Opinion
No. 3851.
April 30, 1930. Rehearing Denied May 8, 1930.
Error from District Court, Hunt County; Newman Phillips, Judge.
Suit by C. E. Girdner against the New Brunswick Fire Insurance Company and the Insurance Company of North America and others. Judgment for plaintiff, and the named defendants bring error.
Reversed and remanded.
C. E. Girdner brought the suit against E. E. West, J. J. Essary, the New Brunswick Fire Insurance Company, and the Insurance Company of North America. The case was submitted to the trial court upon an agreed statement of facts, and from the judgment rendered thereon the two insurance companies have appealed.
On October 31, 1927, J. J. Essary sold and made conveyance to E. E. West of lot 4 and the east half of lot 5 in block 18 in Perry's first addition to the city of Denison. There was a residence upon the lots. The consideration of the sale was two notes, each for $1,250, payable to the order of J. J. Essary on February 1 and August 1, 1928, respectively, and the assumption of an outstanding prior note for $1,995 secured by a lien, and held and owned at the time by the Denison Building Loan Association. A vendor's lien was expressly retained in the conveyance to secure the payment of the notes. A deed of trust was also executed by E. E. West to J. J. Essary to secure the said indebtedness. Before the sale and conveyance to E. E. West, and on July 15, 1927, the Insurance Company of North America had issued its policy of fire insurance on the house on the lots to J. J. Essary in the sum of $2,000, with a mortgage or loss payable clause attached in favor of the Denison Building Loan Association as its interest might appear. After the sale and conveyance to E. E. West, he (West) had the New Brunswick Fire Insurance Company of New Brunswick, N.J., issue to him a policy of fire insurance on the house in the sum of $1,500. There was attached to this latter policy a mortgage or loss payable clause reciting that the loss or damage "shall be payable to the Denison Building Loan Association 1st and J. J. Essary 2nd as mortgagee as such interest may appear." Each of the policies stipulated that:
"This company shall not be liable under this policy for a greater proportion of any loss on the described property, or for loss by and expense of removal from premises endangered by fire, than the amount hereby insured shall bear to the whole insurance, whether valid or not, or by solvent or insolvent insurers, covering such property, and the extent of the application of the insurance under this policy or the contribution to be made by this company in case of loss may be provided for by agreement or condition written hereon or attached or appended hereto."
The mortgage or loss payable clause on each policy stipulated that:
"In case of any other insurance upon the within described property, this Company shall not be liable to said mortgagee (or trustee) under this Policy for a greater proportion of any loss or damage to the within described property, than the sum hereby insured bears to the whole amount of insurance on said property, payable to, held by or consented to by said mortgagee (or trustee).
"On payment to such mortgagee (or trustee) of any sum for loss or damage hereunder, if this company shall claim that as to the mortgagor or owner no liability existed, it shall, to the extent of such payment be subrogated to the mortgagee's (or trustee's) right of recovery and claim upon the collateral to the mortgage debt, but without impairing the mortgagee's (or trustee's) right to sue, or it may pay the mortgage debt and require an assignment thereof and of the mortgage."
Afterwards, in due course of trade and before maturity, the plaintiff, C. E. Girdner, purchased from J. J. Essary the two notes executed by E. E. West, and he was at the time of the trial the legal owner and holder of the same. No part of the notes has been paid. On January 9, 1929, the insured house was totally destroyed by fire. It was of the value of $7,000 at the time of the loss. It was especially agreed that:
"Proper notice (of the fire loss) was given to each of said insurance companies as provided for under the terms of the policies of insurance, and the said insurance companies through their duly authorized agent made an adjustment thereof to the extent of the indebtedness due the Denison Building Loan Association and paid the said Denison Building Loan Association the sum of $2,115.50. The said insurance companies prorated their payment to the Denison Building Loan Association between themselves as follows: The defendant New Brunswick Fire Insurance Company paying $903.22, and the Insurance Company of North America paying $1,204.48: but that said insurance companies and neither of them have not paid the plaintiff, or to any one for the plaintiff, any sum whatever under said policies of insurance.
