Tate v. Commercial Building Ass'n , 45 L.R.A. 243 ( 1899 )

Riely, J.,

delivered the opinion of the court.

In the year 1891 the Commercial Building Association, (a corporation,) applied to the Maryland Life Insurance Company for a loan of $12,000, which the latter agreed to make upon certain conditions. It required that the Association execute its bond for the amount of the loan, and that the same be signed by its stockholders as sureties. It also required that the Association secure the bond by deed of trust on ninety-four of its lots, and, as a further security for the loan, that it insure the lives of three of its youngest members in the sum of $20,000. The evidence establishes that the Association, in compliance with this last requirement, entered into a verbal agreement with W. II. Wrenn, B. E. Hughes, and J. D. Tate, the appellant, that they take out policies of insurance upon their lives for its benefit in the Maryland Life Insurance Company, aggregating the required amount, upon which the Association would pay the premiums.

The evidence further shows that Wrenn, Hughes, and Tate-insured their lives for the specified sum, but that, in doing so, they did not take out the insurance for the benefit of the Association but each for his own benefit, and then assigned the policies to the Insurance Company, as additional collateral security for the said loan. This variance from the agreement did not become known to the Association, or to any of the other members until after the death of Wrenn, when the appellant claimed to be entitled as assignee of Wrenn to the proceeds of his policy, subject, however, to the right of the Insurance Company under the prior assignment of the policy to it by Wrenn as collateral security for the loan to the Commercial Building Association.

The Insurance Company paid the policy by applying its proceeds as a credit on the debt owing to it by the Association.

This suit was brought by Tate to recover from the Association the amount of the policy, less the indebtedness of Wrenn to it for premiums paid, upon the ground that the proceeds of the policy had been applied by the Insurance Company, by virtue of the assignment from Wrenn, to its debt against the Association; and also to recover the amount of contributions by Tate to pay his proportionate part of assessments made by the Association against the members to meet the premiums on the policies, and the interest on the debt to the Insurance Company. Tate was the Secretary of the Association and apportioned the assessments among the members, including himself, and paid his proportionate part of them up to the death of Wrenn, but thereafter refused to do so.

When the agreement was made that Wrenn should take out the insurance on his life for the benefit of the Association, he, was not indebted to it as a stockholder or otherwise, and did not thereafter become-indebted to it, except for the premiums paid by it on his policy. The Association clearly had no insurable interest in his life.

In Warnock v. Davis, 104 U. S. 775, Mr. Justice Field said:

“ It is not easy to define with precision what will in all cases constitute an insurable interest, so as to take the contract out of the class of wager policies. It may be stated generally, however, to be such an. interest, arising from the relations of the party obtaining the insurance, either as creditor of or surety for the assured, or from the ties of blood or mairiage to him, as will justify a -reasonable expectation of advantage or benefit from the continuance of his life.” See also- Richardson Insurance, sec. 27; 1 May on Insurance, sec. 102a; Life Insurance Co. v. Luchs, 108 U. S. 498; and Roller v. Moore, 86 Va. 312.

If the agreement had been complied with by Wrenn, and he had taken out the insurance on his life for the benefit of the Association, the policy would have been invalid. The Association could not have recovered from the Insurance Company updn the policy, certainly not bdydnd th'ó pfémium's paid* if indeed at all. An assignee of a policy having no insurable interest in the life of the insured can only retain so much of the proceeds, where the insurance was lawfully effected, as is necessary to reimburse him for premiums paid, expenses incurred, and interest thereon. Roller v. Moore, supra; Long, trustee, v. Meridian Britannia Company, 94 Va. 594; Beatty v. Downing, 96 Va. 451; and New York Life Ins. Co. v. Davis, 96 Va. 737. A fortiore, the Association, having no insurable interest in the life of Wrenn, could not occupy any better position, if he had carried out the unlawful agreement and insured his life for its benefit instead of his own.

The agreement that the insurance should be effected by Wrenn for the benefit of the Association was contrary to public policy, and invalid. Wrenn did not keep the unlawful agreement, but took out the insurance for his own benefit, which was wholly lawful. ITe then assigned the policy to' the Insurance Company as collateral security for the debt due to it by the Association. Upon the death of Wrenn, the Insurance Company paid the policy by crediting the amount on the debt the Association owed it, and for which it held the policy by assignment as collateral security. The Association received and accepted the benefit of the policy. It would, therefore, have,become liable to Wrenn’s estate for the amount of the policy if he had not assigned it in his lifetime to Tate. The latter, as assignee of Wrenn, is clothed with all his rights. The Association can make no defence against Tate that it could not have made against Wrenn. It would have had no lawful ground of complaint against Wrenn for not taking out the policy for its benefit, and can have none against Tate. An agreement between two persons that one of them shall make a contract with a third person for the benefit of the other, which contract would be unlawful, cannot constitute an estoppel to a claim against the intended beneficiary who has received from such third person the fruits of a lawful contract substituted for that which would have been unlawful. An unlawful agreement cannot defeat a lawful right. A contract which is void as being against public policy cannot create an estoppel, if indeed it has vitality for any purpose.

The maxim, “in pari delicto potior est conditio defendentis,” was also invoked by the appellee to defeat a recovery by the complainant. Wrenn, as we have seen, did not carry out the unlawful agreement and insure his life for the benefit of the Association, but'took out the policy for his own benefit. The insurance effected was in all respects a valid contract, and he cannot be considered to be in pari delicto, but if he had performed the agreement and taken out the policy for the benefit of the Association, the agreement was not of that kind with respect to which courts fold their hands and refuse to interfere. Warnokc v. Davis, 104 U. S. 775.

