
    Seth Grosvenor v. The Atlantic Fire Insurance Company of Brooklyn.
    Eugene W. McCarty, being the owner of a dwelling house, (covered by a mortgage owned by the plaintiff,) insured the same against loss by fire; the loss, if any, being, by the terms of the policy, made payable to “Seth Grosvenor” (the plaintiff), “ mortgagee.” In an action by the plaintiff upon the policy, this Court, holding in obedience to The Traders' Ins. Co. v. Robert, and to Ttttou v. Kingston Mu. Ins. Co. that, no acts of the mortgagor, done after the issuing of the policy, could affect the rights of the mortgagee under it, or to recover upon it; also held, that the admission of evidence that, when the defendants were applied to, to issue the policy, they were told that the interest of the mortgagee was to be insured, and they advised, as the best mode, the insertion of his name in the policy, as it was done; could not prejudice the defendants, and was not, therefore, an error entitling them to a new trial: The mortgage, owned by the plaintiff) being one that the insured had executed to E. Kellogg, and the latter had assigned to the plaintiff, at the same time guaranteeing its payment; it was also held that Kellogg was, under the code, a competent witness for the plaintiff: The action cannot, by reason of Kellogg having given such a guaranty to the plaintiff) be said to be prosecuted for the immediate benefit of Kellogg. At most, he is merely interested in the result.
    The fact, that the mortgage has been foreclosed, and the mortgaged property sold, and a part of the mortgage debt thereby paid, cannot be made available to the insurer, as a partial defence to an action on the policy, when no such defence is set up in his answer.
    (Before Bosworth and Woodruff, J.J.)
    Heard, June 2;
    decided, June 27, 1857.
    This action, comes before the Court, at General Term, on a verdict for the plaintiff, taken subject to the opinion of the Court, on a question of law, arising at the trial, and there directed to be heard at the General Term, in the first instance. It was tried before Mr. Justice Bosworth and a jury, on the 6th of November, 1856.
    The complaint states, that the defendants, by a policy, dated the 14th of November, 1853, for a certain premium paid by, or on behalf of the plaintiff, insured the plaintiff as mortgagee, against loss or damage by fire, on a three story brick dwelling house, (described in the complaint,) for one year, from the date of the policy, to the amount of $7,000; the destruction of the building by fire, on the 24th of February, 1854; that at the time the policy was executed, and at the time of the fire, there was due to the plaintiff as mortgagee, $6,250, with interest thereon from the 1st of November, 1853: that notice, in writing, of such loss by fire, was given to the defendants as soon as possible, to wit on the 10th of March, 1854, with the proper preliminary proofs required by the policy; and also avers due performance by the plaintiff of all the conditions on his part, contained in the policy, wherefore, as it alleges, the defendants became liable to pay to the plaintiff the said sum so due to him as such mortgagee.
    The complaint then states, that the defendants, by their policy, dated on the 14th of November, 1853, for a certain premium paid, did “insure Eugene W. McCarty upon his three story brick dwelling house,” ¿ce., against loss or damage by fire, to the amount of $7,000.
    That McCarty on the day of the date of the policy, to secure the plaintiff the payment of the money due on a mortgage of the premises, made by McCarty, and a bond accompanying the same, then held and owned by the plaintiff, did, by, and with the consent of the defendants, assign the policy to the plaintiff, and direct that the money, payable in case of any loss under the policy, should be paid to the plaintiff. It then states, as before, the total destruction of the building by fire, the like amount to be due to the plaintiff as mortgagee, notice of the loss, and service of preliminary proofs, and due performance by him of the conditions on his part pursuant to the requirements of the policy, whereby the defendants became liable, to pay to him, on the 11th of May, 1854, $6,388 15, and prays judgment for that amount, with interest from that date.
    The answer denies that, the defendants insured the plaintiff as mortgagee, or that he was ever mortgagee of said premises, or that they are indebted to him, in any sum whatever. It tíren admits that they insured McCarty as alleged, and puts at issue the allegations that he assigned the policy to the plaintiff, or that they consented to any such assignment, and avers that, if it was assigned.; that fact, by the terms of the policy, avoids it. It avers that no proofs of loss were ever served on them by McCarty, that this was required by the policy, even though he had assigned it; also, that McCarty, before the fire, sold and conveyed all his interest in the premises, to D. A. Bostwick, without the consent of the defendants, and thereby avoided the policy. That, although the policy was issued to the said Eugene, yet he was only a trustee of one John McCarty, in regard to the policy and the building thereby insured, and that John McCarty was the real owner thereof, and caused that policy with five other policies, on the adjoining buildings, to be issued in the name of Eugene, but fraudulently, for his own benefit; and that, with intent to defraud, he also caused all the said buildings to be mortgaged to divers persons for sums exceeding their value, and the said buildings to be further insured for large amounts by other Insurance Companies, and to amounts far exceeding their value, to cover last said mortgages, in addition to the said $7,000, so insured by these defendants, well knowing that the buildings were not worth near the sum for which they were so insured or mortgaged.
    Also, that he caused said buildings, including those referred to in the complaint, to be set on fire and consumed, that he might falsely and fraudulently claim the said insurance for his own benefit or to pay said mortgages, and that while the title stood in the name of Eugene, and afterwards in the name of Bostwick, the said John was largely interested therein, and by his said fraudulent acts, he, and Eugene, and the plaintiff have forfeited all claims to indemnity under either of said policies.
    On the trial, the plaintiff’s counsel offered to read in evidence a policy of insurance executed by the defendant in favor of Eugene W. McCarty, dated November 1st, 1853. The defendants’ counsel objected thereto, on the ground that it was no evidence of a contract between the plaintiff and the defendants in this action. The said justice overruled the objection, and the defendants’ counsel excepted to such ruling.
    The said policy was then read in evidence, and commences as follows:
    “By this policy of insurance, the Atlantic Fire Insurance Company of Brooklyn, in consideration of thirty-two dollars to them paid by the insured hereinafter named, the receipt whereof is hereby acknowledged, do insure Eugene W. McCarty against loss or damage by fire, to the amount of seven thousand dollars, on his three story brick house, with metal roof, &c., loss, if any, payable to Seth Grosvenor, mortgagee.”
    The plaintiff’s counsel next put in evidence certain preliminary proofs of loss, required by the policy, and made by the plaintiff: The defendants’ counsel admitted that said proofs, with notice of a loss, had been served on the company on the 8th of March, 1854, and also that the premises had been partially consumed by fire on the 24th day of January, 1854, but objected to the admissibility of such proofs as evidence in this action, inasmuch as they had not been made by Eugene W. McCarty, with whom alone the contract of insurance was made. The justice overruled this objection, and the defendants’ counsel excepted to his ruling. The said proofs were then read, in evidence.
    The preliminary proofs stated, inter alia, that the insured premises were mortgaged by Eugene W. McCarty, and wife, to Edward Kellogg, by three several mortgages, each dated November 1, 1853, and conditioned to pay $6250, with interest, at seven per cent., and that Kellogg assigned said mortgages to the plaintiff on the day of their date, and guaranteed the payment of the amounts secured thereby.
    The plaintiff’s counsel next read in evidence the bond and mortgage on the premises, made by McCarty and wife to Edward Kellogg, for $6250, dated 1st November, 1853, together with an assignment of the same to the plaintiff, bearing the same date, containing a guarantee by said Kellogg of the payment of said principal and interest, according to the condition of the said bond and mortgage; and then called as a witness:
    