"That the plaintiff did not agree to the payment by the defendant New Brunswick Fire Insurance Company to the Denison Building Loan Association of a part of the policy issued by it, and that such payment was made without the knowledge or consent of the plaintiff.
"The plaintiff by the purchase of the said notes thereby became and is the owner and equitably entitled to all the rights and interest of said J. J. Essary, if any, in said policy of fire insurance."
By the petition the plaintiff sought recovery of the amount of the two notes against E. E. West as maker and J. J. Essary as indorser, together with the foreclosure of the vendor's lien against the land. The petition further set up substantially the above agreed upon facts, and alleged "that by reason of the facts alleged in this petition the New Brunswick Fire Insurance Company of New Brunswick, New Jersey, has become liable to plaintiff in the sum of $1.500.00, being the amount of its policy of insurance upon the building." The Insurance Company of North America, as alleged in the petition, "is made a party hereto, to the end that the proceeds arising from the policies aforesaid may be marshaled, the rights of each party therein be ascertained and determined, and that the plaintiff may recover what he is entitled to under the law and under the principles of equity." The prayer of the petition reads:
"Wherefore, premises considered, plaintiff prays that the defendants be cited to appear and answer this petition, and that on hearing hereof plaintiff have judgment against the said West and the said Essary for his debt, for the interest thereon, for attorney's fees, for a foreclosure of his liens upon the land herein described, and that he have judgment against the defendants New Brunswick Insurance Company of New Brunswick, New Jersey, for the amount of said insurance policy and that the equities existing between all of the parties hereto arising out of the facts and the transactions herein alleged be ascertained and determined, the proceeds of said policy aforesaid be marshaled, and for such other relief general and special as plaintiff may be entitled to in the premises."
The insurance companies set up the stipulation provided for in the loss payable clause in the respective policies and the actual payment of their respective pro rata parts to the Denison Building Loan Association, and each company further set up the subrogation stipulation in the loss payable clause, and alleged that they had acquired from the Denison Building Loan Association its note and lien, which was superior to any claim or right of the plaintiff in the suit. It was then alleged, namely:
"The Insurance Company of North America alleges that the plaintiff herein has no rights as against it of any sort. The New Brunswick Fire Insurance Company alleges herein that it has paid already under its policy the sum of $903.22 as aforesaid, and that if it should have any liability of any sort to the plaintiff herein that this liability could not exceed the difference between the amount already paid on said policy and the face thereof, or the sum of $596.78."
By a supplemental petition the plaintiff replied to the defendants' answer, setting up that the house was totally destroyed by fire, and the loss became a liquidated demand, and "that the plaintiff is entitled to recover of the defendant New Brunswick Fire Insurance Company the full sum of $1,500.00 under the equitable doctrine of marshaling assets as fully pleaded in his original petition"; and further that "the plaintiff specially denies that either of the defendants have paid the losses occasioned by said destruction of the building, but, by some arrangement and understanding the said defendants purchased the indebtedness held by the Denison Building Loan Association and took a transfer of the property or lots upon which said building was located to one D. D. McLarry, and that said lot is and was of the reasonable cash market value of $1,500.00."
The court entered judgment as follows: (1) A personal judgment in favor of the plaintiff, C. E. Girdner, against J. J. Essary on the two notes aggregating $2,969.30, "to be credited with such sum as may be realized by plaintiff on the judgment herein awarded to him against the defendant the New Brunswick Fire Insurance Company"; (2) a foreclosure of the vendor's lien and order of sale of the land "against all the defendants"; (3) a personal judgment in favor of the plaintiff, C. E. Girdner, against the New Brunswick Fire Insurance Company in the sum of $1,384.50; (4) that the plaintiff, C. E. Girdner, take nothing against the defendant Insurance Company of North America; (5) that the plaintiff, C. E. Girdner, have and recover no personal judgment against the defendant E. E. West; (6) that the defendants E. E. West and J. J. Essary take nothing as to the defendants New Brunswick Fire Insurance Company and Insurance Company of North America, either or both.