The agreement was not intrinsically immoral or evil, hfo fraud or deception upon any one was designed by the agreement. Its execution involved no moral turpitude. It was simply condemned by the law because contrary to the interests of society. In such case, the maxim, in pari delicto, it not inflexibly applied, but the court will consider whether public policy will be promoted and like agreements be discouraged by enforcing or avoiding the agreement, and if the policy of the law will be advanced by granting relief, it will be given. Pomeroy’s Eq. J., secs. 403, 941; 1 Story’s Eq. J., sec. 298; Starke v. Littlepage, 4 Rand. 368; and Cardwell v. Kelly, 95 Va. 570.

To allow any one to retain the proceeds of a policy of insurance, if the insurance company chose voluntarily to pay it, which was effected for his benefit upon the life of another, in which life he had no insurable interest, whether the policy was issued upon the life of the insured directly for such beneficiary, or for the benefit of the insured and then assigned by him to the beneficiary, woidd encourage speculation upon the chances of human life, with a direct interest in its early termination, contrary to the public interest, and in contravention of the policy of the law. The denial of all right in the beneficiary to retain in such case more of the proceeds of the policy of insurance than is necessary to reimburse him for premiums paid and expenses incurred dissipates all hope of profit and removes the temptation to speculate in insurance upon human life.

In Cammack v. Lewis, 15 Wall. 643, Lewis procured, at Cammack’s suggestion, a policy of insurance on his life for $3,000. Gammack paid the premium, and immediately' after the policy was issued, Lewis executed his note to Gammack for $3,000, for which there was no consideration, and assigned the policy to him in absolute terms. Lewis at the time owed Gammack only $70. He died seven months after taking out the policy, and Gammack collected it. In an action against him by Lewis’ administratrix, it was held that she was entitled to recover the proceeds of the policy, subject only to the extent of Lewis’ indebtedness to Gammack, including the amount of the premium he had paid on the policy.

In Warnock v. Davis, 104 U. S. 775, the plaintiff’s intestate, on applying for a policy of insurance on his life, entered into an agreement with a Trust Association, whereby the latter was to pay all fees and assessments on the policy and receive nine-tenths of the amount due thereon at the death of the insured. On receipt of the policy, he assigned it to the .Trust Association, but reserving a one-tenth interest, which he directed should be paid to his wife. Hpon the death of the insured, the Association collected the policy, paid to his widow one-tenth thereof less certain sums due under the agreement, and retained the residue. Suit was brought against the Association by the administrator of the insured to recover the residue of the money it had received on the policy. It was held, the case of Cammack v. Lewis, supra, being cited and approved, that the plaintiff was entitled to recover from the Association the money it had collected on the policy with interest thereon, less the sums advanced by it in payment of ffePs a!nd hSsPáSniénfe.

Tate, by tbe assignment, acquired tbe policy of Wrenn, subject to tbe rights of tbe insurance company to apply tbe proceeds of tbe policy to tbe debt of tbe Association, but with tbe right, if so applied, to claim tbe amount from tbe Association, less such sum as might be due to it for premiums paid for Wrenn on tbe policy. If tbe policy bad been taken out by Wrenn directly for tbe benefit of tbe Association according to tbe agreement, it would not have bad any right to tbe proceeds beyond tbe amount of tbe premiums it bad paid, if indeed to that extent; and it has, as is conceded, tbe right to claim out of tbe proceeds as against Tate tbe amount of tbe premiums so paid. So that Tate, in taking from Wrenn an assignment of bis policy has not deprived tbe Association of any lawful right or interest, pecuniary or otherwise, notwithstanding any relation be may have borne to tbe Association, be has done it no injury in acquiring Wrenn’s policy. He is, therefore, entitled to recover from it tbe amount of tbe policy, subject to a deduction of tbe amount for premiums paid by it on tbe policy; and be is also entitled to recover tbe amount contributed by him to enable it, along with like contributions from other members, to pay tbe interest on its debt and tbe premiums on tbe policies assigned to tbe Insurance Company as collateral security for tbe said debt.

On April 15, 1896, a judgment was confessed by tbe Commercial Building. Association in tbe Circuit Court of Lynchburg in favor of tbe Commercial Bank of Lynchburg for tbe sum of $134.94:, and constitutes a lien on tbe property of tbe Association. The issue was made by tbe bill that tbe judgment created an illegal preference in favor of one of tbe creditors of tbe Association, and is within tbe provisions of sec. 1149 of tbe Code. Tbe evidence proves that tbe judgment was not for a debt contracted or money borrowed at tbe time of tbe creation of tbe lien, but for an antecedent debt.

Any lien or encumbrance created by tbe voluntary act of such company, that is, a company chartered by a court, for tbe purpose of giving a preference to one creditor ovei* another creditor, except to secure a debt contracted or money borrowed at the time, is within the provisions of the statute, and by the express terms thereof enures to the benefit ratably of all its creditors. A confession of judgment is not a passive but an active act on the part of the debtor. Such a company may suffer a judgment to be recovered against it by default, where it has no defence to the debt, but it cannot confess a judgment for an antecedent debt, and thus voluntarily and actively create a lien on its property, without the lien enuring ratably to the benefit of all its existing creditors. Such an act is within the spirit as well as the very letter of the statute. The judgment was confessed by the President of the Association in pursuance of a resolution adopted that day by the Association, and he testified that it was done “to secure the Commercial Bank in preference to securing ourselves,” Tate being confessedly one of “ ourselves.” It follows that the lien created by the judgment confessed in favor of the Commercial Bank enures to the benefit ratably' of all the creditors of the company then existing.

The decree of the Circuit Court must be reversed, and the cause remanded to it for further proceedings to be had therein in accordance with the views expressed in this opinion.

Reversed.