
    William W. Reilley, as Receiver, Etc., Plaintiff, v. Buffalo German Insurance Company and Fidelity Trust Company, Defendants.
    (Supreme Court, Erie Special Term,
    June, 1914.)
    Insurance (fire)—proceeds of insurance impressed with equitable lien in favor of mortgagees where trustee in bankruptcy insures buildings of bankrupt — action by receiver to recover insurance money — bankruptcy.
    Where a receiver in bankruptcy insures buildings on the mortgaged property of the alleged bankrupt, and a loss by fire is adjusted and paid before the appointment and qualification of the receiver as trustee in bankruptcy, the proceeds of the insurance are impressed with an equitable lien in favor of the mortgagees of the property as their interest may appear.
    In an action brought by the receiver to recover the insurance money which was held to await final judgment in said action, upon a claim that he was entitled thereto as trustee for the benefit of the general creditors of the bankrupt estate, his motion for judgment on the pleadings will be denied.
    Motion for judgment on the pleadings.
    Martin Clark, for motion.
    Adon W. Crosby, for Fidelity Trust Company.
    Edward j. Garono, for Buffalo German Insurance Co.
   Pound, J.

Plaintiff was appointed receiver in bankruptcy of the corporation Joseph Metz & Sons Company, on the 16th day of July, 1913. As such receiver, be insured certain buildings situate on the property of the corporation against loss or damage by fire. On July 30, 1913, a loss by fire occurred. Later in the same day Joseph Metz & Sons Company was duly adjudged a bankrupt. On September 10, 1913, plaintiff was appointed and qualified as trustee in bankruptcy thereof. The defendants are holders of mortgages which are liens upon the property insured. Each mortgage contains the usual insurance clause. The loss was adjusted and paid and the amount is held to await final judgment in this action. Plaintiff claims that he is entitled to the insurance moneys as trustee of Joseph Metz-& Sons Company, for the benefit of the general creditors. Defendants claim the same as their mortgage interest appears. Plaintiff moves for judgment on the pleadings which state the facts without material conflict.

Receivers in bankruptcy are appointed for the preservation of estates, to take charge of the property of bankrupts after the filing of the petition and until it is dismissed or the trustee is qualified. Bank. Act, § 2.

They have an insurable interest in the property of the bankrupt, although they have no title thereto, because they are accountable to the trustee or to the bankrupt for the preservation of the property while it is in their custody, but the property rights are in the owner until the appointment and qualification of the trustee. Fuller v. Jameson, 98 App. Div. 53; affd., 184 N. Y. 605.

The trustee, upon his appointment and qualification, is vested with the title of the bankrupt as of the date he was adjudged a bankrupt. Bank. Law, § 70, subd. a.

At the time the insurance was obtained and at the time the loss occurred the title to the insured premises was in the bankrupt. The receiver, if in any sense a trustee, was a trustee for the bankrupt rather than for the creditors. Boonville National Bank v. Blakey, 6 Am. Bank. Rep. 13.

The insurance was therefore a personal contract for the benefit of the plaintiff, so far only as it protected him from liability to the bankrupt or its trustee for failure to exercise due care in preserving the property while it was in his custody. The rights of the plaintiff are, however, conceded, although he has sustained no personal loss, so far .as the insurance companies are concerned. The insurance has been paid and the only question is between the trustee and the mortgagees as to the distribution of the fund.

To hold that the mere custodian of property by insuring his interest therein might, if a' loss occurred, change the character of such property from real to personal, would be inequitable. The damages recovered stand in his hands, not as personal assets but as realty, the same as if the bankrupt had himself effected the insurance.

The receiver holds the proceeds of the insurance, as he would the property, for the benefit of the bankrupt. The money received on the policies stands in the place of the property destroyed.

As the bankrupt had personally covenanted to insure for the benefit of the Fidelity Trust Company and had assumed the obligation of his grantor to insure for the benefit of the Buffalo German Insurance Company, the moneys collected on the policies are impressed with an equitable lien in favor of said mortgagees.

Motion denied, with costs.  