Thompson, Knight, Baker Harris, of Dallas, for plaintiffs in error.
Clark, Harrell Clark, T. D. Starnes, and R. L. Porter, Jr., all of Greenville, for defendant in error.
The New Brunswick Fire Insurance Company insists that the plaintiff was not entitled in the facts to any personal judgment or a foreclosure of the vendor's lien against it, because he had no interest in the policy of insurance at the time of the fire. There is no affirmative proof showing privity of contract between the plaintiff and the insurance company giving the right to the plaintiff to call upon the insurance company to make good the loss by reason of the injury to the mortgaged premises. There appears, however, the following agreement in the agreed facts: "The plaintiff by the purchase of the said notes thereby became and is the owner and equitably entitled to all the rights and interest of said J. J. Essary, if any, in said policy of insurance."
The agreement appearing, as it does, to be the agreement of the insured, the second mortgagee, and the insurance company, all such parties would be bound thereby. In view of such agreement of the parties, the excess interest of J. J. Essary as second mortgagee in the funds arising under the policy was, in such amount as the court might determine his excess to be, by agreement allowable to the plaintiff, C. E. Girdner. A judgment so entered would be a recovery by the plaintiff, not for loss under the policy, for he held no policy or loss payable clause, but purely of the excess interest of J. J. Essary as second mortgagee which by agreement was allowable to plaintiff. The New Brunswick Fire Insurance Company of New Brunswick, N. J., was fully protected by such judgment ordering, as it does further, that E. E. West and J. J. Essary recover nothing against it. The judgment properly included the foreclosure of the lien retained to secure the payment of the two notes, because the insurance company was not entitled, as claimed in its answer, to subrogation, as far as pertains to the insured, E. E. West. As admittedly proven, the entire amount of the insurance covered by the policy of the New Brunswick Fire Insurance Company has been fully exhausted, considered in the view of a liquidated demand under the statutes (article 4929, Rev.St. 1925) because of destruction of the house by fire, in the payment on the loss payable clause to the Denison Building Loan Association, as first mortgagee, and on the excess interest of J. J. Essary, as second mortgagee, by agreement allowable as against him to the plaintiff. There is no part of the fund left due or for which the insurance company would be in any wise liable to pay over to the insured, E. E. West. And it was within the authority of the court to decree foreclosure of such lien, although the note and lien of the Denison Building Loan Association, as alleged by each of the insurance companies, were acquired by the two companies under the terms of the policies, which provided for subrogation upon payment of the mortgagees' loss "if the company should claim that as to the mortgagor or owner no liability existed." That pleading operated to put in issue the right of the plaintiff to have foreclosure on his lien against the insurance company claiming, as it did, to have a "lien which was superior to any claim or right of the plaintiff in this suit." As stated, subrogation under the policy could not be predicated on the second policy against E. E. West, the insured. Subrogation may not be predicated in the facts upon the first policy, because it was not alleged nor offered to be shown that the insurance company made claim that "no liability existed" on the policy as to J. J. Essary, who, as to that policy, was the insured as well as the mortgagor of the premises. The burden was upon the insurance company to allege and prove the necessary facts to entitle it to subrogation; and, in the absence of such proof, the court was authorized to conclude, as involved in the judgment, that in point of fact the right of subrogation under the policy did not exist.
