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Attorney(S)

Eardley Bell, Jr., and Edmund D. Morrison, for appellant Fisher. Livingston Eicher, for appellee Farmers' Mutual Ins. Assn. Henry Negus, for appellee Hackbart.

Judges

FAVILLE, J.

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Smart Summary

In re Lewis Hackbart — Supreme Court of Iowa (Oct. 26, 1926; Rehearing Denied Apr. 7, 1927)

Factual and Procedural Background

Hackbart owned a farm which he sold and conveyed by warranty deed to Fisher. Fisher assumed an existing first mortgage to the Northwestern Mutual Life Insurance Company for $12,000 and, at the same time, gave Hackbart a second mortgage on the premises in the sum of $15,160. Both the first and second mortgages contained clauses requiring the mortgagor to keep the buildings insured for the benefit of the mortgagee. Fisher obtained a fire insurance policy from the Farmers' Mutual Insurance Association (October 1920) with a rider making the insurance payable to the first mortgagee, the Northwestern Mutual Life Insurance Company, "as its interest may appear."

In October 1922 Hackbart brought foreclosure proceedings on the second mortgage, which proceeded to decree and sheriff's sale. On February 5, 1923, the land was sold at sheriff's sale to Hackbart for the full amount due on his mortgage; that sheriff's sale eventually ripened into a sheriff's deed (issued February 5, 1924). A separate foreclosure of the first mortgage resulted in a sheriff's sale on November 5, 1923, at which Northwestern Mutual Life Insurance Company bid the full amount due and received a sheriff's certificate. On August (date given as August 1924 in the opinion) Hackbart, as holder of the sheriff's certificate from the second-mortgage foreclosure, redeemed from the execution sale under the foreclosure of the first mortgage by paying the amount due to Northwestern.

The building covered by the insurance policy was burned on October 14, 1923. The insurer admitted liability and paid the insurance proceeds into court. Northwestern, having been paid in full under Hackbart's redemption, made no claim to the insurance fund. The dispute presented was whether Hackbart (holder of the sheriff's deed/certificate after the second-mortgage foreclosure and redemption from the first) or the estate of Fisher (deceased; administratrix as appellant) was entitled to the insurance proceeds. The district court ordered the fund paid to Hackbart; the present appeal challenges that decree.

Legal Issues Presented

Whether the administratrix of the deceased insured (Fisher) is entitled to the proceeds of a fire insurance policy that was taken out by Fisher for the benefit of the first mortgagee, given the subsequent foreclosures, sheriff's sale, sheriff's certificate and deed to the second mortgagee (Hackbart), and Hackbart's redemption of the first mortgage's execution sale.
Whether a second mortgagee who forecloses and, after redeeming from a first mortgage foreclosure, takes a sheriff's deed, is entitled to the proceeds of a fire insurance policy taken out by the mortgagor for the benefit of the first mortgagee.

Arguments of the Parties

Appellant (Administratrix of Fisher's Estate) — Argument

The appellant contends that a contract of insurance is a strictly personal contract between the insured and the insurer, and therefore the insurance proceeds belong to the insured (Fisher) or his estate.

Respondent / Hackbart — Argument (as presented in the opinion)

The opinion presents Hackbart's position that, having obtained a sheriff's certificate and deed under the foreclosure of the second mortgage and having redeemed from the first mortgage's execution sale, he had at least an equitable interest in the premises and stood in a position at least as favorable as a vendee with respect to outstanding insurance. Because Fisher made no redemption from the first-mortgage foreclosure, Hackbart, as the involuntary purchaser who preserved his rights by redeeming, was entitled to the insurance fund which represents the destroyed building.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
<i>Brady v. Welsh,</i> 200 Iowa 44	The court in Brady held that the contract of insurance was not wholly a personal contract between insurer and insured; a vendee under an executory contract of sale could recover insurance money paid to the vendor, and the English doctrine making the insurance solely the vendor's was rejected.	The court followed the reasoning of Brady to reject the appellant's argument that the insurance proceeds belonged solely to Fisher's estate, and used Brady as controlling authority to affirm award of the insurance fund to Hackbart.

