Case Name: CYRUS L. BROWN v. EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
Court: Minnesota Supreme Court
Jurisdiction: Minnesota
Decision Date: 1899-01-30
Citations: 75 Minn. 412
Docket Number: Nos. 11,463—(248)
Parties: CYRUS L. BROWN v. EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES.
Judges: 
Reporter: Minnesota Reports
Volume: 75
Pages: 412–428

Head Matter:
CYRUS L. BROWN v. EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES.
January 30, 1899.
Nos. 11,463—(248).
Life Insurance — Assignment of Policy without Consideration — Assignment by Assignee.
The defendant issued a policy of insurance on the life of the plaintiff, payable to himself in 20 years. Subsequently plaintiff assigned the policy to H., by a written assignment absolute in form, but in fact merely as security or indemnity for a loan which he agreed to procure for the plaintiff, but which he failed to do. H., however, remained in the possession of the policy, and subsequently assigned it to a bank as security for a loan, which he has never repaid. The bank made the loan relying on the absolute assignment from plaintiff to H., and believing, from an examination of it, that H. was the owner of the policy, and without any knowledge that plaintiff had any claim to it, or of any equities between him and H. When the policy matured, the defendant paid it to the bank, but with notice of plaintiff’s claim. Prom the time the policy was assigned to H. until it matured, H. paid the premiums on it, which plaintiff has never repaid.
Equities of Insured — Estoppel.
1. Held, that the bank took the assignment of the policy subject to the equities between plaintiff and H., and that plaintiff was not estopped, as to the bank, to assert his rights, by the fact that he had executed and delivered to H. an assignment of the policy absolute in form.
Lien for Premiums Paid.
2. But held, also, that H. had a lien on the policy for the premiums he had paid; that this right passed to the bank by his assignment, and, to the amount of the premiums paid by H., it was entitled to the money on the policy. And the payment by the defendant to the bank constituted a defense, pro tanto, to an action on the policy.
Upon Reargument.
July 11,1899.
Assignments Valid.
. Held, that the policy, being valid when issued, was assignable by plaintiff to H., and by H. to the bank.
Equities of Insured — Estoppel.
Also, that the bank would take the policy subject to the equities of the plaintiff, unless the conduct of the latter was such as to equitably estop him, but the mere fact that the assignment from him to H. was absolute in form would not create such an estoppel.
laches of Insured.
But the laches of the plaintiff, and his practical abandonment of the policy for 11 years, by neglecting to take any active measures to recover it from H., and neglecting during all that time to pay the premiums necessary to keep it from lapsing, would estop him from asserting any rights under the policy, or attempting to avail himself of its benefits as against H. or his assignee, the bank, who had kept it alive by paying the premiums at his own expense.
Action in the district court for Hennepin county to recover the amount of a life insurance policy. .The court, Johnson, J., found in favor of plaintiff for the sum of $2,027, and interest, and from an order denying a motion for a new trial, defendant appealed.
Reversed.
Hale & Montgomery, for appellant.
