Usually, when mortgaged property is insured, the insurance is effected in the name of the mortgagor, and a clause is inserted in the policy that the loss, if any, shall be payable to the mortgagee as his interest may appear. Under such a clause, it would seem that the mortgagee could give a good discharge for money paid to him only to the extent of his claim as mortgagee, and that as to any surplus the receipt of the mortgagor would be necessary,, whereas if the words "as his interest may appear" are omitted, the mortgagee could give a good discharge as to the whole sum paid (n). In any case the mortgagee has an equitable lien upon the policy and its proceeds, (o)

(l) Sub-s. 3 is similar in terms to s. 6 of the Mortgages Act, discussed in Sec. 376, infra.

(m) Campbell v. Canadian Co-operative Investment Co., 1906, 16 M.R. 464, following Skelton v. London and North Western Ry. Co., 1867, L.R. 2 C.P. 631, at p. 636.

Notwithstanding the insertion of the clause mentioned, the mortgagor is the person assured and may sue in his own name upon the policy (p). Furthermore, apart from a provision in the policy to the contrary (q), a subsequent breach by the mortgagor of any of the conditions of the policy, as, for instance, of a condition avoiding the policy in the event of the assignment of the property without the consent of the insurer, will avoid the policy as against both mortgagor and mortgagee (r).

Whether, in the case of a policy purporting to insure the mortgagor and containing a clause that the loss if any shall be payable to the mortgagee- as his interest may appear, the mortgagee may sue in his own name without joining the mortgagor is a question which has been much discussed. The weight of authority in Ontario is in favour of the view that the mortgagee may maintain the action. As against the objection that the contract is between the insurer and the mortgagor and that the mortgagee, being a stranger to the contract, is not entitled to sue upon it, the clause in question being a mere direction and authority to the insurer to pay the mortgagee instead of the mortgagor (s), it has been held that the effect of the issue of the policy to the mortgagor with the loss, if any, payable to the mortgagee as his interest may appear, is to create the relation of trustee and cestui que trust between the mortgagor and the mortgagee. The subject of the trust is the right to receive the money payable under the policy and to sue for it, and this right may be exercised by the mortgagee in his capacity as cestui que trust, at least to the extent of his interest (t). In some of the cases where the policies were not under seal, emphasis was laid on this fact, but it would seem that the absence of a seal would not assist a third party in an action upon a contract to which he was not a party, and that the presence of a seal would not disentitle the third party from suing if the effect of the contract was to constitute him a cestui que trust (u).

(n) Mitchell v. City of London Assurance Co., 1888, 15 O.A.R. 262, at p. 279.

(o) Chew v. Traders Bank of Canada, 1909, 19 O.L.R. 74.

(p) Caldwell v. Stadacona Fire and Life Insurance Co., 1883, 11 Can. S.C.R. 212; cf. McQueen v. Phoenix Mutual Fire Insurance Co., 1880, 4 Can. S.C.R. 660.

(q) As to the effect of a "mortgage clause" in a policy, see Sec. 374, infra.

(r) Livingstone v. Western Assurance Co., 1868, 14 Gr. 461, 16 Gr. 9; Chishom v. Provincial Insurance Co., 1869, 20 U.C.C.P. 11; Mitchell v. City of London Assurance Co., 1888, 15 O.A.R. 262; Haslem v. Equity Fire Insurance Co., 1904, 8 O.L.R. 246.

(s) See Mitchell v. City of London Assurance Co., 1888, 15 O.A.R. 262, at p. 274.

(t) Mitchell v. City of London Assurance Co., 1888, 15 O.A.R. 262, where the earlier authorities are discussed- Haslem v. Equity Fire Insurance Co., 1904, 8 O.L.R. 246; Laidlaw v. Hartford Fire Insurance Co., 1916, 10 A.L.R. 7, 29 D.L.R. 229. As to the right of a cestui que trust to enforce a covenant made with his trustee, see also chapter 23, Action on the Covenant, Sec. 223.