Court's Reasoning and Analysis

The court began by acknowledging the general English rule that an insurance policy is a personal contract and that the insured alone owns the proceeds. However, it stated that this court had rejected that doctrine in Brady v. Welsh, holding that the vendee under an executory contract could recover insurance money paid to the vendor.

Applying that reasoning to the present facts, the court noted that Hackbart obtained a sheriff's certificate of sale under foreclosure of the second mortgage, and the sale ripened into a sheriff's deed because Fisher made no attempt to redeem. Hackbart was characterized as an "involuntary purchaser" who was compelled to redeem from the foreclosure of the first mortgage to preserve his rights; he did so by paying the full amount due Northwestern. The court observed that, although Hackbart's payment extinguished the debt to Northwestern for redemption purposes, his title and possession after redemption remained subject to any statutory right of redemption by the mortgagor (which Fisher did not exercise).

The court treated the insurance proceeds as a fund in equity that represents the destroyed building and thus as a substitute for the physical diminution of the premises resulting from the fire. It reasoned that if Fisher had redeemed the premises after the first-mortgage sale, he would have been entitled to the insurance money as compensation for the loss; since Fisher did not redeem, the person who, in equity, held the rights to the premises (Hackbart) is entitled to the fund. The court therefore concluded that Hackbart's equitable interest following his redemption and acquisition of the sheriff's deed entitled him to the insurance proceeds.

Holding and Implications

Holding: The district court's decree awarding the insurance proceeds to Hackbart is affirmed.

Implications:

Direct effect: The insurance proceeds paid into court are to be paid to Hackbart (the holder of the sheriff's deed/certificate after foreclosure of the second mortgage and after redeeming the first-mortgage sale). The administratrix of Fisher's estate does not recover the fund.
Legal scope: The court applied its prior holding in Brady v. Welsh and related authorities; the opinion does not announce a novel departure from those authorities but follows the reasoning that an insurance policy may yield proceeds to a party who, as a matter of equity and under the specific foreclosure/redemption facts, holds the property interests equivalent to a vendee or redemptioner. The opinion does not discuss broader changes to precedent beyond its reliance on Brady.

Judgment: Affirmed. (De Graff, C.J., and Stevens and Vermilion, JJ., concur.)

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IN RE LEWIS HACKBART.

INSURANCE: Right to Proceeds — Sheriff's Deed Holder. A second mortgagee who forecloses, and, after redeeming from a first mortgage foreclosure, takes a sheriff's deed, is entitled to the proceeds of a fire insurance policy taken out by the mortgagor for the benefit of the first mortgagee; and this is true even though the fire occurred during the period for redemption from the second mortgage. (See Book of Anno., Vol. 1, Sec. 12376, Anno. 85 et seq.) Headnote 1: 26 C.J. p. 439 (Anno.)

Headnote 1: 6 L.R.A. (N.S.) 448.

FAVILLE, J.

Hackbart owned a farm which he sold and conveyed by warranty deed to Fisher. Fisher is now deceased, and his administratrix is one of the parties to this action. Fisher assumed a mortgage to the Northwestern Mutual Life Insurance Company for $12,000, which was outstanding on said premises and a first lien thereon. He gave Hackbart a second mortgage on said premises in the sum of $15,160. The first mortgage contained a provision that, "so long as any part of the debt hereby secured remains unpaid," the mortgagor will keep the buildings insured against loss by fire. The second mortgage likewise contained an insurance clause requiring the mortgagor to keep the buildings insured in some good company for the benefit of the mortgagee. Fisher obtained an insurance policy from the Farmers' Mutual Insurance Association of Washington County, Iowa, in October, 1920. A rider was attached to this policy, making the insurance payable to the first mortgagee, the Northwestern Mutual Life Insurance Company, "as its interest may appear." In October, 1922, Hackbart brought an action to foreclose the second mortgage. This proceeded to decree and sheriff's sale, and on February 5, 1923, the land was sold at sheriff's sale to Hackbart for the full amount due on his mortgage. Suit to foreclose the first mortgage was begun in August, 1923, and sheriff's sale under said foreclosure occurred on November 5, 1923. The mortgagee, the Northwestern Mutual Life Insurance Company, bid the full amount due on its decree at said sheriff's sale, and received sheriff's certificate. In August of 1924, Hackbart, as the owner of the sheriff's certificate of sale under the foreclosure of the second mortgage, redeemed from the execution sale under the foreclosure of the first mortgage. On October 14, 1923, the building covered by the insurance policy was burned. The insurance company admits its liability for the loss, and has paid the sum into court for the use of the party entitled thereto.