Plaintiff cannot take advantage of his own wrongful acts and laches, to defeat an innocent bona fide holder. Fassett v. Smith, 23 N. Y. 252. The assignee of a chose in action takes a perfect title, if the owner has armed his immediate assignee with evidence of absolute ownership, and has thereby misled such subsequent assignee into purchasing on the strength of the apparent ownership. The owner, liaving placed his immediate assignee in a position to commit the wrongful act, must suffer. Cochran v. Stewart, 21 Minn. 435; McNeil v. Tenth, 46 N. Y. 325; Weyh v. Boylan, 85 N. Y. 394; Moore v. Metropolitan, 55 N. Y. 41; Colebrooke, Coll. Sec. § 45; Jones, Pledges, § 466. By weight of authority, the owner of a life insurance policy issued on his own life may assign it, though the assignee has no insurable interest in the life; and the policy is assignable like any other chose in action, if it contains no provision to the contrary. Ashley v. Ashley, 3 Sim. 149; Valton v. National, 20 N. Y. 32; Olmsted v. Keyes, 85 N. Y. 593; Travelers v. Healy, 25 App. Div. (N. Y.) 53; Clark v. Allen, 11 R. I. 439; St. John v. American, 2 Duer, 419; Bursinger v. Bank, 67 Wis. 75; Lemon v. Phoenix, 38 Conn. 294; Fairchild v. Northeastern, 51 Vt. 613; Mutual v. Allen, 138 Mass. 24; Harrison v. McConkey, 1 Md. Ch. 34; Souder v. Home, 72 Md. 511; Murphy v. Red, 64 Miss. 614; Currier v. Continental, 57 Vt. 496; Robinson v. U. S. Mut. Acc. Assn., 68 Fed. 825; Langdon v. Union, 22 Am. L. Reg. 385; Martin v. Stubbings, 126 111. 387; Bloomington v. Blue, 120 111. 121; Eckel v. Renner, 41 Oh. St. 232; Hine & N. Assignment, 73, 75, 81; Bliss, Life Ins. (2d Ed.) §§ 23, 26, 30; Angelí, Life Ins. § 325. See Hogue v. Minn. P. & P. Co., 59 Minn. 39. Cases holding the contrary doctrine hold that the policy may be assigned to secure a debt. The presumption is that the holder or pledgee is holder for value with good title. Colebrooke, Coll. Sec., §§ 431, 436-438; Jones, Pledges, § 146.
Even if Hadley had no insurable interest, and the assignment to him was illegal, so that he could not have enforced payment, and the bank had no insurable interest, plaintiff cannot raise these questions, because they were not raised by the insurance company. The case is the same as if the company had been sued on the policy, and had paid the money into court to await an adjudication whether plaintiff or the bank was entitled to it. Standard v. Catlin, 106 Mich. 138; Milner v. Bowman, 119 Ind. 448; Meyers v. Schumann, 54 N. J. Eq. 414. G. S. 1894, § 5273, provides only for a method of procedure, which may or may not be adopted. Defendant may raise the question of equitable estoppel to show ownership in the bank. See Parker v. Crittenden, 37 Conn. 148; Krathwohl v. Dawson, 140 Ind. 1; Rose v. Teeple, 16 Ind. 37; Rose v. Hurley, 39 Ind. 77; Kinnear v. Mackey, 85 111. 96. Plaintiff, having been guilty of gross negligence, is entitled to no consideration. Gleason v. Dis trict of Columbia, 127 U. S. 138. - The notice on the policy would not prevent the bank from enforcing its claim against defendant, nor was it necessary for defendant to consent to the assignment to make it complete. See Nicollet Nat. Bank v. City Bank, 38 Minn. 85; Hogue v. Minn. P. & P. Co., supra; 2 May, Ins. §§ 388-396; Mutual v. Hamilton, 5 Sneed (Tenn.) 268; Bliss, Life Ins. § 333; New York v. Flack, 3 Md. 341; Marcus v. St. Louis, 68 N. Y. 625.
Smith & Smith, for respondent.
