## Facts

- Kenai Towing and Salvage, Inc. owned improved real property near Kenai, Alaska, including a building it constructed, but it experienced financial difficulty and sought funds from Jack Moran.
- To secure Moran’s advances, Kenai conveyed record title to Moran by warranty deed and Moran leased the property back to Kenai with an option to repurchase; the arrangement was used to secure repayment, not to transfer permanent ownership.
- The parties replaced the initial lease-option with a new agreement dated Oct. 24, 1968, requiring Kenai to pay $500 per month for five years, with Moran obligated to reconvey title upon receipt of the final payment.
- The lease required Kenai to maintain fire insurance on the building (at least $60,000) “covering the interest of the lessor.”
- Kenai could not pay the premiums; Moran paid them with an agreement that Kenai would reimburse him.
- On July 13, 1969, the building was totally destroyed by fire; by Aug. 11, 1969, Kenai had paid $5,100 under the agreements.
- Insurance proceeds became available, and Moran and Kenai disputed how they should be distributed.

## Issues

1. Whether the deed plus leaseback/option arrangement was an absolute sale or, in substance, a mortgage-type security transaction.
2. If the arrangement was security in substance, how fire insurance proceeds should be allocated between Moran (record title holder/lender) and Kenai (debtor in possession/equitable owner).
3. Whether Moran’s contractual status as “lessor” entitled him to all insurance proceeds or only the amount of his insurable interest (secured indebtedness and proper charges), with any surplus payable to Kenai.

## Decision

- The Supreme Court of Alaska affirmed the trial court’s characterization of the transaction as a security arrangement (equitable mortgage), not an outright sale.
- The court held Moran was not entitled to all insurance proceeds merely because he held record title and was described as “lessor.”
- The court approved allocation of proceeds first to satisfy Moran’s secured claim (including amounts properly chargeable such as premiums advanced), with the remaining balance payable to Kenai.

## Legal Principles

- Courts look to the substance of a transaction; a deed coupled with a leaseback and repurchase option may be treated as a mortgage when intended primarily to secure repayment of a loan rather than to transfer beneficial ownership.
- A party’s recovery under property insurance is limited to the extent of that party’s insurable interest.
- Where insurance is required to protect a secured party’s interest, proceeds are applied to the secured debt (and proper advances), and any surplus belongs to the debtor/equitable owner.

## Conclusion

The Alaska Supreme Court treated the deed–leaseback arrangement as security for a loan and limited Moran’s share of the fire insurance proceeds to satisfaction of his secured indebtedness and proper advances, awarding the surplus to Kenai as the equitable owner.


Moran v. Kenai Towing & Salvage, Inc., 523 P.2d 1237 (Alaska 1974)