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Kimberley & Carpenter Inc. v. Fireman's Fund Ins. Co.

May 22, 1935

KIMBERLEY & CARPENTER, INC.,
v.
FIREMAN'S FUND INS. CO. ET AL.



Appeal from the District Court of the United States for the District of Delaware.

Author: Woolley

Before BUFFINGTON, WOOLLEY, and THOMPSON, Circuit Judges.

WOOLLEY, Circuit Judge.

The question involved on this appeal is so linked with the facts of the case that it has been impossible for counsel or ourselves to state it shortly and concisely as required by Rule 24, section 2 (c), of this court. It will, for the moment, be enough to say that the question is whether, under policies of fire insurance containing standard mortgagee clauses, the defendant insurance companies, after paying the first mortgagee and succeeding to its rights by subrogation, are entitled to set off the amount paid the first mortgagee against the amount due the second mortgagee.

The facts out of which the matter arose are stated at length in Kimberley & Carpenter, Inc., v. Insurance Co. (Del. Super.) 157 A. 730 and Kimberley & Carpenter, Inc., v. Insurance Co. (D.C.) 6 F. Supp. 255. Referring to those cases for an understanding of the controversy in its several phases, we shall give only the facts which will bring the present question into view.

Kimberley & Carpenter, Inc., to which we shall refer as the plaintiff, acquired in fee a tract of land with a dwelling and out buildings thereon erected. On the same day the plaintiff borrowed from the Security Trust and Safe Deposit Company $5,000 on its bond and mortgage; the bond evidencing the debt, the mortgage being special security for its payment and being a first lien upon the property. Later, the plaintiff sold and conveyed the property to Jacob D. Winslow and his wife subject to its mortgage held by the Trust Company. At the same time Winslow and his wife, of whom we shall speak as Winslow, executed and delivered to the plaintiff for a part of the purchase price their bond and mortgage for $6,000, to which we shall refer as the second mortgage. Each of the defendant fire insurance companies issued to Winslow a policy insuring the buildings for $6,000, making a total insurance of $12,000. The insurance covering the dwellilng was $11,000. Each policy, carrying two standard mortgagee clauses to which we shall advert presently, provided: "Loss, if any, payable to Security Trust & Safe Deposit Company, first mortgagee, and balance, if any remaining, to Kimberley & Carpenter Corporation, 2nd mtg."

Rather promptly, Winslow defaulted on his mortgage payments.Thereupon the plaintiff, the second mortgagee, instituted foreclosure proceedings, obtained judgment, issued execution, bought the property at sheriff's sale and acquired title by sheriff's deed -- subject to its own first mortgage still held by the Trust Company. Thus, Winslow, having no longer an insurable interest in the property, passed out of the policies. According to the legal status, distinguished from the insurable status, of the parties at that time, the plaintiff, having foreclosed the second mortgage and acquired the fee, ceased to be second mortgagee and became the owner of the property and the Trust Company remained the first and only mortgagee.

In this state of things the dwelling was destroyed by fire. The plaintiff and the Trust Company demanded of the insurance companies payment for losses under the standard mortgagee clauses. This the insurance companies for various reasons refused. Whereupon both the plaintiff and the Trust Company, by separate actions, sued the insurance companies in a court of the State of Delaware. Pending these suits, the insurance companies settled with the Trust Company, paid its claim and took over by assignment the bond and mortgage (called the first mortgage) which the plaintiff had executed and delivered to the Trust Company long before. With these securities in their portfolios the insurance companies defended the suits which the plaintiff had brought on the standard mortgagee clause covering its second mortgage. At the trial the plaintiff recovered judgments against the insurance companies on the theory that, although it had foreclosed its second mortgage and by sheriff's deed had acquired the fee of the property, its interest before and after the sale was "essentially the same," and in consequence it still had an insurable interest in the mortgage and suable interests under the standard mortgagee clauses. 157 A. 730.

Declining to inquire into or otherwise disturb the judgments of the state court, we accept them as one of two new starting points in the statement of this case. The other is a judgment which in the meantime the insurance companies had recovered against the plaintiff in the same state court by entering the plaintiff's bond which the Trust Company had assigned to them on receiving payment under the standard first mortagee clauses.

Thus it happened that two judgments, or groups of judgments, were outstanding: One of the plaintiff against the insurance companies; the other of the insurance companies against the plaintiff for very nearly the same amounts. All were judgments at law evidencing with adjudicated finality indebtedness of one party to the other. On demand, each party refused to pay the other. The insurance companies, however, have always been willing to pay the plaintiff the amount of its judgments against them after first deducting therefrom, on a theory to be stated later, the amount of their judgment against the plaintiff which was entered on its bond assigned to them by the Trust Company.

The insurance companies brought things to a head by issuing an attachment fi. fa. on their judgment against the plaintiff by which, evidently, they sought to attach funds in their own hands due the plaintiff on its judgments against them. Thereupon the plaintiff instituted suit in the Court of Chancery of the State of Delaware by bill in equity praying that an injunction issue restraining the insurance companies from proceeding with their execution.

The suit was removed to the District Court of the United States for the District of Delaware which, trying the case on bill, answer and an agreed statement of facts, dismissed the bill. The plaintiff took this appeal.

The question tried and decided by the court below and brought here on appeal is not, as we view it, a question of equity but is one of law. It is not affected by oral agreements, representations or conduct of the parties but arises solely out of the written contracts of insurance into which they entered and out of which alone their rights grew and by which alone they are bound. Therefore we have taken up the policies and have held fast to them throughout our consideration of the case.

Under the accepted interpretation of standard mortgagee clauses, distinguished from old "loss payable" clauses, Kimberley & Carpenter, Inc., v. Nat. Liberty Insurance Co. (Del. Ch.) 157 A. 730 and Kimberley & Carpenter v. Fireman's Fund Ins. Co. (D.C.) 6 F. Supp. 255, the policies contained three separate and largely independent contracts running in favor of three different persons whereby the insurers engaged to indemnify them, in case of loss by fire, in the order and to the extent of their ...


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