Dungan v. Mutual Benefit Life Insurance

Alvey, J., delivered the opinion of the Court. We have had this controversy before us on a former occasion. It was then in the form of an action of trover for the alleged conversion of the policy of insurance, 38 Md., 242 . That action resulted adversely to the plaintiff; and immediately upon the decision of that case, the present bill was filed.

In the former case, this Court decided that the assignment of the policy by Dungan and wife to Webb was not a pledge, and that, consequently, they had not at the time of the alleged conversion and suit brought, the interest and title of bailors, so as to enable them to maintain an a'ction of trover for the conversion of the policy. We expressly refrained, however, from intimating any opinion as to the rights and liabilities of the parties in a different form of action or proceeding. The policy of insurance on the life of Francis D. Dungan was issued by the defendants on the 17th of June, 1861, to and for the benefit of Mrs. Elizabeth W. Dungan, the wife of the said Francis D., for the sum of $5,000 ; and which policy contains an express agreement on the part of the defendants that, in consideration of the representations made in the application, and of the sum of $245 to them paid by the assured, and of the like sum to be annually paid on the particular day mentioned, during the continuance of the policy, they would well and truly pay or cause to be ⁴⁸⁸ paid, “the said sum insured to the said Elizabeth W. Dungan, or assigns, within ninety days after due notice and proof of the death of the said Francis D. Dungan.” It was also expressly stipulated that in the event of nonpayment of any premium on the day named for its payment, the policy, with all previous payments thereon, and also all interest in profits, should be forfeited to the company. This policy appears to have been issued upon the cancellation of a policy issued by the defendants in 1852, on the life of Francis D. Dungan, for the benefit of a former wife, for $5,000, and which policy was kept alive by the regular payment of premiums until it was can-celled, and the policy of the 17th of June, 1861, substituted in its stead.

At the time of issuing this latter policy William P. Webb was the agent of the defendants in Baltimore, and through whom the policy was obtained. For the purpose of paying the cash part of the premium due on the 17th of June, 1862, Webb, the agent, loaned Dungan and wife the money, and took their note at four months, for $220.25. The cash part of the premium was then paid, and a note given for the residue; and this was the last premium that was ever paid by either Dungan or his wife. Webb, at the time of taking the note for the money loaned, took an assignment of the policy, under the hands and seals of Dungan and his wife, and which assignment is as follows: “ For value received, we do hereby assign, transfer and set over unto Wm.

P. Webb, his heirs or assigns, the above named policy of insurance, and all sum or sums of money, interest, benefit and advantage whatsover, now due or hereafter to arise, or to be had or made by virtue thereof, to have and to hold unto the said Wm. P. Webb, his heirs or assigns.” And at time of the making of this assignment, Webb executed the following receipt and defeasance: “Received of Mrs. E. W. Dungan and Mr. F. D. Dungan, assignment of policy No. 9238, in the Mutual Benefit Life Insurance.Company ⁴⁸⁹ of N. J., life of F. D. Dungan, as security for the prompt payment at maturity of their note, at four months from date, amounting to two hundred and twenty T2„50 dollars; said assignment to be null and void upon the payment of said note at its maturity, otherwise to continue for sole use of Wm. P. Webb." These papers all bear date the 17th of June, 1862. The note given to Webb was not paid at maturity, and, indeed, has never been paid, and consequently the policy was not redeemed ; and Webb, as assignee, paid the premiums as they fell due in 1863, 1864 and 1865 ; and on the 28th of November, 1865, he surrendered the policy to the company, for which he received its reserve value, amounting at that time to $1,248.51.

Mrs. Dungan, the assured, died in August, 1868, and Mr. Dungan, upon whose life the policy was taken, died in April, 1870. Mrs. Dungan died intestate, and letters of administration upon her estate were not obtained by the plaintiff until December, 1871. The present application proceeds upon the theory that the assignment and receipt or defeasance before cited, when taken together, constitute a mortgage to secure the payment ef the note for $220.25, and that there has been no such foreclosure as to preclude the plaintiff the right to redeem the policy, and, under the peculiar circumstances of the case, to recover the amount of the insurance as if the policy subsisted in full force at the death of Francis D. Dungan ; and, accordingly, the plaintiff not only seeks to redeem the policy, but to recover the amount thereof, less the amount of unpaid premiums and interest, due the company, and the amount of the note with interest due Webb, together with the premiums paid by him while he held the policy as assignee. This claim of the plaintiff is controverted by the defendants in all the aspects in which it has been presented; and there has been considerable evidence adduced to show the circumstances of the transac ⁴⁹⁰ tion, and the manner in which the parties concerned dealt with each other in regard to the policy after it was assigned to Webb.

This evidence is, in some material particulars, conflicting ; but it gives rise to questions of the want of good faith and fair dealing on the part of Webb and the defendants, in respect to the right of the assured to redeem the policy while held by Webb, and before its surrender to the company. We have held in the former case that the assignment ' and the receipt or defeasance are to be taken together as the evidence of the contract between the parties, and the character of that contract is to be determined from the manifest intention of the parties thus evidenced. Any agreement in the assignment, or in the separate instrument, showing that the parties intended the assignment to operate as a security for the repayment of money, is all that is' necessary to make it a mortgage, and such an agreement is plainly apparent on the face of the defeasance before recited ; and when it is once ascertained that the assignment is to be considered and treated as a mortgage, then all the consequences appertaining in equity to a mortgage must be strictly observed, and the right of redemption is regarded as an inseparable incident. Jaques vs. Weeks, 7 Watts, 261 .