(u) Mitchell v. City of London Assurance Co. was followed in Agricultural Savings and Loan Co. v. Liverpool, etc., Insurance Co., 1901, 3 O.L.R. 127, reversed, without any decision as to the right of the mortgagee to sue in his own name, 33 Can. S.C.R. 94. It is pointed out in 3 O.L.R. at p. 136, that the policy though by deed was not a deed inter partes but a deed poll upon which anyone named in it might sue. In this case there was also a "mortgage clause," as to which, see Sec. 374, infra.

In a Nova Scotia case a policy not under seal contained the following provision: "Loss, if any, payable to the order of Peter Brush, if claimed within sixty days after proof, his interest therein being as mortgagee," and it appearing that the policy was obtained by the mortgagor in pursuance of a covenant entered into by him with Brush, that he should insure in the name and for the benefit of Brush, it was held that the mortgagee was entitled to sue on the policy in his own name (v).

In England it has been held that a covenant on the part of the mortgagor to insure, nothing being said as to the application of the insurance money, does not confer upon the mortgagee any right to the money in the event of the bankruptcy of the mortgagor (w), but in Ontario it has been held that a covenant to insure in the form provided by the Short Forms of Mortgages Act (x) operates as an equitable assignment of the insurance when effected (y). If there is neither a, covenant to insure nor a provision that the money in case of loss shall be payable to the mortgagee, the mortgagee has no claim to money arising from insurance effected by the mortgagor (z).

Where an owner of property effects insurance thereon and subsequently mortgages the property, assigning the policy to the mortgagee, the insurance company cannot by arrangement with the mortgagee without the knowledge or consent of the mortgagor cancel the insurance. The mortgagor notwithstanding the assignment continues to be the person assured within the meaning of the Insurance Act, and the policy cannot be cancelled unless notice in writing is served upon the assured and the unearned portion of the premium is paid to him as required by the statute (a).

(v) Brush v. .AEtna Insurance Co., 1864, 1 Old. (N.S.) 459. (w) Lees v. Whiteley, 1866, L.R. 2 Eq. 143. (x) See Sec. 372, supra.

(y) Greet v. Citizens Insurance Co., 1880, 5 O.A.R. 596, affirming 21 Gr. 121; Goldie v. Bank of Hamilton, 1900, 27 O.A.R. 619. (z) Miller v. Tew,' 1909, 20 O.L.R. 77, at pp.. 90, 91.

Where the mortgagor and the mortgagee effect separate insurances on their respective interests with different companies, and the mortgagee upon a loss occurring settles the amount of the loss with the company insuring him, this settlement even though the mortgagor may assent to it, does not constitute an estoppel against the mortgagor in favour of the other insurance company, and the mortgagor may nevertheless claim payment under his policy (b).

A statutory condition in Ontario provides that if the property insured is assigned without the written permission of the company the policy shall thereby become void. This, however, applies only to an assignment of the property and not to an assignment of the policy unaccompanied by a transfer of ownership of the property (c).

If a mortgaged property is insured in the name of the mortgagor, with loss, if any, payable to the mortgagee as his interest may appear, and a loss occurs, the surplus insurance money, after payment of the mortgagee's claim, belongs to the mortgagor by virtue of his contract with the insurer, and not by virtue of any obligation of the mortgagee to account in equity to the mortgagor. It follows therefore that the mortgagee is not* entitled to invoke the doctrine of consolidation of mortgages so as to enable him to apply the surplus on account of an overdue mortgage held by him upon other property (d).

(a) Morrow v. Lancashire Insurance Co., 1899, 26 O.A.R. 173. (b) Prittie v. Connecticut Fire Insurance Co., 1896, 23 O.A.R. 449.

(c) McPhillips v. London Mutual Fire Ins. Co., 1896, 23 O.A.R. 524.

(d) Re Union Assurance Co., 1893, 23 O.R. 627. See chapter 9„ Consolidation and Tacking, Sec. 82.