Under the law as declared in MacDonald v. Kneeland, 5 Minn. 283 (352), and Hogue v. Minn. P. & P. Co., 59 Minn. 39, the bank obtained no title by the assignment. There is no equitable estoppel to prevent plaintiff from denying the bank’s title. There can be no such estoppel because the bank is not a party, and has no interest in the proceeding. No judgment in this case would affect the bank. Had defendant desired to have the rights of the bank considered, it should have brought the bank into court, under G. S. 1894, § 5273. Defendant cannot assert title in a stranger, without first paying the money into court and summoning the alleged owner. Truesdale v. Sidle, 65 Minn. 315; Birdsall v. Fischer, 17 Minn. 76 (100); Peck v. Snow, Church & Co., 47 Minn. 398. An estoppel available only to a stranger to the suit will not avail either of the parties. 7 Am. & Eng. Enc. 23. None of the elements of an equitable estoppel exist. 7 Am. & Eng. Enc. 12-23. An estoppel can never be allowed where it would itself perpetrate a fraud, work injustice or fail to protect the innocent. 1 Herman, Est. §§ 14, 20; Mills v. Graves, 38 111. 455; Turnipseed v. Hudson, 50 Miss. 429. Estoppel must be mutual. Majenborg v. Haynes, 50 N. Y. 675; Maguire v. Selden, 103 N. Y. 642; Empire v. Moers, 27 App. Div. (N. Y.) 464. See Califf v. Hill-house, 3 Minn. 217 (311); Combs v. Cooper, 5 Minn. 200 (254); Pence v. Arbuckle, 22 Minn. 417; Whitacre v. Culver, 8 Minn. 103 (133); Whitcomb v. Hardy, 68 Minn. 265; First v. Bicker, 71 111. 439; People v. Brown, 67 111. 435; Ball v. Hooten, 85 111. 159; Davidson v. Young, 38 111. 145; Dorlarque v. Cress, 71 111. 380; Chandler v. White, 84 111. 435; Thomas v. Bowman, 29 111. 426.
Under the provisions of the policy, without the consent of the company no assignee can maintain an action on the policy; nor will title pass without the written consent of the insurer. Hogue v-Minn. P. & P. Co., supra; Nicollet Nat. Bank v. City Bank, 38 Minn. 85; Merrill v. New England, 103 Mass. 245; Marcus v. St. Louis, 68 N. Y. 625. An assignment without consent of the company, when consent is required, is invalid, and confers no title do the assignee as against the company, and the proceeds will be paid to the assignor or his heirs. Unity v. Dugan, 118 Mass. 219; Commercial v. Treasury, 61 111. 482; Kase v. Hartford, 58 N. J. L. 34; Wilson v. Hill, 3 Mete. (Mass.) 66; Flanagan v. Camden, 1 Dutch. 506; National v. Lupoid, 101 Pa. St. 111.
While the insured may himself assign the policy to one having an insurable interest, or to secure a debt to one having no such interest, one who holds by assignment from the insured may not make a subsequent assignment to a person who has no insurable interest and is not a creditor of the insured. In the cases cited by defendant, except Ashley v. Ashley and Somier v. Home, the only question was whether the insured could make a valid assignment to his own assignee with or without insurable interest. The position here maintained by plaintiff is supported by the following authorities: 2 May, Ins. § 398; 2 Beach, Ins. § 850; 2 Joyce, Ins. § 889; Trinity v. Travelers, 113 N. C. 244; 3 Kent, Com. 368; Warnock v. Davis, 104 U. S. 775, 779; Cammack v. Lewis, 15 Wall. 643; Stevens v. Warren, 101 Mass. 564; Corson Appeal, 113 Pa. St. 438; Gilbert v. Moose, 104 Pa. St. 74; Ruse v. Mutual, 23 N. Y. 516; Ruth v. Katterman, 112 Pa. St. 251; Price v. Supreme, 68 Tex. 361; Missouri v. McCrumb, 36 Kan. 146; Missouri v. Sturges, 18 Kan. 93; Cawthon v. Perry, 76 Tex. 383; Lewy v. Gilliard, 76 Tex. 400; Swick v. Home, 2 Dill. 160; Archibald v. Mutual, 38 Wis. 542; Rison v. Wilkerson, 3 Sneed (Tenn) 565; Page v. Burnstine, 102 U. S. 664; Downey v. Hoffer, 110 Pa. St. 109; Hodge v. Ellis, 76 Ga. 272; Stambaugh v. Blake, 1 Mona. (Pa.) 609; Keystone v. Norris, 115 Pa. St. 446; Guardian v. Hogan, 80 111. 35; Schonñeld v. Turner, 75 Tex. 324; Basye v. Adams, 81 Ky. 368; Roller v. Moore, 86 Va. 512; Helmetag v. Miller, 76 Ala. 183; Michigan v. Rolfe, 76 Mich. 146; Singleton v. St. Louis, 66 Mo. 63; Mitchell v. Union, 45 Me. 104; Mutual v. Hoyt, 46 Mich. 473; Gilbert v. Moose, supra; Franklin v. Hazzard, 41 Ind. 116; Alabama v. Mobile, 81 Ala. 329; Armstrong v. Mutual Life Ins. Co., 11 Fed. 573; Metropolitan v. O’Brien, 92 Mich. 584; McDonald y. Birss, 99 Mich. 329; Succession of Risley, ll Roberts (La..) 298; Batdorff v. Fehler, 8 Cent. Rep. 23Ó; Shugar v. Gorman, 3 Cent. Rep. 558; Franklin v. Sefton, 53 Ind. 380, 388; Ruse v. Mutual, supra.