      Edward Kellogg, who being sworn, said, he was the assignor of the bond and mortgage in question; that at the time the policy was taken out, the bond and mortgage had been assigned to the plaintiff, and the witness effected the insurance at McCarty’s request; and stated to the company that the plaintiff held the mortgage, and that his interest was to be insured; and the company advised, that the best way was to put his name in the policy, as was done, instead of the more formal mode of assignment.
    The defendants’ counsel duly objected to all evidence of this witness’s statements to the company, and of the company’s advice to him ; but the Justice overruled the objection; and the defendants’ counsel excepted.
    This witness further said, he had guaranteed the payment of the said bond and mortgage, and had received the consideration of the assignment from the plaintiff at various times, but had not received more than two-thirds of it at the date of the assignment; but that before the assignment was delivered by him, which was on or about the 14th November, 1853, he had had a settlement with the plaintiff, and received the whole of the said consideration. The mortgage has since been foreclosed with two other mortgages on adjoining property, and that he had purchased in the whole of the three lots; and the net proceeds of the sale were $4854 13; that he had not paid any of the purchase money, but had settled with the plaintiff for it by giving him other securities; that this suit is carried on by the plaintiff, but if he collects the money, he supposes it will go to the benefit of witness; he has had no understanding with the plaintiff as to prosecuting it; the plaintiff would have brought the suit any way.
    The defendants’ counsel then moved to strike out the testimony of this witness, forasmuch as it appeared that the action was prosecuted for his benefit; and the Justice overruled the motion; and the defendants’ counsel excepted to such ruling.
    The plaintiff’s counsel then offered testimony tending to show that it would require from 5000 to 6000 dollars to repair the damage done to the premises by the fire, and rested.
    The defendants’ counsel then moved to dismiss the complaint on the grounds:
    1st. That the facts of the case, as shown by the plaintiff, do not constitute a cause of action against the defendants; the plaintiff having failed to prove an insurance to himself of the mortgage interest stated in the complaint.
    2d. That there was no sufficient proof of any money due on the mortgage, or to the plaintiff as assignee of the mortgage.
    3d. That there is no proof that Eugene W. McCarty had any interest in the insured property, at the time of the loss, nor that he had sustained any injury by the fire, nor had he ever made or presented any proof of loss.
    
