1. Where, by his covenant or otherwise, a mortgagor is bound 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 on a
policy taken out by him.
2. This equity exists although the covenant provides that in
case of the mortgagor's failure to procure the insurance and assign
the policy, the mortgagees may procure it at his expense.
3. This equitable doctrine obtains in Louisiana.
The facts are stated in the opinion of the Court.
MR. JUSTICE BRADLEY delivered the opinion of the Court.
Johnson & Goodrich, commission merchants of New Orleans,
being creditors of John H. Green, a planter, for advances made,
suggested to him that he should authorize them to effect insurance
on his buildings, gin house, machinery and cotton in the gin house,
for their better security. He accordingly wrote them a letter
authorizing them to effect such insurance; and they procured from
The Factors and Traders' Insurance Company of New Orleans insurance
on an open policy in their own names for $5,500 on the buildings
and machinery, and $2,000 on the cotton. This was in November,
1872, and the insurance was for sixty days. In January, 1873, this
insurance was renewed for sixty days longer, and before its
expiration in March, 1873, the buildings, machinery, and a small
quantity of cotton were destroyed by fire. Johnson & Goodrich
took measures to recover the insurance, and received $900 for the
loss on the cotton, leaving a balance still due to Green of $3,450,
for the payment of which, Green having become insolvent, they
relied on the insurance upon the buildings and machinery, and
presented to the insurance company the necessary proofs to collect
the same.
At this point, the appellants, Ezra Wheeler & Co.,
interposed and set up a claim to have the insurance money on
the
Page 101 U. S. 440
buildings and machinery paid to them, and for this purpose filed
their bill against the insurance company, Green, and Johnson &
Goodrich. The defendants severally answered, proofs were taken, and
upon due hearing the court below made a decree dismissing the bill
of complaint. From that decree the present appeal was taken.
The case as developed by the pleadings are the evidence appears
to be substantially as follows:
Prior to the employment of Johnson & Goodrich by Green as
his commission merchants, he had employed the firm of Foster &
Gwyn, of New Orleans, in the same capacity, and had become largely
indebted to them. In 1870, he had given them his note for $10,000;
in 1871, another note for $3,723.61; and in March, 1872, a third
note for $3,009.55. To secure the payment of each of these notes
with interest at eight percent per annum, he gave successive
mortgages on his plantation, buildings, machinery, and stock, with
an agreement in the last two mortgages to insure the buildings and
machinery and to transfer the policies of insurance to the
mortgagees for their better security, or, in default of doing this,
that the mortgagees and all subsequent holders of the notes secured
by those mortgages should have the right to effect such insurance
at his expense. These mortgages were all given and recorded before
Johnson & Goodrich procured the insurance now in question.
Foster & Gwyn, in July, 1871, under the reserved right
contained in the second mortgage, effected an insurance for one
year upon the buildings and machinery, but did not renew the same.
In the spring or summer of 1872, Foster & Gwyn being largely
indebted to the appellants, transferred to them the three notes and
mortgages of Green by way of collateral security, and the
appellants rely on this security for making their claim against
Foster & Gwyn.
Being thus the holders of the notes and mortgages of Green, the
appellants claim the insurance money in question on two grounds:
first, on the ground that although the insurance was effected in
the name of Johnson & Goodrich, they acted merely as agents of
Green, and the insurance was really taken out for his benefit, and
he having agreed in and by the last two mortgages to insure the
property for the benefit of the mortgagees
Page 101 U. S. 441
and to transfer the insurance to them, the appellants, as
holders of the notes and mortgages, are equitably entitled to the
insurance money. Secondly, on the ground, as the appellants allege,
that when the insurance in question was about to be renewed in
January, 1873, they were assured by Green and by Johnson &
Goodrich that it was effected for the benefit of them, the
mortgagees, or at least they were led to believe that this was so
done.
An examination of the evidence in the case fails to convince us
that the latter charge is true, at least so far as Johnson &
Goodrich are concerned. Foster testifies that about the time of the
renewal, he, on behalf of the appellants called on Green at his
plantation and requested him to have the property insured, and that
Green promised that he would write to Johnson & Goodrich to
renew the insurance. The witness does not say, and Green in his
answer denies, that he promised to have any insurance effected for
the benefit of the mortgagees or the appellants; and the evidence
is clear that Johnson & Goodrich had no such understanding.
