Mutual Benefit Life Ins. Co. v. First Nat. Bank

• Decision Date: 28 October 1914
• Citation: 160 Ky. 538,169 S.W. 1028
• Parties: MUTUAL BENEFIT LIFE INS. CO. v. FIRST NAT. BANK ET AL.
• Court: Kentucky Court of Appeals

169 S.W. 1028

160 Ky. 538

MUTUAL BENEFIT LIFE INS. CO. v. FIRST NAT. BANK ET AL.

Court of Appeals of Kentucky.

October 28, 1914

Appeal from Circuit Court, Hart County.

Action by the First National Bank against the Mutual Benefit Life Insurance Company and others. From a judgment for plaintiff the defendant named appeals. Affirmed.

Richards & Harris, of Louisville, Watkins & Carden, of Munfordville and David Kay, Jr., of Newark, N. J., for appellant.

McCandless & Larimore, of Munfordville, for appellees.

SETTLE J.

In April, 1905, Dr. T. H. Garvin, of Horse Cave, this state, and his son, Ed L. Garvin, then a resident of St. Louis, Mo., or Estonia, N. M., borrowed of the appellee, First National Bank of Horse Cave, Ky. $1,000, for which they executed their joint note, payable one year after date. There was, at the time of the execution of the note, assigned and delivered to the bank to secure its payment two policies of insurance of $1,000 each on the life of Ed L. Garvin, one of these being in the Northwestern Mutual Life Insurance Company and the other in the Mutual Benefit Life Insurance Company of Newark N. J. The latter policy was payable "to Mrs. Bettie Garvin [wife of Ed L. Garvin] if she survived her husband, otherwise to said insured [Ed L. Garvin]." When delivered to the bank this policy contained the following assignment:

"We hereby assign the within policy No. 250654 to First National Bank of Horse Cave, Kentucky, to secure a loan of $1,000.00, the receipt of which is hereby acknowledged.

[Signed] Ed L. Garvin.

Bettie H. Garvin."

While there was some contention as to whether the makers of this note were both principals, or Ed L. Garvin was the principal and T. H. Garvin the surety therein, our examination of the evidence convinces us that Ed L. Garvin was the principal and T. H. Garvin his surety; and it is fairly apparent from the evidence that the entire $1,000 for which the note was executed was received and used by Ed L. Garvin. When this note matured in 1906 it was renewed by the execution of a new note by the same parties and with the same collateral attached as security. Some time after the renewal of the note Dr. T. H. Garvin, at the request of Ed L. Garvin, induced the bank to surrender the policy in the Northwestern Life Insurance Company, which Ed L. Garvin used in borrowing money elsewhere, but there was placed with the bank as collateral security, in lieu thereof, seven shares of the bank's stock, belonging to Dr. T. H. Garvin individually. Although the second note or renewal executed in 1906 became due in April, 1907, it was not paid by the makers or either of them at maturity, or thereafter, and was held by the bank until October 1, 1908, at which time it threatened suit upon the note, to prevent which Mrs. T. H. or Sallie Garvin, wife of Dr. T. H. Garvin, at the instance of the bank, executed to it, in renewal or discharge thereof, her note for a like amount, due one year after date, to which she signed the name of her son, Ed L. Garvin. The note thus executed by Mrs. Garvin was subsequently, within two or three days, also signed by her husband, Dr. T. H. Garvin. At the time Mrs. Garvin executed the note in question to the bank the insurance policy on the life of her son, Ed L. Garvin, in the Mutual Benefit Life Insurance Company and the seven shares of bank stock, which had been held by the bank as collateral security for the old note, were by her left with the bank and were retained by the bank as security for the payment of her note.

After the execution of the last-mentioned note by Mrs. T. H. Garvin, and perhaps before its maturity, Dr. T. H. Garvin died testate. His will appointed his widow executrix and devised to her his entire estate. Although the widow qualified as executrix of the will, she subsequently resigned as such, and Samuel Heatherly was appointed and duly qualified as administrator with the will annexed of the estate of T. H. Garvin, deceased. Before her resignation as executrix, however, Mrs. Garvin brought suit in the Hart circuit court for the settlement of the testator's estate, and about the same time the First National Bank also brought suit on the note in question, proceeding on the theory that Mrs. T. H. Garvin was interested and a principal in certain enterprises in which her son, Ed L. Garvin, was engaged, and in which the $1,000 originally borrowed by him and his father of the bank was used. It, therefore, sought to recover of Mrs. Garvin personally, and as executrix of her husband's will, the amount due on the note, and also to subject the collateral, held by it as security for the note, to its payment.

