the firm named as payee had at that time ceased to carry on business-such circumstance being unknown to the maker of the note or cheque is alone sufficient to render the payee a fictitious or non-existing person within the meaning of the statute, so that the note or cheque may be treated as payable to bearer, large facilities for passing off such documents on forged indorsements seem to be afforded by this enactment, even in the case of inland notes or cheques, and the facilities will be far greater in the case of instruments made abroad, when, owing to distance, information of a person's death, or of dissolution of partnership, may frequently be delayed for a considerable time. This consideration, it is true, has little or nothing to do with the construction of the enactment in question, and if it be clear that the matter is governed by the decision in Vagliano's case, further discussion of it would be useless. If, however, the difference in the nature of the instruments, and in the position of maker of a note and drawer of a cheque on the one hand and of acceptor of a bill on the other, is such as to constitute the distinction suggested, it may be of some service to draw attention to the danger that appears to exist of that distinction being overlooked.

Sydney, New South Wales.

ARTHUR R. BUTTERWORTH.

INSURANCE OF LIMITED INTERESTS.

MORTGAGOR AND MORTGAGEE.

IN the law of insurance against fire the questions of greater

as limited interests.' Familiar examples of such interests exist where the right of property in the owner is qualified by a mortgage, lease, or subsidiary right arising out of the contract of sale, carriage. or bailment. In the present article it is proposed to deal with the case of insurance by the mortgagor and mortgagee as a typical case, and as exemplifying the principles which apply to all insurances of limited interests. The fundamental principles are that a fire policy is a contract of indemnity, and that, in its usual form, it is a personal contract. The former is founded on considerations of public policy, and is a rule of law which cannot be set aside by consent of parties. It must not be confounded with the statutory rule against wager insurance, which requires that the insured should have an interest at the time of effecting the policy, but lays down no rule as to the amount recoverable in the event of a loss. The principle that the contract is personal is merely a rule of construction, and there is nothing illegal in a policy so framed as to attach to the property and pass to an assignee on a transfer.

The cases on fire insurance in America are much more numerous than in this country, and the theory of the law has consequently been more elaborately developed. It has therefore been thought necessary to refer to American authorities. The references are almost exclusively to cases decided in the Supreme Court of the United States, and to the decisions in the series of cases selected from the State Courts Reports' and republished in the 'American Decisions,' 'American Reports' and 'American State Reports 1.'

1. Effect of mortgage on owner's insurable interest.—Amount recoverable under policy.—The owner's insurable interest is not impaired by the existence of a mortgage or other lien upon his property. It would be otherwise if the debt were discharged by the loss of the security,

The abbreviated references usually adopted are U. S. for Otto's Supreme Court Reports; Am. D., Am. R., and Am. St. R., for the American Decisions, American Reports, and American State Reports respectively. The fourth series of Court of Session Reports (Scotland) is referred to by the initial of the Reporter, R. In dealing with Scotch cases the Scotch legal phraseology has not been altered.

as in the case of a loan upon a bottomry or respondentia bond1. In these loans the risk of a total loss is upon the lender, and not on the owner, who can, therefore, recover under his policy of insurance the excess only of the value of the security over the amount of the advance 2. Where the question is one of insurable interest it is not the legal but the equitable title that is regarded, and therefore the owner's rights are the same even where the security is constituted by a deed ex facie absolute 3. But it is a defence to an owner's claim upon a policy of insurance that his interest in the subject insured has been divested by actual foreclosure of the mortgage or by a sale at the creditor's instance. And if he assign to creditors who release, his right to recover upon a policy in his own name is limited to the surplus, if any, which would have been due to him after the claims of his creditors had been satisfied 4. So also if he sell his equity of redemption subject to the mortgage, his interest is limited to the amount of the unpaid mortgage debt for which he still remains liable if the security is destroyed ".

