insurable interest, otherwise the contract is a wager, which the law
condemns. This is sufficient if the person taking the insurance has
such an interest arising from his relation to the insured as creditor
and surety, or from the ties of blood or marriage that will justify a
reasonable expectation of advantage or benefit from the continuation
of his life. It is not needful that this expectation or benefit should
possess a pecuniary valuation. The mutual legal rights and liabilities
of father and minor child are sufficient to create an insurable
interest on the part of each in the life of the other; also the
relationship of brother and sister, and that of husband and wife.
Likewise a man and a woman who are engaged to be married; and a
creditor has an insurable interest in the life of his debtor. And this
interest covers not only the amount of the indebtedness, but also
future advances, and the cost of taking out and keeping up the
insurance. A partner who has advanced the capital of the business has
an insurable interest in the life of his partner. More generally any
person who invests money relying on the efforts of another to produce
a return has an insurable interest in such person's life. A surety
therefore has an insurable interest in the life of his principal; an
executor in the life of a person who has granted an annuity to the
testator; a common carrier even may insure against loss from injuries
to passengers. But the relationship between uncle or aunt, nephew and
niece and that of cousin is not sufficient to support a policy taken
by one in the life of the other.
A policy may be assigned to one who has no insurable interest if made
in good faith, and not as a cloak for the procuring of insurance by
one having no insurable interest. This rule does not prevail
everywhere, but the courts which do not accept this rule usually
protect the assignee who has paid the premiums to the amount of his
payments, while the estate of the insured takes the balance that may
come from the insurer, whenever the assignment of the policy is not
invalid. An assignment to one who has an insurable interest as
relative, creditor and the like, is always valid.
A general agent, says Justice McClain, "may bind the company by an
agreement as to rate of premiums, or other terms of the contract, even
as against the express provisions of a policy subsequently issued,
there being no negligence on the part of the insured in failing to
advise himself as to the terms of the policy; but if the want of
authority of the agent to vary the terms of the application is brought
home to the applicant, oral communications of the insured to the agent
are not to be considered in determining the validity of the insurance.
If the agent has exceeded his authority as to the terms of the
proposed contract, the company cannot reject that part which the
agent was without authority to make and enforce the rest, but must
accept or reject in toto."
Until a proposition for insurance has been accepted by the company
there is no contract. Delay in accepting an application which is
subject to approval does not effect an acceptance. There may be a
binding contract of insurance as soon as the company has accepted the
application, or on the delivery and acceptance of it by the company's
agent, when he has authority to do so. In order to complete the
contract before issuing the policy there must be an agreement to this
effect, and before the death of the applicant. The receipt by an agent
for the first premium, or of a note therefor, subject to the approval
of the application by the company, does not effect a contract between
insurer and insured.
Some states have enacted statutes prescribing requirements for life
insurance policies, or standard forms. Delivery to a third person for
the insured may be sufficient. The contract becomes complete when the
policy is put in the mail, postage prepaid, for delivery in due course
to the insured. Delivery to the insured for examination of course does
not effect any engagement on the part of the insurer, nor does a
delivery on condition.
It is often stated that the delivery shall not be effectual to create
a contract unless the insured is alive and in good health when the
policy is delivered and the first premium is paid. Indeed, how could
it be valid if the insurer is dead? And if the contract is with a
person other than the insured as beneficiary, it would be void on the
ground of mistake. Likewise, under such a condition, a policy does not
become effective, without a waiver, if the insured is in ill health at
the time of its delivery or payment of the premium.
Unless waived by the company, there is usually a stipulation to the
effect that the company shall not become bound until the first premium
has been actually paid and accepted by the company or its authorized
agent. But if the premium is actually paid by the agent of the company
for the insured by virtue of an agreement between them, this will bind
the company. The payment of the premium by a third person without the
knowledge of the insured does not have the same effect.
A general agent has authority to waive the stipulation, that the
policy shall not take effect until the first premium is paid, though
of course he may be restricted in this regard, but a special agent
cannot waive this stipulation; though if he acts otherwise and the
company ratifies his act, it is bound. A provision also that a policy
shall not be valid unless the premium is paid when the insured is in
good health may be waived by an agent who has authority to take
applications, collect premiums and deliver policies.
Passing to the nature of the contract, if made in violation of a
statute, or if contrary to public policy and this is known by both
parties, it is void. Thus a stipulation that a policy shall be payable
though the insured may be executed for a crime is contrary to public
policy and is therefore void. The same is true of a stipulation
insuring against death by suicide while sane. It is against public
policy to allow one person to have insurance on the life of another
without his knowledge. A policy issued on a person beyond a specified
age is prohibited by statute.
