Metropolitan Life Ins. Co. v. Bramlett

• Citation: 224 Ala. 473,140 So. 752
• Decision Date: 31 March 1932
• Docket Number: 7 Div. 77.
• Parties: METROPOLITAN LIFE INS. CO. v. BRAMLETT.
• Court: Supreme Court of Alabama

140 So. 752

224 Ala. 473

METROPOLITAN LIFE INS. CO. v. BRAMLETT.

7 Div. 77.

Supreme Court of Alabama

March 31, 1932

Appeal from Circuit Court, Calhoun County; R. B. Carr, Judge.

Action on a policy of life insurance by James Edward Bramlett, a minor suing by his next friend, Anna Parrish, against the Metropolitan Life Insurance Company. From a judgment for plaintiff, defendant appeals.

Reversed and remanded.

Chas D. Kline, of Anniston, and Cabaniss & Johnston, of Birmingham, for appellant.

Merrill Jones, Whiteside & Allen, of Anniston, for appellee.

FOSTER J.

It is clear that in a controversy between the first beneficiary named in a policy of life insurance and one who was substituted for him upon the written request of the insured who was then insane, and in a controversy between such first beneficiary and the insurer before it has paid the amount of the loss to the substituted beneficiary, or after such payment has been made with notice of the insanity, the right to recover the loss is in the first-named beneficiary, though he had no vested right as such until the loss occurred. Under such circumstances no one of them had acted to his prejudice in reliance upon the continued sanity of the insured, and no one had secured apparent rights upon a valuable consideration. The authorities all seem to support that idea. Slaughter v. Grand Lodge, 192 Ala. 301, 68 So. 367; McMurtray v. McMurtray, 67 Okl. 50, 168 P. 422; Grand Lodge v. Frank, 133 Mich. 232, 94 N.W. 731; Grand Lodge v. McGrath, 133 Mich. 626, 95 N.W. 739; Ownby v. Supreme Lodge, 101 Tenn. 16, 40 S.W. 758; State Life Ins. Co. v. Coffrini (C. C. A. Pa.) 285 F. 560; Sluder v. Nat. Americans, 101 Kan. 320, 166 P. 482, L. R. A. 1917F, 631; Columbian Nat. Life Ins. Co. v. Wood, 193 Ky. 395, 236 S.W. 562; Turner v. Turner (Tex. Civ. App.) 195 S.W. 326; Bosworth v. Wolfe, 146 Wash. 615, 264 P. 413, 56 A. L. R. 1117.

In none of those cases nor in any others we have seen was the suit against the insurer which had paid the amount of the loss to the substituted beneficiary. But there is a dictum in State Life Ins. Co. v. Coffrini, supra, that the insurer would not be liable to the first beneficiary after it has paid the loss to the second in ignorance of the insanity of the insured when the change was made.

But fraud or undue influence in inducing the insured to change the beneficiary, when he had the right to make the change, does not give the first beneficiary any right to claim the proceeds even as against the new beneficiary who may have participated in the fraud. Summers v. Summers, 218 Ala. 420 (8), 118 So. 912; McDonald v. McDonald, 212 Ala. 137, 141, 102 So. 38, 36 A. L. R. 761; Cason v. Owens, 100 Ga. 142, 28 S.E. 75; Slaughter v. Grand Lodge, 192 Ala. 301, 68 So. 367; 2 Couch Ency. of Ins. Law, § 327.

But the general rule is that when a contract is utterly void, it does not have any existence even for the protection of one who relied and acted upon it without notice of its infirmity, and though it is negotiable paper. Hanover Nat. Bank v. Johnson, 90 Ala. 549, 8 So. 42; Kuhl v. M. Gally U. P. Co., 123 Ala. 452, 26 So. 535, 82 Am. St. Rep. 135; Birmingham Trust & Sav. Co. v. Curry, 160 Ala. 370, 49 So. 319, 135 Am. St. Rep. 102; McCormick v. Fallier, 223 Ala. 80, 134 So. 471.

We have stated the foregoing principles, not because they are disputed, but merely as preliminary to a consideration of the question in this case. For they inevitably lead to the conclusion that if the insured's request for a change of the beneficiary in this case was void because of his insanity at the time he executed it, no bona fides nor other circumstance could protect any one against the claim of its invalidity, though he acted upon it in good faith.

