
    Simon Uhlfelder, Appellant, v. The Palatine Insurance Company, Limited, of Manchester, England, Respondent.
    First Department,
    February 9, 1906.
    Fire insurance —wlien mortgagor who bids in property on forbclosure entitled to indemnity for loss accruing prior to delivery of deed — measure of damages -when mortgagee assigns part interest in bid before loss by fire.
    On the execution of a mortgage the title remains'in the mortgagor, and the mortgagee, though he bid in the property on foreclosure, has merely a lien until such time as a formal conveyance by the referee vests him with title.
    Hence, when such mortgaged property is insured, “ loss, if any, payable, to * * * mortgagee as interest may appear,” and it is provided that the insurance shall not be invalidated by foreclosure or other proceedings or notice of sale, nor by any change in the title, such mortgagee is entitled to be indemnified for damage "to his interest as mortgagee by a fire which occurred after the date he had bid in the property on foreclosure, but before the delivery of the deed by the referee.
    
      It seems, that had the property been bid in before the fire by another party, the mortgagee could not have recovered from the insurance company as the property, at its full value, would have been applied to the extinguishment of the debt.
    When, however, such mortgagee, before the-fire and prior to the delivery.of the deed, has assigned two-thirds of his bid to others, the damage to his security by such fire is one-third of the total damage to the property. -
    Appeal by the plaintiff, Simon Uhlfelder, from a judgment of the Supreme Court-in favor of the defendant, entered in the office of the clerk of the county of Mew York on the 15th day of Movember, 1904, upon the decision of the court, rendered after a trial before the court without a jury at the Mew York Trial Term, dismissing the complaint upon the merits.
    
      Gibson Putzel, for the appellant.
    
      John Notman, for the respondent.
   Ingraham, J.:

This action was tried before the court without a jury, the facts not being in dispute. The action is on a policy of insurance by which the" defendant agreed to insure one William Reichert for the term of three years from the, 5th day of March, 1900, at noon, to the 5th day of March, 1903, at noon, against all direct. loss or damage by fire to an amount not exceeding $3,000 on a certain brick building, including all fixtures-and improvements contained in or attached thereto, situated at Mo. 319 East Seventieth street, city of Mew York, loss, if any, payable to Simón Uhlfelder, mortgagee, as interest .might appear, subject to clause attached. The clause attached is as follows: “ Loss or damage, if any, under this policy . shall be payable to Simon Uhlfelder, as mortgagee (or trustee) as interest may .appear, and this insurance, as to the interest of the mortgagee (or. trustee) only therein, shall not be invalidated by any act or neglect' of the mortgagor or owner of the within described" property, nor by any foreclosure or other proceedings or notice- of sale relating-to the property, nor .by any change in the title or ownership of the property.”

The court found that on January 1, 1901, William Béichert' bought from the plaintiff Simon- Uhlfelder the premises 319 East Seventieth street in the city of Mew York, subject, to a first mortgage, of $12,000 held by the MeW York Savings Bank, giving at the same time a purchase,-money mortgage of $5,000 ; and that in 'July, 1901, the plaintiff assigned a one-third interest in this second, mortgage of $5,000 to Emma Weinberg; that Beicliert defaulted in the paymént" of interest on this second mortgage, whereupon the plaintiff and the said Emma' Weinberg commenced an action to foreclose the said mortgage making Beichert a party defendant. -In that action a judgment of foreclosure and sale of the premises was entered and in pursuance of that judgment the premises were sold at public auction on the 16th day of February, 1903', by the referee then appointed, at which sale the premises were knocked down to plaintiff by the' referee for $3,000 and- the usual memorandum of sale was signed. At the time of the sale the amount due on this mortgage was $5,410, the result of the sale being that there was a deficiency amounting to $2,549.56. Immediately- after the sale the plaintiff assigned a one-third interest in his bid to Emma Weinberg, and one-third to Isaac .Heilbrun. The referee, by a deed dated March 16, 1903, 'conveyed the premises to the plaintiff Uhlfelder, Emma Weinberg and Isaac Heilbrun as tenants in common, the consideration being $3,000, the amount bid at the sale. This deed was not delivered until some time in June, and was recorded June 28, 1903. On the morning of March 5, 1903, after the sale, but before the time fixed for the referee’s deed, the building on the premises covered by the mortgage and the policy of insurance issued by the defendant was damaged by fire to the extent of $2,900, and this action was brought to recover the damage sustained by the plaintiff as mortgagee.