What is the effect of fraud in negotiating and issuing policies? If
the company or its agent perpetrates a fraud whereby one is induced to
take out a policy, he can at his option declare it void, unless so
negligent in acting as to work an acquiescence of it. But if acting in
a proper way and time he can set up fraud as a defense in an action to
get the premium for which the contract has stipulated; or he may sue
to have the policy declared void and his premiums returned to him; or
he may bring an action against the company or its agent, or both, to
recover the damages he may have sustained by the fraud that has been
practiced on him.
On the other hand, if the insured has been wronged, the courts furnish
relief, and perhaps may set the policy aside. Mistake is a common
ground of relief; it must in all cases be clearly proved. And if a
policy is susceptible of two constructions, the ambiguity is to be
resolved in favor of the insured. As the company framed the policy all
of its provisions in its favor are strictly construed. It may be added
that the construction which the parties themselves have put upon a
contract of life insurance will be generally followed in determining
their intention. Again, the entire contract is to be construed
together for the purpose of giving effect to each clause and as
between general and specific provisions relating to the same matter
the specific provisions control.
In determining who is the beneficiary under the terms of a policy of
life insurance the courts are governed by the intentions of the
parties. They need not be named if they can be otherwise identified,
and may be designated in a separate paper prepared for that purpose.
The amount named in the policy generally fixes the liability of the
company. To obviate the wager feature, the amount of insurance
effected for a creditor on the life of his debtor ought to be limited
to the amount of the debt with interest and premiums during the
expectancy of the life insured.
The risk is presumed to begin from the date of the policy and to
continue until the happening of the contingency or time when payment
is to be made by the insured. It may be added that words or figures
written or printed on the margin of a policy of life insurance, on its
back, or on a slip, with reference to the terms and conditions of the
contract, constitute a part of it and must be considered in deciding
its meaning. But representations made in a prospectus or circular
issued by a life insurance company are no part of a contract.
The payment of premiums to a general agent without notice of any
limitation of his authority to receive payments will bind the company,
but a different rule applies to a special agent. The premiums may be
paid by the insured, or the beneficiary, or by the agent of the
company whenever he has agreed to pay them for the insuring party. A
discount allowed by the company for the punctual payment of premiums
belongs not to the agent, but to the insured. Cash is usually paid,
though other arrangements also exist for taking notes, that are
ultimately paid in cash or from the earnings of the company, and
belong to the insured and would be paid to him. In mutual life
insurance companies a portion of the premium is often paid in this
manner.
A policy of life insurance payable to the insured, or in the event of
his death to his personal representatives, may be assigned unless
forbidden by statute, therefore a policy payable to the wife of the
insured, or another may be assigned by the united act of the insured
and the beneficiary. Thus a policy taken out for a wife's benefit is
often assigned by her and her husband to his creditors to secure
their debts. In some states statutes forbid the assignment of such
policies for the benefit of creditors. The written assignment must be
delivered to the assignee to be effective. On some occasions
assignments have been declared valid where the intention was clearly
proved though both the written assignment and the policy remained in
the possession of the assignor. An assignee who holds a policy as
security is entitled on its payment only to the amount of his claim
and advances with interest, including premiums paid to keep the policy
alive and thus preserve his security. More generally premiums paid for
this purpose are chargeable on the proceeds of the insurance, but a
mere volunteer who pays the premiums acquires no lien on the proceeds
of the policy when it is paid. Nor can one who ought to pay the
premiums give a lien on the policy to another for money advanced by
him to pay them; and an assignee who has promised to pay the premiums
may be liable should he fail to keep the policy alive.
Contracts of reinsurance are often made by all insurance companies. In
some states the reinsuring company becomes liable to an action by the
beneficiary named in the original policy. Where the reinsuring
company, by agreement, undertakes to reinsure the members of the other
company should they execute applications for that purpose, any member
who does this is not required to be reexamined or comply with other
conditions respecting his age or health.
A policy may be canceled or surrendered by mutual agreement. After the
death of the insured the rights of the parties become fixed, and there
can be no cancellation. During his lifetime the insured may abandon
his contract by refusing to pay the premiums, but an intention to
abandon will not be presumed, nor will the taking out of a second
policy before his failure to pay the premiums on the other establish
an abandonment. If both parties treat the contract as void, neither
can revive it without the consent of the other. As the beneficiary has
a vested or definite interest in the contract, the insured cannot, by
surrendering the policy, cut off the rights of the beneficiary without
his or her consent unless permitted to do so by the contract itself.
A surrender or cancellation of a policy may be avoided on the ground
of mutual mistake. But the insured cannot seek cancellation on the
ground that he thought it was something else when his mistake was
simply his own in not reading the release.