Opinion:
MITCHELL, J.
This action was brought to recover on a life insurance policy which had been paid at its maturity to the Security Bank of Minneapolis; the plaintiff claiming that he was the owner of the policy, and that the defendant had no right to pay the money to the bank. The action was tried by the court, which ordered judgment for the plaintiff for the face of the policy. All the assignments of error challenge the sufficiency of the findings of fact to support the conclusions of law. Omitting immaterial matters, and stating the findings according to their legal effect, they are substantially as follows:
On April 6,1872, the defendant issued to the plaintiff a policy on his life for $2,000, payable to himself in twenty years, or, in case of his death before that date, to his personal representatives or assigns. On March 16, 1881, the plaintiff assigned the policy to one Hadley. This assignment, which was indorsed on the policy, was absolute in form, but was made in fact merely as indemnity or security to Hadley for a loan of $1,000, which he agreed shortly to procure for the plaintiff, but which he failed to do; so that the consideration for the assignment wholly failed, and hence, as between plaintiff and Hadley, the former was the owner of the policy, and the latter had no interest in it. Hadley, however, remained in possession of the policy until May 23, 1887, when he assigned and delivered it to the Security Bank of Minnesota as security for money loaned by it to him, and which he has never repaid.
When the officers of the bank took an assignment of the policy as security, they did not know "how said Hadley became possessed of said policy, or the assignment of the same from Brown to Hadley, or what was the consideration for the assignment," but, "from an examination of said policy and said assignment, believed that said Hadley was the owner of said policy." They took the as signment from Hadley "for a valuable consideration, without any notice or knowledge of any claim on the part of said Cyrus L. Brown or his wife to said policy, and without any knowledge or notice of any rights or equities existing between said Brown or his said wife and said Hadley in any manner relating to said policy"; nor did they ever acquire any such notice or knowledge prior to the date of the payment of the policy at its maturity.
The policy, with the two assignments, remained in the possession of the bank until the policy 'matured, in 1892, when the defendant paid the amount due on it to the bank, after taking from it a bond of indemnity against the claims of any other persons. Plaintiff had paid the premiums on the policy up to the time he assigned it to Hadley, in March, 1881; and thereafter up to the time it matured, in 1892, the premiums (the amounts of which are found by the court) were paid by Hadley, and have never been repaid to him by plaintiff. In March, 1884, plaintiff notified the defendant not to pay any money on the policy to Hadley, or to any one else except himself, and that Hadley had no right to or interest in the policy; but there is no finding that plaintiff ever took any active measures to secure a return of the policy from Hadley. He never knew that Hadley had assigned it to the bank until after the defendant had paid it to the bank. Neither the bank nor Hadley had any insurable interest in the life of the plaintiff.
