
    Walter Raplee, Respondent, v. Mildred A. Piper, Appellant.
    Argued May 10, 1957;
    decided July 3, 1957.
    
      Constance E. Cook for appellant.
    
      
      Henry Valent for respondent.
   Desmond, J.

"When a land purchase contract requires the vendee to keep the property insured against fire and there is a fire loss before performance of the contract is completed, any such insurance received by the vendor is to be applied on any remaining balance of the purchase price. Every appellate decision in New York so holds (Turner v. Bryant, 152 App. Div. 601, affd. 215 N. Y. 669; Persico v. Guernsey, 129 Misc. 190, affd. 222 App Div. 719; Cromwell v. Brooklyn Fire Ins. Co., 44 N. Y. 42). If, however, the vendor at his own cost, for his own protection and not because of any agreement, has taken out fire insurance, then such contract is personal to him and he need not credit the proceeds against the price (Brownell v. Board of Educ., 239 N. Y. 369). Such is the rule in New York as in some other States (5 Appleman on Insurance Law and Practice, § 3366; 8 Couch’s Cyclopedia of Insurance Law, § 1937). Nor can there be any doubt, under the brief stipulation of facts on wMch this case was tried, that the rule insofar as it credits the vendee with the insurance is applicable here. That stipulation says that, while plaintiff was in possession as vendee under the contract, a fire occurred, defendant vendor received $4,650 as the fire loss under a policy, premiums for which had been paid by plaintiff vendee as required by the contract, plaintiff tendered to defendant the difference between the amount actually unpaid on the contract and the insurance proceeds, but defendant refused plaintiff’s demand that $4,600 be credited on the balance of the purchase price. In the Pérsico case (supra) the courts held in a situation like the present one that the insurance proceeds form a trust fund for the benefit of both purchaser and seller (see, likewise, Williams v. Lilley, 67 Conn. 50; Brakhage v. Tracy, 13 S. D. 343). The reasor why the purchaser lost in the Brownell case (supra) was, as explained by Judge Pound at page 374 of 239 New York, that under the facts there vendor took out his own insurance. The insurance money was not11 a part of the res bargained for and no trust relation exists in regard to it.”

It would be most unjust if a contract vendee, although complying with the contract by keeping the property insured in the name of the vendor, should get no benefit from the insurance. A situation would result where the vendor would be entitled to the full purchase price even though the building was destroyed, plus the insurance proceeds, but the vendee, although deprived of the destroyed building, would nonetheless pay the full price. The courts have refused to adopt so inequitable a result. Whether we say that these insurance moneys were “ a trust fund ” or describe the relationship in- some other way, the simple analysis of the situation is that the insurance was taken out at the cost of the vendee in the name of the vendor for the protection of the contract and of both parties to the contract.

Section 240-a of the Eeal Property Law has nothing to do with the present case. Under common law the risk of fire loss during the pendency of the contract and before passing of title was on the purchaser in all cases. Under the ‘ ‘ Uniform Statute ” which New York has adopted as section 240-a, the risk of destruction by fire is on those vendees only who are in possession at the time of the fire or have taken legal title. Thus either at common law or under section 240-a this vendee would be in the same position. He must take the damaged property and pay the full purchase price but he is entitled to credit thereon for the insurance proceeds since he and the vendor have so agreed.

The judgment should be affirmed, with costs.

Burke, J. (dissenting).

