced.

It was said there that “such personal contracts of indemnity do not attach to the realty or in any manner go with the same, as incident, by any conveyance or assignment, unless there is, in addition, some special stipulation to that effect between the insurer and insured.” But the appellant does not claim the proceeds of these policies on the theory that they attached to the realty and therefore passed ⁹⁰ to it as purchaser, but it is because Mrs. Houghton, by the contract of sale", became the trustee of the property for the appellant and, although the contract of indemnity was continued with her, it was for the benefit of her cestui que trust, as well as for herself. When all she was entitled to was paid, the proceeds to be derived from the policies, as between the appellant and herself, belonged to the former. If the insurance money had been paid her before the purchase-money was paid, she could only have demanded the difference, and when the purchase-money was paid it was with the express agreement that it should not prejudice the claim of the appellant to that fund. Without discussing other cases relied on by the counsel for Mrs. Houghton, it is sufficient to say that those which do at all apply to this question are not sufficient to overcome the cases