The plaintiff, having prior to the fire assigned two-thirds of his . interest under the bid, was entitled to receive and did receive from the referee a conveyance of an undivided third of the property. He, therefore, received g,n undivided third of this property, reduced in value by the amount of the loss by fire. He, therefore, sustained actual damage to the extent of one-tliird that the building on the property was damaged, which would be $966.66. The court, after finding the foregoing facts, found “ that the plaintiff sustained no loss or damage by, the aforesaid fire to his mortgagee interest in said property, but received and was credited with, on such foreclosure sale, his full two-thirds proportion of the capacity of the mortgaged premises in their undamaged condition before tbe fire to respond to the mortgage debt, and the security.fnrnished by the said property for the plaintiff’s mortgage debt was fully realized by him and was in nowise affected by the aforesaid fire.;”, and, as a conclusion of law, that the policy of insurance in suit only indemnified the plaintiff against any diminution by fire in the capacity of the mortgaged premises to respond to his mortgage debt, and that as the proof shows that such capacity was in nowise affected or lessened by the fire referred to, but the full consideration of the foreclosure sale before the happening of the fire having been duly paid, the plaintiff has°failed to establish any loss or damage to his mortgagee interest covered by tbe policy in suit by tbe said fire,” and directed judgment dismissing, the complaint on the merits.

The real position in which the plaintiff found himself was that he had received in part payment of his mortgage one-third of a building that had been damaged by fire. The defendant had insured him against loss or dapiage by a fire to the building; but it is said that he cannot recover because the relation of the mortgagee to the property after the sale and before the formal delivery of the referee’s deed liad changed, and that, therefore, he sustained no damage. It §eem,s to me, however, that tbe mortgagee’s interest in the property was not substantially changed in. consequence of the. entry of the judgment of foreclosure and the'formal sale of the property by the referee. We are dealing with an actual situation which exists by reason of the legal relations between the mortgagor tod the mortgagee. By the execution of the mortgage the title to the property is not transferred but remains in the mortgagor, the mortgagee having alien on the property to secure the amount on the bond given with the mortgage. And that relation necessarily continues until by a formal conveyance by the referee under a sale the legal title passes from the mortgagor to the purchaser at the sale. As security for the mortgage debt the mortgagee has the right to resort to a court of equity and ask that the mortgaged premises be sold to ’ pay the debt. And at that sale he has the right to purchase the property and to receive from the referee a conveyance of it, and tlms he is able to secure the title to the property in satisfaction of the mortgage debt. That this right to obtain-a title to mortgaged property for the amount due on the mortgage adds materially to the security of the mortgage and is air incident thereto is recognized by every one dealing in such securities. -

The plaintiff, being the mortgagee, secured from the defendant, an insurance company, a policy of insurance by which the insurance company agreed to insure the mortgagor against loss or damage by fire to. the mortgaged premises, “loss, if any, payable to Simon Uhlfelder,, mortgagee, as interest may appear,” and this insurance as to the interest of the mortgagee shall not be invalidated by any foreclosure or other proceedings or notice of sale relating to the property,, nor by any change in the title or ownership of the property. It is quite true, however, the mortgagee could only recover the damages he sustained in consequence of the fire to the extent of the damage to his interest as mortgagee in the premises, but- for this the insurance company was responsible. The learned counsel for the defendant treats this sale as having been made to a third party -so that the only interest that the mortgagee had under the sale was that the purchaser who had agreed to pay for the property should accept a deed from the referee, and if that had been the condition we would have agreed with 'the court below that the plaintiff as mortgagee had sustained no damage by the fire. But that was not the situation, The mortgagee had become the purchase!.’ and was entitled to a conveyance of all of the mortgaged premises which he was to receive as payment on account of the amount 'due on the mortgage, and thus in payment of his mortgage he was required to take a conveyance of the property. What he was to get in satisfaction of his mortgage was a conveyance of the property and the fire that damaged the property before he acquired title would be, as I view it, a direct damage to his interest as mortgagee as it reduced the value of the property that he had been Required to take in satisfaction of his mortgage. It is true he completed his purchase, took title and received from the referee a deed to the property, but what he received was a deed to property damaged by fire against which the defendant had insured him, and it certainly seems to me'that his interest as mortgagee in the premises, not having been actually merged or destroyed by acquiring'the fee before the fire, was a direct injury to the amount of his interest in the property that he acquired in satisfaction of his mortgage.