The issue presented is whether, in the absence of an agreement so providing, a contract vendee of real property is entitled to have the proceeds of a fire insurance policy, in the vendor’s name only, applied in reduction of the purchase price where the contract of sale required the vendee to pay the insurance premiums, the fire occurring intermediate the execution of the contract and the passing of title while the vendee was in possession of the premises. We think not. This court took advantage of the opportunity afforded by the case of Brownell v. Board of Educ. (239 N. Y. 369) to adopt the doctrine of Rayner v. Preston (18 Ch. D. 1) and unanimously and unequivocally laid down the flat and positive rule that by its nature a policy of property insurance is a personal contract of indemnity which runs solely to the named insured and not with the land, and, in the absence of a specific agreement, a vendee is not entitled to the proceeds of the vendor’s policy because it is not part of the res bargained for and no trust relation exists in regard to it (see Brownell case, supra, pp. 373-374). This court reiterated that rule without qualification four years later (see Reife v. Osmers, 252 N. Y 320, 324). That the Bench and Bar have recognized the rule laid down by the Brownell case as such is attested to by the numerous references in the volumes of legal citations which fail to distinguish or depart from it. That this was the Legislature’s understanding of the significance of the Brownell case is clear beyond question (see N. Y. Legis. Doc., 1936, No. 65 [M], p. 13; 1936 Report of N. Y. Law Rev. Comm., p. 767). The Legislature was not only aware of the fact that in following this rule this court adopted a minority view, but it was also aware of the fact that it could readily be changed by making appropriate amendments to the Insurance Law as the English Parliament had done to alter the rule of Rayner v. Preston (see 12 & 13 Geo. V, ch. 16, § 105 [1922] mod. and re-enacted as statute 15 Geo. Y, ch. 20, § 47 [1925]; Macgillivray on Insurance Law [2d ed.], pp. 939-940). But it was convinced of the basic soundness of the rule and eschewed the adoption of such amendatory legislation (see N. Y. Legis. Doc., 1936, No. 65 [M] pp. 9-26; 1936 Report of N. Y. Law Rev. Comm., pp. 763-780).

Since the Brownell case there have been only two reported decisions in this State which deal with the issue presented by this case. One, Persico v. Guernsey (129 Misc. 190, affd. without opinion 222 App. Div. 719), which reached the same result that the majority reaches in this case, and the other, Cowan v. Sutherland (6 Misc 2d 71), which holds to directly the opposite. As the only opinion in the Guernsey case indicates, it was decided upon the erroneous theory that the vendor was the trustee of the insurance proceeds because he was trustee of the legal title to the property once the contract of sale was made (see Persico v. Guernsey, 129 Misc. 190, 193). In view of this we do not think that the Guernsey case is sound authority upon which to predicate the decision of the present appeal. Of course, as the other cases cited by the majority were decided before the Brownell case and were on the books at the time the rule in that case was adopted, they do not provide a sound basis for altering the rule.

The majority opinion suggests that we may ignore the rule laid down in the Brownell case {supra) by describing the insurance proceeds as something other than a trust fund, for example, by saying that the contract was insured for the benefit of all the parties concerned. This is not a novel suggestion. Lord Justice James in his dissenting opinion in Rayner v. Preston (supra, p. 15) made a similar suggestion: “I believe it to be considered by the universal consensus of mankind, to be a policy for the benefit of all persons interested in the property ”. However, it was not only rejected by the majority in that case because it was not the law and failed to take into consideration the nature of a policy of property insurance, but the same argument was also rejected by the unanimous Bench of this court in the Brownell case (supra, p. 374) when it declared: “These reasons may savor of layman’s ideas of equity, but they are not law. The majority of the court in Bayner v. Preston were sound in principle. Insurance is a mere personal contract to pay a sum of money by way of indemnity to protect the interest of the insured. (Cromwell v. Brooklyn Fire Ins. Co., 44 N. Y. 42, 47; City of Norwich, 118 U. S. 468, 504, 505.) In common parlance the buildings are insured, but every one who stops to consider the nature of the insurance contract understands that they are not. Both in the forum and the market place it is known that the insurance runs to the individual insured and not with the land. The vendor has a beneficial interest to protect, i.e., his own. The vendee has an insurable interest and may protect himself.”

In light of these circumstances we think that this court should adhere to the rule established by the Brownell case. Such adherence, it seems to us, is imperative, not only because this is a well-recognized rule which the Legislature has not undertaken to change, but also because many businessmen and their lawyers may have entered into contracts in reliance upon it (see Matter of City of New York v. Bedford Bar & Grill, 2 N Y 2d 429).

Accordingly, we believe that the judgment should be reversed and the complaint dismissed.

Dye, Fuld and Froessel, JJ., concur with Desmond, J.; Burke, J., dissents in an opinion in which Conway, Ch. J., and Van Voorhis, J., concur.

Judgment affirmed.  