      4th. That the mortgage interest of the plaintiff had been paid by the foreclosure of the mortgage and sale of the property, and the payment to him of the amount of the substituted securities.
    But the said Justice overruled the defendants’ objections, and refused to dismiss the complaint; to which the defendants’ counsel excepted.
    The defendants’ counsel then offered to prove, and the plaintiffs’ counsel admitted it to be true, that in January, 1854, one month before the fire, Eugene W. McCarty, the person named in the policy as the insured, sold and conveyed the property referred to in the policy, to one David A. Bostwick.
    The said Justice ruled such evidence inadmissible; to which ruling the defendants’ counsel excepted.
    The defendants’ counsel next offered to show, that the property, when insured, and at the time of the fire, actually belonged to one John McCarty, for whom Eugene W. McCarty held the title, and that he combined with said Eugene, and with said Bostwick, and wilfully caused the said premises to be set on fire, for the purpose of defrauding the defendants, and of obtaining the insurance money in this action; and that this was the fire which caused the loss now claimed.
    The said Justice ruled such evidence inadmissible; to which the defendants’ counsel excepted.
    The defendants’ counsel then offered evidence tending to show that the premises injured by the fire could be repaired and put in. as good condition as they were before the fire, for from $3,500 to $3,750, and rested.
    The defendants’ counsel then requested the said Justice to charge the jury, that from the amount of damage by fire, which they might find the plaintiff entitled to recover, the defendants were to be allowed a deduction of one-third of the net proceeds of the sales on the foreclosure of the mortgage. The Justice declined so to charge, but said he would reserve that question for the fip.tenniua.tion of the Court at General Term, and it was accordingly reserved.
    The Justice thereupon charged the jury, that the plaintiff was entitled to recover an amount sufficient to make good the total loss or damage he had sustained by fire, which was wjiat it would cost to replace the building in the same condition it was in before the fire,' with interest after the expiration of 60 days from the time the proofs of loss had been served on the company; and that the jury would not allow the defendants any deduction for the proceeds of the mortgage sale received by the plaintiff.
    To which charge of the said Justice, and every part thereof, the defendants’ counsel excepted; and the jury thereupon found a verdict of $6,168 70 for the plaintiff, subject to the opinion of the Court at General Term, whether the defendants were to be allowed a deduction by reason of the sale of the lot covered by said mortgage, upon a case to be made; with liberty to either party to turn the case into a bill of exceptions.
    