They regularly renewed their policy, and on the same day Gwyn
called at their office and asked a clerk whether they had taken out
a policy on the cotton gin and buildings of Green, and the clerk
answered that they had, and nothing more appears to have been said.
Johnson & Goodrich both swear that they had no knowledge of the
stipulation about insurance in the mortgages, or that Green was
under any engagement to effect insurance, and that their only
motive for effecting insurance on the property was to protect
themselves. They charged the premiums to Green, it is true, but
this they had a right to do under the circumstances, inasmuch as he
authorized them to effect the insurance, and was entitled to any
benefit to accrue therefrom after their claim against him was
satisfied.
The appellants insist, however, that Johnson & Goodrich had
no insurable interest in the buildings and machinery, and therefore
that they have no lawful claim to any part of the insurance in
question. But it does not lie in the mouths of the appellants to
make this argument. If it has any force (which it is not necessary
for us to decide), it can only be urged by the insurance company,
and they do not urge it.
Since, therefore, there is no proof that Johnson &
Goodrich
Page 101 U. S. 442
did not act with entire fairness in the whole transaction, and
without notice of Green's covenant to insure; and since there was
no privity between them and the appellants, we do not see how the
latter can sustain any claim at law or in equity against them.
But as the debt due to Johnson & Goodrich will not exhaust
the whole amount of the insurance, and as the balance rightfully
belongs to Green, the question arises whether, as to that balance,
the claim of the appellants is not maintainable. It is undoubtedly
the general rule that a mortgagee has no right to the benefit of a
policy taken by the mortgagor, unless it is assigned to him.
Carter v. Rockett, 8 Paige (N.Y.) 436. But it is settled
by many decisions in this country that if the mortgagor is bound by
covenant or otherwise to insure the mortgaged premises for the
better security of the mortgagee, the latter will have an equitable
lien upon the money due on a policy taken out by the mortgagor to
the extent of the mortgagee's interest in the property destroyed.
Thomas' Adm'rs v. Vankapff's Ex'rs, 6 Gill & J. (Md.)
372; note to 3 Kent, Com. 376; Angell, Fire and Life Insurance,
sec. 62; 2 Am.Lead.Cas. 834, 5th ed.; 1 Herman, Mortgages, sec.
424, and cases there cited. And this equity exists, although the
contract provides that in case of the mortgagor's failing to
procure and assign such insurance, the mortgagee may procure it at
the mortgagor's expense.
Nichols v. Baxter, 5 R.I. 491. Of
course the mortgagee's equity will be governed by the scope and
object of the agreement, as, if the agreement be to insure for a
certain amount, the equity will not apply beyond that amount, and
as its object is to afford better security for the payment of the
debt, it will not be enforced farther than is necessary for such
security; if the debt is abundantly secured by the property which
remains liable to the mortgage, a court of chancery would properly
decline to enforce it. The present case, however, is not
embarrassed by any questions of this sort. The appellants have
proceeded to sell the immovable property mortgaged, which did not
more than satisfy the first mortgage; and the amount of insurance
money remaining after satisfying the claim of Johnson &
Goodrich is less than the insurance stipulated for in the other
mortgages.
Page 101 U. S. 443
The equitable doctrine upon which the appellants' claim is
founded undoubtedly obtains in Louisiana. It is derived from the
principles of the civil law, which is the basis of the civil code
of that State, and it is supported by the authorities cited from
the Louisiana reports.
See Civil Code La., art. 1965;
Williams v. Winchester, 7 Mart. N.S. (La.) 22;
Citizen's Bank v. Dugue and Louisiana State Bank, 5
La.Ann. 12;
Braden v. Louisiana Insurance Co., 1 La.
220.
Our conclusion is that the decree of the circuit court should be
reversed, and the case remanded with instructions to enter a decree
in conformity with this opinion, and it is
So ordered.