Connecticut Mut. Life Ins. Co. v. Scammon
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117 U.S. 634 (1886)
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U.S. Supreme Court
Connecticut Mut. Life Ins. Co. v. Scammon, 117 U.S. 634 (1886)
Connecticut Mutual Life Insurance Company v. Scammon
Submitted March 12, 1886
Decided April 12, 1886
117 U.S. 634
A father owning in fee an equal undivided one-third part of a lot of land and having a life tenancy in the other equal undivided two-third parts, and his two daughters each owning in fee an equal undivided one-third part, subject to such life tenancy, the three executed a mortgage on the lot, for a loan of $30,000, in which the mortgagors agreed to keep the building on the lot insured against fire in its fair insurable value and assign the policy to the mortgagee, to be held by him "as collateral and additional security," with the right to collect the insurance money and apply it on the mortgage. On a partition of the lot between the father and the daughters, they paid $10,000 to the mortgagee on the principal, and he released from the mortgage the part belonging to the father. The father, with the money loaned, had erected a building on the part of the lot allotted to the daughters, and he thereafter collected for his own use the rents, and paid the interest do the mortgage, and the taxes, and the fire insurance premiums. The building, being insured for $15,000 by a policy in the name of the father, the loss being made payable to the mortgagee, was destroyed by fire. The loss being more than that sum, the mortgagee received a draft for $15,000 on the insurance company, drawn by its agent, to the order of the mortgagee, and agreed in writing with the father, by an instrument which stated that the mortgagee held the policy as collateral security for the payment of the loan, that the right to apply the $15,000 on the debt was waived, and that the money should be deposited in a bank to be selected by the father, to his credit and at his risk, to be used in erecting a building on the lot, the money to be paid out on the father's checks, countersigned by the mortgagee, within six months, or the waiver to be of no effect, and the mortgagee to have the right to apply the money on the debt. Thereupon the mortgagee endorsed the draft to the order of the father, he designating as the bank of deposit a bank of which he was president and taking the draft and collecting it, and depositing the money to his credit in the bank. The mortgagee countersigned no checks against the money, and no building was put up. The daughters had no knowledge of the transaction. In a suit to foreclose the mortgage, the daughters claimed that the $15,000 should be credited on the mortgage, as against them:
(1) Authority in the father, as representing his daughters, to make the agreement as to the $15,000, could not be implied from the general power he exercised over the property, in managing it, and procuring insurance and paying taxes, the daughters having themselves executed the mortgage.
(2) The insurance was obtained in pursuance of the requirements of the mortgage, and must be presumed to have covered the interests of all the mortgagors as an entirety.
(3) The mortgagee in fact dealt with the $15,000 not as the father's money, but as representing a further security furnished under the mortgage, and as something which concerned the rights of all the mortgagors, because the agreement with the father recognized the obligation either to credit the money on the mortgage or to see that it went to restore the building.
(4) The provision of the policy that the loss should be payable to the mortgagee placed him in the same position as if the policy had been in the name of all the mortgagors and been assigned to the mortgagee, and he was bound to apply the money in accordance with the provisions of the mortgage, for the benefit of all the mortgagors, unless all consented to a different disposition of the money.
(5) In any view, if the agreement with the father was valid as against the daughters, the mortgagee was bound to see that the money was used to restore the building or else credit it on the mortgage.
(6) That the transaction amounted to a collection of the $15,000 by the mortgagee and as a satisfaction of the mortgage to that extent as respected the estate of the daughters, leaving the mortgage a lien for $20,000, as regarded the life estate of the father.
It is proper to sell the estate in remainder and the life estate separately and to apply the proceeds of the latter first to satisfy the amount for which it is the sole security, not applying any of such proceeds to pay costs or taxes or any part of the debt for which there is other security till the full payment of the sum for which the life estate is the sole security.
This was a bill in equity to foreclose a mortgage. The case is stated in the opinion of the Court.