2. Mortgagee has no lien upon proceeds of mortgagor's policy except by contract or under statute.-Where the insurance is effected in the owner's name, a mortgagee or other creditor holding a lien over the subject insured has in general no corresponding lien upon the money due upon the owner's policy in the event of a loss. Nor does it give the mortgagee such a lien that the mortgagor is under covenant to insure or is bound to repair. But if the mortgage deed provides that the proceeds of the mortgagor's policy shall be applied to the restoration of the damage or in liquidation of the mortgage debt, the mortgagee is entitled to insist that the proceeds shall be so applied, and his claim would be valid against the general creditors of the mortgagor. And by the Conveyancing Act of 1881 mortgagees, where the mortgage is constituted by deed, and is subsequent to the date of the Act, are virtually in the same position as if the mortgage deed contained one or other of these provisions". Under the 83rd section of the Metropolitan Building Act insurers

1 Alston v. Campbell, 4 Brown's Parl. Cas. 476; Hibbert v. Carter, 1 T. R. 745; 1 R. R. 388; Arnold Ins. p. 85.

2 Arnold Ins. p. 88.

3 Alston v. Campbell, supra.

* Lazarus v. Com. Ins. Co., 2 Am. L. Cas. 797, 801; 5 Pickering, 76; 19 Id. 81; Seagrave v. Union M. I. Co., L. R. 1 C. P. 305, 319.

5 Philip's Ins. sec. 287, citing Gordon v. Mass. Fire & Mur. Ins. Co.; 2 Pick. 249. Lees v. Whiteley, L. R. 2 Eq. 143; Rayner v. Preston, 14 Ch. D. 297, 18 Ch. D. 1. Lees v. Whiteley, supra; Leeds v. Cheetham, 1 Sim. 146; contra, Nordyke & Marmon Co. v. Grey, 2 Am. St. R. 219, 223; Wheeler v. Ins. Co., 101 U. S. 459, 442, and authorities collected 2 Am. L. Cas. p. 834, 5th Ed.

Garden v. Ingram, 23 L. J. Ch. 478, discussed in Lees v. Whiteley, and Rayner v. Preston, supra.

44 & 45 Vict. c. 41, sec. 23; Fisher's Law of Mortgage, sec. 1458. The Act does not apply to Scotland.

are authorized and required upon the request of any person 'interested in or entitled to' the buildings injured by fire, to cause the sum insured to be expended in reinstatement1. The owner of premises insured by his tenant has been held to be a person interested in, or entitled to the property, in the sense of this provision, but doubts have recently been thrown upon its applicability to mortgagees or purchasers from the insured. It is clear that the Act contemplated insurances by policies so framed as to run with the lands, and not by policies, which, like ordinary fire policies, are personal contracts of indemnity. Where the policy is in the form of a personal contract the correct view seems to be that only those are entitled to the benefit of the Act who are parties to the contract of insurance as well as interested in the subject insured 3. In any event the Act cannot operate to extend the insurer's liability beyond the interest of the persons with whom his contract is made. For instance, it cannot entitle a purchaser to the benefit of a vendor's policy where the title and interest of the vendor is wholly divested. A similar limitation applies to the provisions of the Conveyancing Act 1881. A claim under the Building Act must be made while the sum due upon the policy is still in the insurer's hands 4.

3. Effect of indorsation of mortgagor's policy to mortgagee.-Joint policies. In the United States the mortgagor's policy frequently contains an indorsation directing payment in case of loss to be made to the mortgagee. This direction does not operate an assignment of the policy, or make the mortgagee a party to the principal contract. The indorsation constitutes properly a collateral contract, by his assent to which the insurer binds himself to pay in the manner directed, and in an action by the insured he may plead such payment as performance 5.

The result is the same whether the policy is procured and the premiums paid by the mortgagor or by the mortgagee, and the indorsation has no effect upon the contract as an insurance. Thus the insurer will be entitled to plead a breach of a condition by the mortgagor, as a defence to an action upon the policy or to claim. contribution from other insurers of the mortgagor 6. Conversely he will not be entitled to claim contribution in respect of

1 14 Geo. III. c. 78, sec. 83. This section applies generally to England. Ex parte Gorely, 4 De G. J. & S. 477, doubted in Westminster Fire Office v. Glasgow &c. Soc., 13 App. Cas. 699, 713. The Act does not apply to Ireland or Scotland.