And, as a general proposition, an agreement, at the time of the loan, to purchase or take the estate at a given price, in case of default, is not permitted to interfere with the right of redemption ; the Court looking at the real contract, which is but a security for the debt, treats the time mentioned for redemption as only a formal part of the instrument, and thus makes the general intention override the words of the particular stipulation. Hipwell vs. Knight, 1 Y. & Coll. Ex. Cas., 415, 416.

Indeed it may be stated as a rule never to be transgressed, that a mortgagor cannot, by any contract entered into with the mortgagee at the time of the mortgage, give up his right of redemption, or fetter it in any manner by confin ⁴⁹¹ ing it to a particular time, or to a particular description of persons. This proposition is abundantly supported by decided cases, which are collected in the notes to the leading case of Howard vs. Harris, 3 Eq. L. Cas., 605, 606, and 625, 6-7. It is clear, therefore, that, notwithstanding the express terms of the defeasance, that in default of payment of the note at maturity, the policy was to continue for the sole use of the mortgagee, the right of redemption was not thereby defeated after the day of payment.

Policies of insurance on life, as well as stocks and personal annuities, are not only assignable but proper subjects of mortgage ; and if accompanied by an actual transfer, the mortgagee may, after default and due notice to the mortgagor to redeem, proceed to sell, without the trouble and delay of bringing a bill to foreclose ; and in such case the title, if the sale be bona fide made, will vest absolutely in the vendee. Dyson vs. Morris, 1 Hare, 413, 425 ; Tucker vs. Wilson, 1 P. Wms., 261; Hart vs. Ten Eyck, 2 John. Ch. R., 100 ; 2 Sto.

Eq. Jur., sec. 1031. Rut in case of a mortgage, or assignment of a policy of life insurance as collateral security for a debt, with right of redemption, the assured is not relieved from the obligation to pay the premiums in order to keep the policy alive, according to the requirement of the contract of insurance, unless it be by some arrangement between the company and the mortgagee; nor is the mortgagee bound, in the absence of some agreement with the mortgagor to that effect, to keep the policy alive and subsisting, by the payment of the premiums as they may accrue due. He may be prompted by his interest to keep the security alive and in an available condition ; but if he pays the premiums while he is the holder of the policy, he pays them on the faith of the policy as a security for reimbursement; but such payment in no way changes the nature of the security itself, — that is to say, such payment in no manner destroys the right of redemption. ⁴⁹² Here the right of redemption is insisted upon, and it is not pretended,that the assured was, hy any arrangement or agreement, relieved from the payment of the premiums as required hy the terms of the policy, Webb did not assume to pay the premiums while holding the policy as mere collateral security.

He accepted the assignment simply as security for the payment of the note which matured at four months from its date, and within the time whiclr the policy would subsist by reason of the last premium paid. Upon what principle, then, can the present claim he maintained, — the assured herself having failed to pay the premiums after the 17th of June, 1862, and there being no premiums paid by any one after the 17th of June, 1865. There seems to he a want of harmony in the authorities as to the real and true nature of the contract of insurance, such as that contained in the policy before us. By some it is maintained, and with great show of reason, that the insured, upon the payment of the first premium, effects an insurance upon the particular life only for one .year, or until the next premium day, and purchases a right to continue that insurance from year to-year, during the life insured, at the same rate, leaving it optional with the assured whether to renew or continue the policy or not, and thus making the payment of the premiums a condition -precedent to any subsequent liability on the part of the > insurers.

This view of the subject is strongly maintained hy the Supreme Court of Connecticut, in the recent case of Worthington vs. The Charter Oak Life Ins. Co., 41 Conn., 372 . While on the other hand, a majority of the Supreme Court of the United States have held, in the case of Th e New York Life Ins. Co. vs. Statham, 3 Otto, 24 , that j the contract is an entire contract of assurance for life, sub- J ject .to discontinuance and forfeiture for non-payment of any of the stipulated premiums, and thus the payment of | the premiums is made a condition subsequent.

But, according to either view of the subject, it is certainly true that ⁴⁹³ exactness and promptitude of payment are all-important to the success of the business of life insurance companies. Without promptness in the payment of premiums all the calculations of the company are liable to be deranged and disappointed. This would work detriment and loss not only to the company hut to its policy-holders generally; and nothing would more certainly destroy all confidence in the company than an understanding that parties dealing with it were not required to observe with strictness the terms of their contracts. Such strict observance is essential to the very nature of the business, and it is the general understanding that time is of the essence of the contract.

From this view of the requirements of the contract, it is clear that, in order to maintain the position of the plaintiff in this case, it is necessary to show by satisfactory evidence, that the assured, while it is admitted she did not pay the premiums, did that which was equivalent to actual payment; that is to say, that she