The New Brunswick Fire Insurance Company further claims that it was error, as being excessive in amount, to allow a recovery by the plaintiff against it of the sum of $1,384.50. In arriving at the amount of the judgment, the Insurance Company of North America was charged with $2,000 of the $2,115.50 due the Denison Building Loan Association, and the balance of $115.50 was charged against the New Brunswick Fire Insurance Company, leaving $1,384.50, which was adjudged payable to the plaintiff by the New Brunswick Fire Insurance Company. In the agreed facts it appears that the mortgage indebtedness of the Denison Building Loan Association, amounting to $2,115.50, was paid in full by the two insurance companies; the said two insurance companies each paying, under agreement between themselves, their pro rata of $903.22 and $1,204.48, respectively. The point presented entirely depends upon the determination of what amount, in the agreed facts, in the light of the plaintiff's pleading, C. E. Girdner was "equitably entitled" to claim against the New Brunswick Fire Insurance Company under "all the rights and interest, if any, of said J. J. Essary in said policy of fire insurance." The equitable rule, generally stated, is that, if one creditor by virtue of a lien or interest can resort to two funds, and another to one of them only, the former must seek satisfaction out of that fund which the latter cannot touch. The foregoing rule may not be rightfully applied here, for the principle of marshaling securities applies only as between different creditors or mortgagees. The Denison Building Loan Association, which was the other mortgagee, was not a party to this suit. Consequently, and in view of the agreement, the comparative rights of the parties in this case are to be measured by the circumstances shown. Measuring, in the circumstances, the right of J. J. Essary, and which right by agreement was allowable to C. E. Girdner, as his equitable right, the said J. J. Essary was entitled to have and recover, as second mortgagee, against the New Brunswick Fire Insurance Company the excess of $596.78, and to have and recover, as the insured, against the Insurance Company of North America the balance due under that policy of $795.52.
The above rights were the contractual right of J. J. Essary. It is clear, then, that C. E. Girdner has recovered the proper and full amount allowable to him, and that he has suffered no injury in any wise in the contractual right by reason of the payment of the Denison Building Loan Association indebtedness in the manner done by the insurance companies. But recovery of this amount against one of the insurance companies alone was error in the case. The total amount should have been apportioned against each company in accordance with their respective contractual liabilities. In this view the assignment must be sustained, and the judgment against the New Brunswick Fire Insurance Company should be so modified as to allow recovery by C. E. Girdner against it of $596.78. Judgment was rendered in the trial court in favor of the Insurance Company of North America and against any personal recovery by C. E. Girdner; and, as there was no appeal by him from such judgment, this court is without authority to revise it in that respect.
The Insurance Company of North America claims that it was error to render judgment foreclosing the lien of the two notes against it, inasmuch as judgment was rendered in its favor. The Judgment in its favor was intended to be, and operated to be, a denial of any personal judgment. The court did not err in directing the foreclosure of the lien against this company, because, as previously stated, the right of the plaintiff to have foreclosure of such lien was involved in the pleadings of the insurance company.
The judgment is modified so as to allow the appellee, C. E. Girdner, a recovery against the New Brunswick Fire Insurance Company in the sum of $596.78, and, as so modified, will in all things be affirmed. Costs of the appeal are taxed against the defendant in error, C. E. Girdner.
On Motion for Rehearing.
The two insurance companies and C. E. Girdner all ask for a rehearing, and pray, in the alternative, that the cause be reversed and remanded. We grant the prayer of all the above parties to reverse and remand the cause, and accordingly the former order of affirmance is set aside, and instead the judgment will be reversed and the cause remanded, the costs of appeal to be taxed against C. E. Girdner.
It is claimed in the motion that J. J. Essary was not "the insured" in the first policy. The petition so alleges, but there is no affirmative evidence showing that he was. It is further claimed in the motion that the petition of C. E. Girdner did not authorize any judgment at all against the Insurance Company of North America nor a foreclosure of the lien as against either of the insurance companies.
The agreement appearing in the agreed facts was, we think, sufficient to authorize the court to allow to C. E. Girdner, as by agreement, the interest of J. J. Essary in the two policies. It was in virtue of this agreement only that we held in the original opinion that C. E. Girdner was entitled to have the interest of J. J. Essary, if any he had, in the policies of insurance.