A policy may be rescinded whenever fraud has been practiced by either
party. Thus, should a greater premium be demanded than that stated in
the contract this would be a good reason for rescinding on the part of
the part of the insured. Likewise, if he was induced to take out the
insurance by the fraud of the company or its agent, unless he has lost
his right to rescind through inaction or negligence. Likewise, the
company may rescind for fraud practiced by the insured by
misrepresentation or other fraudulent acts concerning his age, health,
etc. Concealment of facts may and often does operate as a fraud on the
company. Says Justice McClain: "If the applicant has answered the
questions asked in the application he is justified in assuming that no
other information is desired. On the other hand if he wholly fails to
answer questions the company waives information as to matters thus
asked for by accepting the application without objection. If,
however, the applicant purports to answer a question by giving only an
incomplete answer, concealing facts which should properly be stated in
response to the question, and these concealed facts are material, the
policy is voidable." If a material change for the worse in the health
of the applicant takes place after the application and medical
examination, it is the duty of the applicant to disclose it. The
failure to disclose facts of which the applicant is ignorant, or which
are immaterial to the risk, is not ground for avoiding the policy.
When a policy is surrendered or canceled by the contract or by
statute, the insured may be entitled to the surrender value of his
policy. The amount is to be determined by the period for which the
policy has to run, the amount of the annual premium, the age of the
insured, and the probability of the continuance of his life stated in
the usual life tables. The value of an immatured paid-up policy is the
unearned premium called the reserve and is to be computed in the same
manner as that of a policy on which annual premiums are paid. The
beneficiary is entitled to the surrender value as against the insured,
as well as the creditors, unless the beneficiary has consented to
giving them the preference.
By a clause in the contract of insurance or by statute, the insured
can convert his policy into a paid-up policy for such an amount as the
premiums would have secured. These conversions often happen where the
insured is unable or unwilling to continue to pay the premiums
required to maintain the policy. Formerly on the failure of the
insured to pay, policies lapsed or were forfeited, and the insurance
companies gained large sums from this source. This led to legislation
and to the creation of paid-up policies. These are issued on somewhat
different terms, but the principle in all of them is the same.
=Minor.=--The contracts of a minor are of two kinds, those for
necessaries and other things. Contracts for necessaries made by him
the law will uphold. They are really implied contracts which the law
will sustain for his benefit and protection. What are necessaries is a
question of fact, not always easily answered. Much depends on a
minor's place in society and condition. The question is for a jury to
decide, also whether the prices for them are reasonable or not. One of
the well-known cases occurred many years ago. The bill against the
minor was for more than a thousand dollars for twelve coats, seventeen
vests, twenty-three pairs of trousers, five canes, fur caps, chip hats
and other things, in less than six months. The jury rendered a verdict
for almost the entire amount, but the reviewing court remarked that
the bill made the members shudder, that the seller must have known
that all these things were not needed for the minor's comfort within
that short period, and the verdict was therefore set aside.
The question is constantly arising, what are necessaries? A thing
might be to one and not to another. Thus a bicycle merely for pleasure
would not be a necessity; one that is used to go to and from an
individual's daily work would be. A dentist's bill for repairing one's
teeth has been disputed, the law, though, generally favors the
preservation of human teeth. Education furnished to a minor may be a
necessary thing, yet only when it is suitable to his wants and
condition. Should a minor repudiate a contract, the law is observed
if he restores all that he has received, or that is capable of
restoration.
With respect to contracts for other things, they are not always void,
but may be avoided. If they have not been executed, he can disavow
them at any time. If nothing is done during infancy inaction operates
generally as an affirmation. If he disaffirms a contract, he must
return the thing purchased or received, or make the best restitution
he can, for it would not be just to retain possession and refuse
payment.
A different rule applies to a minor who makes a fraudulent contract.
Suppose he buys goods assuring the seller that he is twenty-one years
of age when in fact he is not, though nearly so. Can the seller
recover on his contract? No, but the law has another way of reaching
him. He is liable in an action of deceit, and the amount or damage
that may be recovered is that of the goods sold to him.
A minor who has a parent or guardian cannot make a contract even for
necessaries, nor is he under any obligation to pay his bills for them.
Should he be in need of such things and his guardian or parent be
unwilling to furnish them, they can be compelled by law if having the
means to provide him with whatever he requires.