      Daniel Lord and JR. Goodman, for the plaintiff,
    moved for judgment on the verdict, and argued the following point:
    The defendants are not entitled to deduct the proceeds of the foreclosure sale of the lots.
    1. No such defence is set up in the answer.
    2. As between the mortgagee plaintiff and the company defendants, the former is entitled to receive the whole amount of the damages.
    3. There is no evidence that the damages recovered and the net proceeds of the lot, would exceed the amount due.
    4. If there had been, still the defendants would be bound to pay the plaintiff his damages, and their only remedy for any surplus is an action by way of subrogation to the mortgagee’s claim, to which McCarty, the assured, should be a party.
    Wm. Curtis Noyes and John N. Taylor, for the defendants,
    made and argued the following points:
    I. The first, second and third points on the motion to dismiss the complaint, having been ruled against the defendants, on the decision of a prior cause between these parties, they are only renewed on this argument, in order to preserve the right to present them to the Court of Appeals, should the same become necessary.
    II. The evidence of Edward Kellogg, to show by parol what the understanding or agreement was, when the policy sued upon was applied for, to control its plain, .written language, was wholly inadmissible. (Greenl. Ev. §§ 275, 281; 2 Arnould, 1316, § 462; Bell v. West. Mar. & F. Ins. Co., 5 Rob. La. R. 423.)
    HI. Kellogg was an incompetent witness, the action being prosecuted for his “immediate benefit.” (Code, § 339, sub. 1; Howland v. Willetts, Ct. Ap. 1 Duer, 325; Catlin v. Hanson, Id. 309; St. John v. Am. M. Ins. Co., 2 Id. 419.
    IV. In any event, the defendants were entitled to have one-.third of the price for which the premises sold, on the foreclosure, being $4,854 13, deducted from the amount of the verdict.
    1. The plaintiff, as mortgagee, could only insure his mortgage interest; else the policy would be a wager policy and void. (St. John v. Am. M. Ins. Co., 2 Duer, 419; Parsons’ Mer. Law, 412-13; Buchanan v. Ocean Ins. Co., 6 Cow. 318; 1 R. S. 662, §§ 8, 9, 10; 1 Arnould on Ins. 251-2.)
    2. The legal effect of the policy (as declared by this Court in the preceding case) is, that the lien created on the premises by the mortgage, is insured, that being the only interest which the plaintiff had in the premises, and the only proper subject of insurance.
    3. Prior to the case of King v. The State Mutual Ins. Co. (7 Cush. 1), it was the settled law in Massachusetts, and in this State, as well as in England, that on the underwriters paying the loss on a policy insuring such an interest, they were entitled to be subrogated to the mortgage, or other security of a similar character, and such is still the law; that case being opposed to sound principle, to well considered adjudications, and to the elementary works. (2 Phil on Ins. 3d Ed. § 1712; Parsons on Mer. Law, 412-13, 443, 535; Carpenter v. Wash. Ins. Co., 16 Peters, 495; Tyler v. AEtna Ins. Co., 12 Wend. 507; S. C. 16 ; Id. 385, 399; Atlantic Ins. Co. v. Storrow, 5 Paige R. 285, 290, 294; Hart v. Western R. R. Cor., 13 Met. 99; 22 Eng. Law & Eq. 73.)
   By the Court. Bosworth, J.

The decision of the General Term, in April, 1853, made in an action between the parties to the one now before us, has disposed of most of the questions presented by this appeal, 5 Duer, 517.

That decision determines that the plaintiff can maintain this action, and that no acts of the mortgagor, subsequent to the issuing of the policy, can affect the plaintiff’s right to recover. 0

The exception to the testimony of Kellogg, in relation to the conversation between him and the company, at the time he applied for the policy, cannot be of any avail to the defendants.

The construction given to the policy, by the decision previously referred to, made it an insurance protecting the interest of the plaintiff, as mortgagee. If that is the legal effect of the policy, the testimony excepted to could not, possibly, have prejudiced the defendants in the decision, of any question, made by the Court, or submitted to the jury. This testimony established that the company had express notice at the time of issuing the policy, of the interest of the plaintiff, and that the insurance of his interest was an object sought to be secured by the policy which the company was solicited to issue. Although such notice cannot alter the clear meaning of any word contained in the policy, yet, the evidence places the Court in the position which the parties occupied at the time they contracted, and enables it to construe the policy, in the light of the facts and circumstances existing and present to the minds of the parties at the time it was made.

If the Court has not erred in its construction of the policy, the defendants have not been prejudiced by the decision admitting the evidence. A new trial cannot be granted, because such evidence was admitted.

The objection to the decision refusing to strike out the testimony of Kellogg, is not well taken. The action was not prosecuted for his immediate benefit, and mere interest in the event would not exclude him. It was not prosecuted for his “ immediate benefit,” within the meaning of those words as used in § 399 of the code.

Unless McCarty, whose bond and mortgage Kellogg had transferred to the plaintiff, with a guarantee of payment of the amount secured by them, had become irresponsible so that the amount could not be collected of him, Kellogg can hardly be said to be interested, m a legal sense, in the event of this action. There is no evidence that McCarthy is unable to pay. If he has means sufficient to pay, which can be reached by due course of law, then Kellogg will sustain no actual loss, if the plaintiff should fail in this action.

It is not a case in which Kellogg has a right to receive the verdict if collected.

A recovery of it, and an application of it, upon the bond and mortgage assigned, will satisfy Kellogg’s guaranty pro tanto, and extinguish, to a corresponding amount, the liability of McCarty. And Kellogg may be benefited by being saved the necessity of advancing the money to the plaintiff, and of then resorting to McCarty for reimbursement.

Butler v. Patterson, 3 Kern. 292, seems to approve of the decisions of this Court, which are cited in it, and which are sufficient to dispose of the question. (Freeman v. Spalding, 2 Kern. 373.)

Kellogg is not a witness who would gain, even indirectly, to the extent of the verdict, if the plaintiff recovered, and lose a corresponding amount if the plaintiff should be defeated. As the facts before us exhibit the witness, he was, at most, merely interested in the event, and his testimony could not be excluded on the ground on which its rejection was asked.

Heither is the defendant entitled to have one-third of the price, for which this and two other lots were sold on the foreclosure, deducted from the verdict.