2 Ex parte Gorely, supra; Rayner v. Preston, 14 Ch. D. 297; 18 Ch. D. 1; Westminster Fire Office v. Glasgow &c. Soc., supra.

Per Lord Selborne in Westminster Fire Office v. Glasgow &c. Soc., supra.

Simpson v. Scottish Union, 1 H. & M., 618.

5 Martin v. Franklin Fire Ins. Co., 20 Am. R. 372; Coates v. Penn Fire Ins. Co., 42 Am. R. 327.

Cases cited in previous note.

other insurance by the mortgagee 1. A policy in this form is, therefore, to be distinguished from one which insures the mortgagor and mortgagee jointly, as where the parties are so described in the policy. In both cases the mortgagee is primarily entitled to the insurance money to the extent of the mortgage debt, but in the former case he is in general entitled, as the party in whose favour the appointment is made, to sue alone, while in the latter the action upon the policy must be brought by both the contracting parties 2. When the indorsation is not to the whole sum insured, but is limited to the extent of the mortgagee's interest, there is some conflict of decision as to the right to sue upon the policy, but it has been held that the mortgagor may sue alone where his action is brought with the written consent of the mortgagee 3.

If a similar direction is made in a life policy the rule is different; the person to whom payment is directed to be made has, in that case, the sole and exclusive right to the policy. The distinction arises from the different nature of the contracts of life and fire insurance. The former is simply an agreement to pay a stipulated sum on a given event, and does not require that the assignee to the benefit of that obligation should have any interest in the life insured. If such a direction in a fire policy were held to have the effect of an assignation, the result would be to limit the insurer's obligation to the interest provable in the assignee.

4. A lien, when valid, gives an insurable interest.-Interest need not be specified in policy.-A mortgagee or other creditor who holds a lien has an insurable interest in the security. A lien which is invalid in itself, as where it is constituted by an agent without authority, or where the pledge remains in the hands of the pledger, will not give an insurable interest; but it is immaterial that the lien may be defeated at the instance of the grantor or of third parties, or that the title of the mortgagee is merely equitable. A general creditor has, a fortiori, no insurable interest in his debtor's goods, and the fact that the loss of a ship or cargo will render the owner insolvent has been held not to entitle a creditor to insure 7. A creditor may

1 Gillett v. L. L. & Globe Ins. Co., 9 Am. St. R. 784.

* Rogers v. Grazebrooke, 12 Simon, 557; Motley v. Manufactures Ins. Co., 50 Am. D. 591 ; Hammel v. Queen Ins. Co., 41 Am. R. 1.

Fire Insurance Co. v. Felrath, 54 Am. R. 58; Gillett v. L. L. & Globe Ins. Co., 9 Am. St. R. 784, citing Westchester Fire Ins. Co. v. Foster, 90 Ill. 121.

Godin v. London Assurance Co., 1 Burr. 490; London & North Western Railway Co. v. Glyn, 1 E. & E. 652; Westminster Fire Office v. Glasgow &c. Soc., 13 App. Cas. 699; Bell v. Western M. & F. Ins. Co., 39 Am. D. 542.

5 Stainback v. Fenning, 11 C. B. 51; Little v. Phoenix Ins. Co., 25 Am. R. 96.

• Hill v. Secretan, 1 B. & P. 315, 4 R. R. 806; Columbian Ins. Co. v. Lawrence, 2 Peters, 25 (S. Ct. U. S.); Williams v. Roger Williams Ins. Co., 9 Am. R. 41; Alston v. Campbell, 4 Brown's Parl. Cas. 476.

7 Manfield v. Maitland, B. & Ald. 582; Grevemeyer v. Southern Ins. Co., 1 Am. R. 420; but see Rohrback v. Germania Fire Ins. Co., 62 N. Y. 47; 20 Am. R. 451.