Tate v. Commercial Bldg. Ass'n

• Decision Date: 06 April 1899
• Citation: 33 S.E. 382,97 Va. 74
• Court: Virginia Supreme Court
• Parties: TATE. v. COMMERCIAL BLDG. ASS'N et al.

33 S.E. 382

97 Va. 74

TATE.

v.COMMERCIAL BLDG. ASS'N et al.

Supreme Court of Appeals of Virginia.

April 6, 1899.

INSURABLE INTEREST—RIGHT TO PROCEEDS OP POLICY—CONTRACTS — LEGALITY — PARTIES IN PARI DELICTO—ESTOPPEL—BUILDING ASSOCIATIONS—OFFICERS — PREFERENCES—JUDGMENT BY CONFESSION.

1. A building association has no insurable interest in the life of a stockholder not indebted to it

2. An agreement that insurance shall be effected by a person on his own life, for the benefit of another having no interest in his life, is void, as against public policy.

3. A contract that is void, as against public policy, cannot create an estoppel.

4. A building association, about to borrow money, agreed with the lender to insure the lives of three of its members, nonborrowers, and assign policies to secure the loan. Such members, without the knowledge of the association, took out the insurance for their own benefit, instead of for the association, but assigned them as collateral for the loan. One of the members died after assigning his interest in the policy to another, subject to the rights of the lender, and the lender credited the association with the amount received on the policy. The assignee of deceased's interest sued the association for the amount revived by it as a credit. Held, the agreement being against public policy, that a recovery was not precluded on the ground that deceased was in pari delicto with the association, since he did not carry out the agreement.

5. Even if he had taken out the policy for the association's benefit the court would not deny a recovery on that ground, since the agreement was not intrinsically evil, and it would encourage speculation on the chances of human life to allow any one to retain the proceeds of a policy effected for his benefit on the life of another in whose life he had no insurable interest.

6. The fact that the assignee was an officer of the association did not preclude him from taking the assignment.

7. The measure of recovery against the association is the amount of the policy, less the premiums paid by it for the insurance, and also the amount contributed by the assignee as a member of the association to aid it in paying the premiums and the interest on the money it borrowed on the security of the policies.

8. A confession of judgment by a corporation to secure an antecedent debt is an illegal preference, within Code, § 1149, providing that, if a corporation "create any lien or incumbrance on its works or property, for the purpose of giving a preference to one or more creditors, except to secure a debt contracted or for money borrowed at the time of the creation of the lien or incumbrance, the same shall inure to the benefit ratably of all the creditors."

Appeal from circuit court of city of Lynchburg.

Suit by J. D. Tate against the Commercial Building Association. From a decree for defendant, plaintiff appeals. Reversed.

Caskie & Coleman, John H. Lewis, and J. Randolph Henry, for appellant.

Lee & Howard and Harrison & Long, for appellee.

RIELY, J. 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 94 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. H. 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 thepolicy 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 to it of 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 bis 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 premuims 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 marriage to him, as will justify a reasonable expectation of advantage or benefit from the continuance of his life." See, also, Richards, Ins. § 27; 1 May, Ins. § 102a; Insurance Co. v. Luchs, 108 U. S. 498, 2 Sup. Ct. 949; and Roller v. Moore's Adm'r, 86 Va. 512, 10 S. E. 241.

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 upon the policy, certainly not beyond the premiums paid, if, indeed, at all. An assignee of a policy, having no insurable interest in the life of the insured, can only...