It does not appear that the foreclosure occurred before this action was brought.

Ho such claim is set up in the answer.

It is not unreasonable to conclude, that the evidence in relation to the foreclosure of the mortgage was given to make such a case, as would show that Kellogg was an incompetent witness. Hence, when his testimony was concluded, the defendant moved that the whole of it he stricken out, “forasmuch, as it appeared, the action was prosecuted for his benefit.” The facts proved in relation to the foreclosure of the mortgage, were not embraced within any issue made by the pleadings, and, therefore, cannot properlv be made the basis of any affirmative or special relief. Code, § 275.

Bruzill v. Isham and Earle, 2 Kern. 9.

If the defendants are entitled to all the security which the plaintiff holds, or to one third of the whole proceeds of the sale of the three lots, or to the proceeds of the sale of the lot on which the insured building stood, the nature and extent of the defendants’ rights cannot be completely determined, except in an action to which Kellogg and McCarty are also parties.

But without placing our decision upon this ground, we think it sufficient to say that no deduction can be made in this action, for the reason that no such claim is asserted, or alluded to in the answer. It does not contain any allegations, which, if proved, would support such a claim.

It is by no means clear that the Court, at the trial, could have ordered an amendment authorizing a new and distinct defence. It might amend so as to obviate such a variance between an allegation by which it was attempted to set up a defence, and the proof, as would not actually mislead the adverse party, to his prejudice, in maintaining his action. Code, § 169.

Facts constituting a distinct defence occurring after answer put in, or of which the defendant was then ignorant, should be set up by supplemental answer—on a motion, for that purpose-Code, § 177.

But permission to amend the answer was not asked.

We think the plaintiff should have judgment on the verdict. 
      
      
        McKyring v. Bull, 16 N. Y. R. 297.
     
      
      
         In. a case between these parties, on a policy, in terms, like the one in question, decided in April, 1866, this Court held, that no discrimination could be made “ between the rights of a, mortgagee, situated, with respect to an insurer, as the present plaintiff is, and those of a mortgagee to whom a policy, in precisely the same words (with the exception of the words, ‘loss, if any, payable to Seth Grosvenor, mortgagee,’) has been assigned, with the express assent of the insurer, evidenced as the policy requires.” 5 Duer, 511, 532, and 531, and id. 524-5.
      This Court also held, that, inasmuch as it had been decided in The Traders' Ins. Co. v. Robert, 9 Wend. 404; and in Tillou v. Kingston Mu. Ins. Co., 1 Seld. 405, that, after such an assignment of a policy to a mortgagee, no subsequent acts of the mortgagor could operate to prevent a recovery upon the policy by the mortgagee, in case of a loss by the perils insured against; this plaintiff was entitled to the application of the same rule, and that his right to recover was not affected by any acts of the mortgagee subsequent to the issuing of the policy. The case, (reported in 5 Duer, 517,) was carried, by appeal, to the Court of Appeals, and decided by that Court at its June Term, 1858. 17 N. Y. 391.
      That Court held, as this had, that no discrimination could be made between the rights of Grosvenor, and of Robert, as mortgagees. (17 N. Y. 395.)
      But that Court being of the opinion, that The Traders' Insurance Company v. Robert, 
        “was decided upon mistaken views of the law, applicable to the question involved, and that the decision of the Supreme Court never had the sanction of the Court for the Correction of Errors,” and that the case of Tillou v. The Kingston Mu,. Ins. Co., was determined by the Court of Appeals, “upon a misapprehension of what had been before adjudicated,” (id. 400,) regarded the question as yet open for the consideration of that Court, and overruled those two decisions,* and reversed the judgment of this Court which conformed to them: they being decisions, which it was the duty of the Court to follow.
      In The Buffalo Steam Engine Works v. The Sun Mutual Insurance Company, 17 N. Y. R. 401, the Court of Appeals decided, that where a policy of insurance is assigned, with the consent of the insurer, to a mortgagee of the property insured, the assignee takes subject to the conditions imposed by the terms of the contract upon the person insured, and such assignee’s right to recover, in case of a loss, is barred by a breach by the assignor of such conditions, subsequent to the assignment. That Court so held, where the owner of a vessel procured a marine policy upon her) the insurer knowing at the time that the owner was indebted to the plaintiff for an engine furnished the vessel; that he was to mortgage the vessel to secure such debt, and that his object in obtaining the policy was to assign it, as security for the debt. The policy contained permission to insure $40,000, and to assign the policies. After assigning the policy, the mortgagor effected an over-insurance, and this was held fatal to a recovery by the assignee.
     