The Northwestern Mutual Life Insurance Company, having been paid in full under the redemption effected by Hackbart from its foreclosure sale, makes no claim to the insurance; and the question for determination is whether Hackbart is entitled to the proceeds of the insurance, or whether the estate of Fisher is entitled thereto. Sheriff's deed was issued to Hackbart under his sheriff's certificate on February 5, 1924.

It is the contention of the appellant that a contract of insurance is a strictly personal contract between the insured and the insurer, and that the administratrix of Fisher's estate, under the facts stated, is entitled to the proceeds of said insurance.

It is undoubtedly true that it is the English rule that an insurance policy is a personal contract between the insurer and the insured, and that, in event of loss, the amount payable under the insurance policy belongs solely to the insured. We recently had occasion to consider this question in the case of Brady v. Welsh, 200 Iowa 44, and it is unnecessary that we repeat the discussion therein contained, or again review the authorities. Our holding in said case is against the contention of the appellant herein that the contract of insurance is wholly a personal one between the insurer and the insured. We held in said case, which was an action in equity by the vendee of real estate under an executory contract of sale of real estate, to recover insurance money paid to the vendor for the loss of buildings upon the premises, that the vendee was entitled to recover; and we expressly refused to follow the English doctrine.

In the case at bar, Hackbart secured a sheriff's certificate of sale under the foreclosure of the second mortgage. Fisher made no attempt to redeem from this foreclosure, and it ripened into a sheriff's deed. Hackbart was, in quite a proper sense, an involuntary purchaser of the premises. He was compelled to redeem from the foreclosure of the first mortgage to save his rights, and this he did. He had at least an equitable interest in the premises. As a redemptioner from the foreclosure of the first mortgage, Hackbart stood in at least as favorable a position toward the outstanding insurance on the premises which had been secured by Fisher as though he were the vendee of Fisher. It is argued that the redemption by Hackbart under his sheriff's certificate from the sale under the first mortgage was an extinction of the debt of Fisher to the Northwestern Mutual Life Insurance Company for which the insurance on the building was but additional security, and that, the debt having been wiped out by the redemption made by Hackbart, the latter cannot keep the security, to wit, the insurance policy, alive for his benefit. But such is not exactly the situation. Hackbart's redemption from the foreclosure of the first mortgage was made under the statute. It is true that he paid the full amount of the debt that was due the insurance company to effectuate his redemption, but he held the property under his redemption subject to the further right of redemption on the part of the mortgagor Fisher. Fisher made no attempt to redeem. After the foreclosure sale under the first mortgage, Fisher's rights in the premises were those of a redemptioner, under the statute, with the right of possession. If he had made such a redemption of the premises, he would undoubtedly have been entitled to the insurance money. But he made no attempt to redeem. The premises at the end of the redemption period were depreciated by the destruction of the burned building. The insurance money, in a proper sense, represented the buildings so destroyed. That money is a fund now in the hands of a court of equity. It should in equity take the place of the destroyed building, under these circumstances. If Fisher had made redemption of the premises, he would have been entitled to the insurance money as substitute for the depreciation by reason of the loss by fire. Hackbart, as an involuntary purchaser of the premises under his redemption, is entitled to the entire premises, a portion of which is represented by the insurance fund now in court.

Following the reasoning of the Brady case and the authorities therein cited, we see no escape from the conclusion that the decree of the district court awarding the said insurance money to Hackbart was correct; and the decree must be, and it is, affirmed. — Affirmed.

De GRAFF, C.J., and STEVENS and VERMILION, JJ., concur.

IN RE HACKBART