After the resignation of Mrs. Garvin as executrix, the prosecution of the suit brought by her for the settlement of the estate was proceeded with by Heatherly, administrator with the will annexed. In the meantime yet another suit was brought by the bank against the personal representative of T. H. Garvin and Mrs. Garvin upon other obligations claimed to be owing by them to the bank, and the three actions mentioned were consolidated and heard together. We are only concerned, however, with the action on the $1,000 note. Before the order of consolidation was entered the bank, by an amended petition in that action, made the Mutual Benefit Life Insurance Company, Ed L. Garvin, and Bettie H. Garvin, his wife, parties defendant, following which a warning order was properly taken as to Garvin and wife and an attorney appointed to make defense for them, whose report, showing proper performance of the duty imposed upon him by the warning order, appears in the record. It was alleged in this amended petition that at the time the bank's action was instituted the cash surrender value of the policy on the life of Ed L. Garvin in the Mutual Benefit Life Insurance Company was $311.42, which amount the bank, by reason of the pledge and assignment to it of the policy as security for the note of $1,000, was entitled to collect and apply to its payment, and this the prayer of the amended petition asked to be done.

Neither Ed L. Garvin nor his wife filed an answer to the petition of the bank as thus amended, but the Mutual Benefit Life Insurance Company filed a special demurrer thereto, upon the ground that the court below was without jurisdiction to adjudicate the question of its liability upon the policy on the life of Ed L. Garvin. The demurrer was overruled, and the insurance company, without waiving the question of jurisdiction, then filed an answer, setting up the following grounds of defense: (1) That the original note to secure which the policy was pledged was discharged by the bank's acceptance of the note of Mrs. and Dr. T. H. Garvin; (2) that the financial interest of Mrs. Bettie H. Garvin, wife of Ed L. Garvin, in the life insurance policy was not legally divested and her assignment thereof was not binding upon her; (3) that, even if the assignment was valid, it bound Bettie H. Garvin only to the extent of the satisfaction of the original note, for which it was pledged; and that the assignment of the policy made by her at the time of the execution of that note was, ipso facto, released by the acceptance by the bank of the renewal note executed by Mrs. and Dr. T. H. Garvin; (4) that in life insurance the cash surrender privilege was personal to the insured and did not pass to the assignee of the policy; (5) that the Hart circuit court had no jurisdiction of the subject-matter or of the persons to this litigation.

On the hearing the circuit court reached the conclusion that, according to the terms of the written assignment, the policy in question was pledged to secure the payment of the loan of $1,000, evidenced by the several notes executed therefor, that is, the original note and the subsequent renewals thereof evidencing the original indebtedness; that the debt sued on was that of Ed L. Garvin, and that the note executed by Mrs. T. H. Garvin and her husband, to which the former signed the name of Ed L. Garvin, was but a renewal and not a novation of the original note; that she was only a surety in the last note, which, in view of her coverture, created no liability on her part; and, further, that as the cash surrender value of the policy in the Mutual Benefit Life Insurance Company on the life of Ed L. Garvin was $311.42, the bank was entitled to judgment against the insurance company for the amount thereof. Judgment was rendered in conformity to these conclusions, and from that judgment the Mutual Benefit Life Insurance Company prosecutes this appeal.

It should here be remarked that the policy of $1,000 on the life of Ed L. Garvin was issued by the appellant, Mutual Benefit Life Insurance Company, on the convertible 10-premium life plan. That is, it called for the payment of 10 annual premiums of $44.05, which were paid as they fell due. At the time the policy was issued the insured was 27 years of age and when it was pledged to the appellee, First National Bank of Horse Cave, as security for the note of $1,000 referred to, the premiums thereon for the entire 10 years had been fully paid. In addition, the regular dividends to which the policy was entitled were applied by the insured to the purchase of additional participating insurance, payable with the policy, which additional insurance amounted, on April 18, 1912, to $197, making the total insurance due under the contract $1,197. On March 5, 1901, the company made a cash loan of $100 to the insured on the policy. This loan was increased on November 19, 1903, to $150.05, for the purpose of paying the premium for that year and interest due on the loan to that date. It appears that the interest on this loan due annually on November 19th, the policy anniversary, was paid in cash until November 19, 1908,...