Bramblett v. Hargis Ex'r'x

Opinion by John D. Carroll, Commissioner. Affirming. This suit involves $4,500, the proceeds of a paid-up policy for $15,000 issued to Thomas F. Hargis by the New York Life Insurance Company, and a brief history of the facts is necessary to an understanding of the issues involved. In 1892 Thomas F. — 144 — Hargis executed a note for the sum of $22,000 to the Kentucky National Bank, and as security for this note pledged as collateral certain shares of stock in the Commonwealth Land & Lumber Company, two real estate notes of that company, and a policy of insurance upon his life for $15,000. The bank instituted suit and recovered a judgment on the two notes against the land and lumber company, and also brought suit against Judge Hargis on his note for $22,000. While this suit was pending, the appellant, Bramblett, the bank and Hargis entered into a written contract, the material parts of which are as follows: “For and in consideration of $10,000, cash in hand paid, and considerations hereinafter mentioned, the Kentucky National Bank, and the Mechanics’ Trust Company, assignee, hereby respectively .assign, transfer, and deliver to George W. Bramblett, without recourse on either of them, all their respective rights, title and interest in and to all their claim or claims against Thomas F. Hargis, the Commonwealth Land & Lumber Company, and the North Cumberland Manufacturing Company, now in suit in the Jefferson Circuit court, or otherwise; and, as a further consideration for the transfer, any claim of Thomas F. Hargis in said suit against the Kentucky National Bank must be dismissed by him settled, and said bank will also dismiss its suit against the said Hargis on the note sued on therein settled. But it is expressly agreed by the said Thomas F. Hargis that the said Bramblett may. continue to prosecute the suits for a collection and enforcement of the judgment against the Commonwealth Land & Lumber Company, and that the settlement of said suit shall not interfere with the right or title to said judgments, it being intended by the dismisal of the suit against Hargis to merely release him from any liability from any personal judgment, but not to release . the collateral. ’ ’ The effect of this contract — 145 — was that Hargis was released from all liability on his note for $22,000, and that Bramblett, in consideration of the $10,000 paid by him, became the owner of the judgments against tire land and lumber company, and as he contends the owner of the life insurance policy for $15,000, which had previous to that time been converted into a paid-up policy for $4,500. This the appellee as widow and executrix of Thomas F. Hargis, denies, and the chancellor by whom the case was heard decided in her favoi*. The insurance policy is not mentioned in the contract, although it was pledged in connection with the stock and notes of the land and lumber company as collateral to secure the payment of the Hargis note. It is in evidence that this policy was in the possession of the bank at the time this contract was entered into as a part of the collateral pledged to the bank by Hargis to secure his note, and that it was delivered by the bank to Bramblett, and that there was no other consideration than the contract for the delivery to him of the policy. This policy and the shares of stock in the land and lumber company were delivered to Bramblett- by the bank on January 23, 1901, and on the 20th day of February, following, the policy was assigned by the hank to Bramblett with the consent of the company. Bramblett retained possession of the policy obtained by him from the bank until after the death of Judge Hargis, in 1903. The president of the bank testified that at the time the contract was written he overlooked the fact that the life policy had been pledged by Hargis to the bank, but it was the purpose of the bank to transfer to Bramblett all the collateral pledged to secure the payment of the note. The attorneys who wrote the contract say that the insurance policy was not mentioned in any of the conferences leading up to the contract, nor was Judge Hargis present at any of them; all the negotiations being between the bank, its attorneys, and Bramb — 146 — left, except that the contract was signed by Hargis. AYe do not, however, deem it necessary to further consider the question whether or not the insurance policy passed to Bramblett under the contract, as in no event is he entitled to the proceeds of it. Bramblett had no insurable interest in the life of Hargis. The policy was not transferred to him because he was a creditor, nor was he related to Hargis in any degree of kinship, or at least not in such degree as to give him an insurable interest in his life. Hargis had been released from all obligations t.o the bank, his indebtedness to it was satisfied by the assignment of the collateral to Bramblett, and the payment by Bramblett in consideration therefor of $10,000, nor did Bramblett have any claim against Plargis growing out of any of the transactions referred to in or connected with the contract. There is irreconcilable conflict in the courts of last resort as to the validity of the assignments of policies of insurance to persons who have no insurable interest in the life of the insured, but it is the settled law of this State, as announced in repeated decisions of this court, that the sale or assignment of a policy of insurance to a person who has no insurable interest in the life of the insured is void as between the parties. This rule of public policy was first declared in Bayse v. Adams, 81 