I think this view is sustained by several decisions of the Court of Appeals in this State, although the exact question was not presented in any of them. In Eddy v. London Assurance Corporation (143 N. Y. 311) the loss under the policy was, as in this case,, payable to the mortgagee or trustee as interest might appear, aifd containing also the clause that the Insurance as to the interest of the mortgagee should not be invalidated by any act or neglect of the mortgagor or owner of the property or by any foreclosure or other proceedings or notice of sale relating to the property. Default having been made under the mortgage, foreclosure proceedings were commenced, and before judgment of foreclosure in the action a fire occurred; the mortgagee proceeding with the action obtained a judgment by default for the foreclosure of the mortgage, and snbquent to the fire the property was sold under the foreclosure judgment, leaving a deficiency of about $5,000. As to. the right of the mortgagee to recover from the insurance company for the loss caused by the fire, the court held that the mortgagee was acting strictly within his legal rights when he took proceedings to foreclose the mortgage, and that there was a separate and distinct insurance of the interest of the mortgagee in the premises and, “ consequently, the mortgagee violated no contract on his part when he commenced the proceedings to foreclose his mortgage, and thug endeavored to collect his debts. Before he had proceeded so far as a judgment of foreclosure a fire occurred. What was he to do? Was he bound to stay further 'proceedings and, accept payment of the amount of his insurance and then assign to the extent of such payment,his rights in the mortgages to the companies? We think not. Such is not the meaning of the clause when read.as a whole; Foreclosure proceedings were not1 to affect his rights. This was expressly provided for ahd agreed to. Although there was an agreement to subrogate, yet that agreement was also upon the condition that subrogation should not impair- the mortgagee’s right to recover the full amount of his claims. The two rights, must be considered together, and though subrogation under - certain circumstances may, under the agreement, be insisted upon, yet, unless payment of his mortgage debt is añade, the mortgagee must have, the right to proceed with the foreclosure and to-a sale of the premises, for otherwise it could hot be seen whether a subrogation prior to a sale would not impair his fight to recover the full amount of the claim of the mortgagee.” While this case is not. exactly in point, the principle underlying it is in accord with the views before expressed.

'In Haight v. Continental Ins. Co. (92 N. Y. 51) die court said-: “ FTor Was the policy avoided' by .the sale on foreclosure..- There was no change of -title. JTo deed was given, and not even a report of sale made and presented to the court, for confirmation. Until then the sale and transfer of possession were inchoate and conditional, and had -not become absolute and complete.” (See, also, Browning v. Home Ins. Co., 71 N. Y. 508; Mutual Life Ins. Co. v. Balch, 4 Abb. N. C. 202.) That the' purchaser at a sale under foreclosure does not become the owner of the property until he receives a deed is- now settled. (Cheney v. Woodruff, 45 N. Y. 98.).

My conclusion; therefore, is that .tjhe plaintiff’s interest as mortgagee in the mortgaged premises continued until the formal delivery of the*deed by the referee, in puvsuahce of the sale under the judgment of foreclosure, .and that,, the fire having occurred before-the delivery of the deed, the plaintiff as mortgagee- was entitled to" v recover the damage caused to- his interest m the premises as mortgagee ; that in -consequence of his transferring two-thirds of Ms interest undér his bid that damage was reduced to one-third of the actual damage caused.by the fire, and that was the damage directly sustained by him by reason of the impairment' of the property he secured for his mortgage indebtedness. Thus, upon the facts, this plaintiff was entitled to recover one-third of the total loss of $2,900, namely, $966.66.

. It follows that the judgment appealed from must be reversed and a new trial ordered, unless the parties waive a new trial, in which event judgment is directed for the plaintiff upon the findings of the court below for that amount, with interest and costs in this court and ip the court below.

O’Brien, P. J., Patterson, Clarke and HouénTON, JJ., concurred.

Judgment reversed and new 'trial ordered, unless the parties waive a new trial, in which event judgment directed for the plaintiff upon the findings of the court below for $966.66,' with interest and costs in this court and in the court below.  