=Mortgage.=--Two kinds of mortgages are given, one kind is secured by
real estate, the other kind by personal property. In both the borrower
of money pledges his property as security while the money remains
unpaid. During this period he usually remains in possession and
control of the property, though not always. The borrower is called the
mortgagor, the lender the mortgagee. The contract is in writing
sealed, is in fact a deed. Sometimes the contract is in two writings,
the conveyance of the land and security in one, and the conditions or
defeasance on which the conveyance is made in another. It is more
usual, however, to set forth the transaction in a single writing or
conveyance.
A mortgage may be so made as to cover future advances, but it will not
cover them in preference to advances or loans made by another without
any knowledge of them. Nor need another person who makes such a loan
inquire whether a mortgagor has made any other loan, or for a larger
amount than that stated on the public record, where the mortgage deed
is recorded. For, it should be added, a mortgage deed is recorded like
any other for the benefit of all parties, not only to secure the
mortgagee from a later purchaser who might buy if knowing nothing of
the prior mortgage, but from another who might be willing to lend on
such security like himself; or from a creditor of the mortgagor who
might attach the property as belonging to him, if he did not know of
the existence of the mortgage. As the record is public, and may be
examined by everyone, all who are interested in the property are
supposed to examine it and thus find out whether it has been
mortgaged, and if it has been, the conditions of the mortgage, and if
they do not, their neglect is their own.
Improvements, additions of every kind to property after it has been
mortgaged, become a part of it, and if the mortgagee takes future
possession, they pass to him. But a difficult question arises
sometimes, what additions or improvements are included? We have
learned what they are whenever a tenancy relation exists. The law does
not favor a mortgagor to the same extent. The test to apply is that
of intention. If a mill has been mortgaged, the rule is very broad and
the mortgage covers machinery attached by bolts and screws though
removable without injury to the premises. If a mortgage has been
given, by no evidence can it be shown that the deed was intended as an
absolute or entire conveyance of the property. On the other hand by
proper evidence it can be shown that an absolute conveyance was
intended to be only a mortgage. This has been often done. One may ask,
why does the rule not work both ways? There is a much stronger
probability of making a mistake in the second case than in the other.
One of the facts of great importance in such a dispute is the amount
of the consideration or money paid. Suppose a piece of land was worth
$1000 and the deed mentioned only $100, unless there was some other
explanation, there would be a strong probability that the parties
intended only a mortgage which for some reason or other was not
completed.
Again, it is a rule of law that an agreement which is in fact a
mortgage cannot be changed in character by any other agreement made at
the time between the parties relating to the repayment of the money
and the return of the property. The law presumes that the entire
transaction was embodied in the agreement. "Once a mortgage always a
mortgage." Of course this rule does not prevent the parties from
making any later arrangement they please about the property.
A mortgage may be made with a power of sale whereby, should the debt
be not paid at the time fixed, a valid title may be acquired by a
purchase from the mortgagee. The mortgagee thus becomes a kind of
trustee or agent for the debtor. This is a great responsibility to
repose in the mortgagee, and he must perform the trust in good faith
in every respect. He must proceed in a way that will best serve the
interest of the mortgagor, and strictly observe the terms stated in
the mortgage, otherwise the sale will not be valid and the mortgagor
can recover his property. If there is a surplus after satisfying the
mortgage debt it must be paid to the mortgagor, or, if he is dead, to
his heir. Such deeds of trust are made by large corporations to secure
loans, and may be made to secure future advances as well as present
ones.
If the property is sold to satisfy the mortgage debt, the mortgagee
cannot purchase it, unless authorized by statute, or by the terms of
the mortgage; but if it is sold by an officer of the law, the
mortgagee is as free to purchase it as any other individual. This
rule, though, is denied by some courts, which hold he cannot because
the officer is acting as the mortgagee's agent.
A vendor or seller of property, may have for the money he is to
receive a lien, which is nearly the same thing as a mortgage. A
subsequent purchaser would be affected by this lien, however innocent
he might be of its existence. But if the purchaser should mortgage the
property to a third person, who should put his deed on record, he
would gain a valid lien over the vendor. This lien is founded on the
idea that the vendor holds the land in trust for the purchaser until
he has paid for it, but is not recognized in every state. It is
reasonable to suppose that the owner will not sell his land until he
has been paid, or the purchase money has been secured. The lien will
also prevail against any assignment that the vendor may make for the
benefit of creditors, provided he enforces his lien before the
assignee begins to execute his trust.
Much has been said about the notice of the vendor's lien. Any
reasonable notice will suffice, but what is such a notice to charge,
for example, a second purchaser with knowledge? Payment of a part of
the money is held to be knowledge of the lien. Again, a vendee who has
paid any part of the purchase money before the delivery of the deed to
him has a lien for the amount advanced. A third party who pays the
purchase money to the vendor for the purchaser and takes a note for
the amount does not have such a lien.