One question only is therefore of any uncertainty in this case. That is, whether the insured's insanity caused his request for a change of beneficiary to be utterly void, or did it merely confer upon some one the right at his election to have it avoided on that ground?

In order to answer that question, we inquire into the nature of the instrument by which the insured caused the insurer to change the beneficiary. The plaintiff was the original beneficiary named in the policy, but does not claim that it was assigned to him by the insured, or that it does not contain a clause reserving the right in the insured, with the consent of the insurer properly expressed, to effect a change of beneficiary. Admittedly, under such circumstances, plaintiff was thereby possessed of no vested rights in the insurance contract until there was a loss during that status. Summers v. Summers, supra; Merchants Nat. Bank v. Hubbard, 220 Ala. 372, 125 So. 335; Slaughter v. Grand Lodge, supra.

But such property right of the insured remained and continued unaffected after the attempted change of beneficiary as before. It is not claimed that he thereby assigned the policy to the substituted beneficiary, or otherwise undertook to release his right, still reserved, again to effect such a change, even to the extent of naming his personal representatives as the beneficiary. The effect of the attempted change was the exercise of an election reserved to him in the policy to determine whether one or another shall receive its benefits.

An assignment would deprive him of the right thereafter to name his own estate or any one else as the beneficiary. Undoubtedly an assignment by an insane person of his rights conveys nothing.

In our case of Head v. Lane, 186 Ala. 335, 65 So. 343, property was left to one for life with a power of disposition, and with remainder to plaintiff, if not disposed of. The life tenant, while insane, conveyed to defendant. The court held that since the conveyance of the life tenant was void, plaintiff was entitled to the property rather than defendant. Here was a defendant claiming under the deed of an insane grantor.

No one can question that under our law the contracts of an insane person are ordinarily void so as not to bind him personally, even in favor of an innocent purchaser for value. Section 6824, Code; Walker v. Winn, Adm'r, 142 Ala. 560, 39 So. 12, 110 Am. St. Rep. 50, 4 Ann. Cas. 537; Dougherty v. Powe, 127 Ala. 577, 30 So. 524; Head v. Lane, supra; Hughes v. Bullen, 209 Ala. 134, 95 So. 379; Livingston v. Livingston, 210 Ala. 420, 98 So. 281; Alexander v. Livingston, 206 Ala. 186, 89 So. 520; Galloway v. Hendon, 131 Ala. 280, 31 So. 603. This had been the settled law prior to our statute supra. Dougherty v. Powe, 127 Ala. 577, 30 So. 524; Wilkinson v. Wilkinson, 129 Ala. 279, 30 So. 578; Galloway v. Hendon, 131 Ala. 280, 31 So. 603.

But the great weight of authority in other jurisdictions is that where the contract of an insane person is entered into and has become executed in good faith for a fair consideration without notice of the infirmity, it will not be set aside unless the parties are restored to their original position. Many authorities to that effect are noted in 46 A. L. R. 419, et seq. In line with the manifest need of the existence of some such right and the equities of such a rule, our statutes have made somewhat similar provisions in favor of bona fide purchasers for value of real estate from an insane person. Sections 6822, 6823, Code. But except as protected by such statutes, under our authorities one who contracts with an insane person takes nothing, though ignorant of his insanity, and though he paid value, and his contract is valid for no purpose, whether executed or executory.

In other states the broad principles of equitable right control the courts. They hold it inequitable to say that one who innocently enters into and performs a contract with an incompetent that is fair to him does so at his peril to lose what he has thus in good faith paid him. 2 Story Eq. Jur. (12th Ed.) § 1365-d.

We have here an instance where there are two volunteers, neither with a vested right prior to the death of the insured, between whom stands an innocent stakeholder. The law is clear that due to the insanity of the insured, the first is due to receive and may now recover of the second the amount paid him by the insurer in ignorance of the claim of the first, and may have recovered it of the insurer before it made such payment. The question now is, Who shall have the burden and take the risk of recovering it from the substituted beneficiary, the plaintiff or ...