Meridian Life Ins. Co. v. Dean

• Decision Date: 17 April 1913
• Citation: 62 So. 90,182 Ala. 127
• Parties: MERIDIAN LIFE INS. CO. v. DEAN.
• Court: Alabama Supreme Court

62 So. 90

182 Ala. 127

MERIDIAN LIFE INS. CO. v. DEAN.

Supreme Court of Alabama

April 17, 1913

Appeal from Circuit Court, Conecuh County; A.E. Gamble, Judge.

Action by Francis J. Dean against the Meridian Life Insurance Company. Judgment for the plaintiff, and defendant appeals. Affirmed.

J.T Moll and Rushton, Williams & Crenshaw, all of Montgomery, and Rabb & Page, of Evergreen, for appellant.

Hamilton & Crumpton, of Evergreen, and D.M. Powell, of Greenville, for appellee.

MAYFIELD J.

This is an action on a life insurance policy for $2,500.

The complaint is in Code form. The defendant interposed seven special pleas, to which demurrers were interposed and sustained. The defendant then declined to plead further and suffered judgment. From that judgment, he appeals, and assigns as error the ruling sustaining the demurrer.

Pleas 1, 3, 4, 5, 6, and 7 each attempted to set up, in varying form, the defense that the policy or contract sued on is illegal and void, because in violation of an act of the Legislature of this state (Acts 1909, p. 111), in that 80 per centum of the first premium was not paid, but was taken by the assured and allowed by the insurance company or its agent, George K. Keady, as a rebate, in violation of the statute. The act in question is entitled, among other things as one "to prohibit misrepresentations, rebating and discriminating by life insurance companies."

That part of the act pertinent to this inquiry is as follows "No life insurance company doing business in this state shall make or permit any distinction or discrimination in favor of individuals between insurants (the insured) of the same class and equal expectation of life in the amount of premiums or rates charged for policies of life or endowment insurance, or in the dividends or other benefits payable thereon, or in any other of the terms and conditions of the contracts it makes. Nor shall any such company or agent thereof make any contract of insurance or agreement as to such contract other than is plainly expressed in the policy issued thereon; nor shall any such company or any officer, agent, collector or representative thereof pay, allow or give or offer to pay, allow or give, directly or indirectly, as inducement to insurance, any rebate of premium payable on the policy, or any special favor or advantage in the dividends or other benefits to accrue thereon, or any paid employment or contract for services of any kind or any valuable consideration or inducement whatever not specified in the policy contract of insurance," etc. A violation of the act is made a misdemeanor.

The shortest and simplest of these pleas is that numbered 1, which is as follows: "(1) That at the time said Stephen Hunter Dean contracted with said defendant for the policy of insurance mentioned in said count it was agreed between him and the agent of the company that the said Stephen Hunter Dean should have and receive a rebate of 80 per cent. of the first year's premium on said policy, and that the said Stephen Hunter Dean did receive the said rebate; wherefore defendant says that the policy mentioned in said count was procured contrary to law, and is void."

This court, in the case of Brooklyn Life Insurance Co. v. Bledsoe, 52 Ala. 538, which was an action on a life insurance policy, in which the insurance company attempted, as in this case, to set up a violation of a state statute to defend the action, said: "The company may have violated the statute, and the agents making the contract may have been liable to the penalty imposed; but neither the assured nor the beneficiaries were involved in or affected by their guilt. While it is a settled principle that a contract founded on an act prohibited by statute is void, yet it is subject to this qualification: That, although the Legislature may forbid the doing of a particular act, a party not privy to it, or involved in the guilt of the transaction, may recover of the guilty actor, unless the act itself is void. Whetstone v. Br. Bank of Montgomery, 9 Ala. 875. The statute did not declare void the policy or contract of insurance made here, by a foreign company, without a certificate of authority. Its purpose was not to absolve the company from liability on its contracts made here. The object was to afford our own citizens ample security against loss because of transactions had here with the companies. The company and its agents are alone guilty under the statute, if they violate it. Such violation they cannot invoke as a protection from liability on their contracts."

In Whetstone's Case, cited above, it is said, in speaking of such illegal contracts: "It is clearly established that no court will lend its aid to one who founds his action upon an illegal or immoral act. If the contract sought to be enforced is malum in se, or forbidden by statute, no court will aid in enforcing it. As, therefore, the emission of paper by the railroad, to circulate as money, was contrary to the charter, any one aiding in the unlawful design, and being thus particeps criminis, could not recover of the railroad company. But although the Legislature may have forbidden the doing of a particular act, a party not privy to it, or involved in the guilt of the transaction, may recover of the guilty actor, unless the Legislature, from considerations of public policy, has declared the act itself void, as in the case of usury and gaming. In these cases the security itself is contaminated by the guilt of the transaction, and is void in the hands of an innocent holder for value. In this case, as the Legislature has not thought proper to declare the obligations of the railroad void, though illegally issued, they will not be so in the hands of an innocent holder. To hold otherwise would be to enable the railroad company to profit by its own violation of the law, and to make the penalty fall upon the innocent." 9 Ala. 884.

Of course, the statutes referred to in the above cases are different from the one now under consideration; but the policy of the law and the object of the Legislature in passing each was no doubt the same as is expressed in the two opinions quoted. Insurance statutes are passed to protect the citizens, not to trap them. The violation of such statutes by the insurance company or its agents should not, and does not, absolve the company from its contracts or obligations, unless the statute so provides by declaring such contracts to be void.

There are few subjects as to which there is more confusion than is involved in the effect of contracts which are induced or procured as the result of acts which are prohibited by law, express or implied, especially when the law imposes a penalty upon, or makes a crime, the doing of the prohibited act. This results from confusing and confounding void, voidable, and illegal contracts. Void contracts, of course, include all illegal ones, as well as others that have no element of illegality. A contract ultra vires a given corporation may be void, but it is not necessarily illegal. The term "void" is often loosely used, when "voidable" is meant. A void agreement or contract, in law, is null; a contract or agreement which may be avoided or rendered null at the option of one or more parties thereto is voidable, but not void until so rendered. An illegal contract is not voidable, because there is nothing to avoid. So far as it is executory, there is nothing to avoid. Third parties may take advantage of the illegality of an executory contract. 1 Page on Contracts,§ 506.

It does not, however, follow that every contract or agreement into which a prohibited act enters, or which such an act aids in procuring or inducing, is thereby rendered either void illegal, or voidable. We must in each case look for the intent of the law that prohibits the act which so entered...