Ky. 368, 5 Ky. L. R. 91 in which the court, citing with approval Warnock v. Davis, 104 U. S. 775, 26 L. Ed. 924, said: “In all cases there must be a reasonable ground founded upon the relations of the parties to each other either pecuniary or of blood or affinity, to accept some benefit or advantage from the continuance of the life of the assured, otherwise the contract is a mere wager by which the party taking the policy is directly interested in the early death of the assured. Such policies have a tendency to create a desire for the event. They are therefore, independent of any statute on — 147 — the subject, condemned as being against public policy. The assignment of a policy to a party not having an insurable interest is as objectionable as the taking out of a policy in his name. We are unable to see why the rule recognized by all the authorities as applicable to, and which renders invalid because against public policy, policies of life insurance taken for the benefit of the party having no insurable interest in the life of the person in whose name it is issued, should not be also invalid as to an assignment of the policy where the assignee has no such insurable interest.” And it has been followed in a number of cases: Beard v. Sharp, 100 Ky. 606 Ky. 18 Ky. L. R. 1029; 38 S. W. 1057; Barbour’s Adm’r, v. Larue’s Assignee, 106 Ky. 546; 21 Ky. L. R. 94; 51 S. W. 5; N. Y. Life Ins. Co. v. Brown’s Adm’r, 66 S. W. 613, 23 Ky. Law Rep. 2070; Baldwin v. Haydon, 70 S. W. 300, 24 Ky. Law Rep. 900; Wrather v. Stacy, 82 S. W. 420, 26 Ky. Law Rep. 683; Lee v. Mutual L. Ins. Co., 82 S. W. 258, 26 Ky. Law Rep. 577; Schlamp v. Berner’s Adm’r, 51 S. W. 312, 21 Ky. Law Rep. 324; Embry’s Admr’s, v. Harris, 52 S. W. 958, 21 Ky. Law Rep. 714. The rule'so established may be thus stated: To make the sale or assignment of a policy valid as between the parties, the assignee or purchaser must be related to the insured in such a degree as would authorize him to take out insurance on the life of the assignor or vendor, or he must be a creditor, and if a creditor he can only participate in the proceeds of the policy to the extent of the indebtedness the policy was sold or., assigned to secure. Counsel for appellant, in an able an exhaustive brief, presents the argument that this rule should not be held to embrace paid-up policies of insurance, and presses on the court that there is a marked distinction between the sale or assignment of that class of policies where the annual or other premium must — 148 — be paid by the assignee, and policies that are fully paid up, and insists that the reasons forbidding the sale or assignment of the former can have no application to the latter, as a paid-up policy is in effect a gift of a specified sum payable upon the death of the assignor, and conveyances or devises, in substance the same as this, are upheld by all the courts without question. But life insurance occupies a distinct and peculiar field in the business world, and this court has committed itself to the doctrine that the rules of law governing the ordinary transactions of the commercial interests of the community in reference to the sale and assignment of chattels, choses in actions, and other property, do not apply to policies of life insurance, and we are unable to perceive any substantial or well-founded difference, so far as this rule of public policy is concerned, between a paid-up policy of insurance and one upon which annual or other premiums must be paid. The reasons that forbid the sale or assignment of the one apply with equal force to the other, as at last the question is not so much the payment of the premiums but the fact that the reception of the amount due upon the policy depends upon the death of the insured, thus creating a desire that the life upon the termination of which the payment of the money depends shall be ended as speedily as possible. It is further urged that Bramblett was a creditor of Hargis at the time the policy was assigned, and therefore, did have an insurable interest in his life, and,for the purpose of tendering this issue, Bramblett, during the progress of the case, offered an amended pleading, in which he alleged that at the time of the assignment of the policy Hargis was indebted to him in a large sum growing out of a debt that Bramblett had paid for him as his surety on a replevin bond, and that to the extent of this payment he was a creditor of Hargis, and therefore had an insurable — 149 — interest in Ms life that entitled him to the proceeds of this policy to the extent at least that it might be necessary to pay this debt. There would be great force in this contention, except- for the fact that Bramblett rests altogether his right to this policy on the ground that it passed to him under the contract before mentioned, and it is not pretended that the indebtedness of Hargis on account of the payment of the replevin bond entered into or had anything to do with this contract. As the chancellor very correctly said: “Bramblett stakes his case upon the contract of assignment of December 13, 1900, and upon this he must stand or fall, and I do not know of any rule of common law or principle of equity by which Bramblett can claim a lien for that debt upon this policy. ’ ’ A policy of life insurance or other property pledged to secure a particular debt cannot be held by the pledgee to cover other debts due him. Masonic Savings Bank v. Bangs’ Adm’r. 84 Ky. 135, 8 Ky. L. R. 16; 4 Am. St. Rep. 167; Bernhardt v. Marks’ Adm’r, 93. S. W. 32, 29 Ky. Law Rep. 388. The judgment of the lower court must be affirmed.