The defendant's defense is that it has paid the amount of the policy to the party entitled to it, to wit, the bank; and it bases the bank's right to the money on two legal propositions, viz.: (1) That the policy was assignable to any one, although not having any insurable interest in the life of the insured; and (2) although, as between plaintiff and Hadley, the former owned the policy, yet the plaintiff, by his conduct in clothing Hadley with all the indicia of ownership, is estopped to assert his own rights as against the bank, an innocent purchaser for value. The plaintiff takes issue with the defendant on both propositions.
In view of the conclusion at which we liave arrived upon the second proposition, it becomes unnecessary to consider the first, although we remark in passing that we have not discovered anything which has changed the impression as to the state of the authorities on the question which we'expressed (obiter, it is true) in Hogue v. Minn. P. & P. Co., 59 Minn. 39, 60 N. W. 812.
We do not, however, place our decision of the second proposition upon the ground advanced by counsel for the plaintiff, which is, in substance, that estoppels must be mutual and reciprocal; that only parties to the suit, and their privies, can take advantage of an estoppel existing as between themselves; and that an estoppel available only to a stranger to the action will not avail either of the parties; hence, even if an estoppel existed in favor of the bank against the plaintiff, this is not available to the defendant. This is a misapplication of a very familiar and well-settled rule of law. If the defendant had paid the amount of the policy to the party who, as between plaintiff and the bank, was entitled to it, that was a perfect defense to the action. The issue before the court was who was entitled to the money, — plaintiff or the bank; and for this purpose it was competent for the defendant to establish the right of the bank as against plaintiff, whether that right was based upon equitable estoppel or upon contract.
We, however, place our decision upon the ground that, this policy being a mere nonnegotiable chose in action, the bank occupies the exact position of its assignor, Hadley, and took it subject to the equities existing between him and his assignor, the plaintiff, unless the latter is equitably estopped by his conduct from asserting those equities against the bank, and that there are no facts in this case which create any such estoppel.
Upon the facts found, the defendant has nothing upon which to base an equitable estoppel, except the bare fact that plaintiff delivered possession of the policy to Hadley, accompanied by an absolute assignment, without any expressed conditions or limitations, and thereby clothed him with the indicia of absolute ownership. The bank officers relied upon, and based their belief in Hadley's ownership upon, their examination of the policy and the assignment, without knowing, and presumably without attempting to ascertain, how or for what purpose the assignment to.Hadley was made, or what the consideration for it was. If it be said that plaintiff was negligent in not taking active measures to secure a return of the policy from Hadley, and in not personally paying the premi ums on his own policy, the answer is that; if so, such negligence did not constitute any breach of duty, either legal or moral, towards the bank, or any one else who might see fit to deal with the policy. The doctrine that the assignee of a nonnegotiable chose in action takes it subject to all existing equities and defenses is not confined to equities or defenses existing in favor of the debtor or obligor who executed the chose in action, but it also applies to cases where the chose in action has gone through successive assignments to the second and subsequent assignees, if there were equities subsisting between the original assignor, or any other assignor, and his immediate assignee, in favor of the former.
What is called the doctrine of "latent equities" has received some judicial support. This means that in a case like the present the equities of plaintiff, the original assignor, are latent, and cannot prevail against the title of the bank, the second assignee; that the-only defenses subject to which the assignee of a nonnegotiable chose in action purchases are those existing in favor of the debtor who issued the obligation or security. This doctrine has been generally condemned as unsound, and tending to extend the peculiar qualities of negotiable paper to things in action not negotiable, and to destroy the fundamental distinction between negotiable and nonnegotiable demands. For a full discussion of this whole subject, see 1 Pomeroy, Eq. Jur. §707, et seq.; Pomeroy, Code Rem. §154, et seq.; also Bush v. Lathrop, 22 N. Y. 535.
The leading case in favor of the doctrine of "latent equities" is-Moore v. Metropolitan, 55 N. Y. 41, which squarely overrules Bush v. Lathrop, supra; saying that it and McNeil v. Tenth, 46 N. Y. 325, cannot both stand, unless there shall be found to be a distinction between the acquisition of title to stocks in a corporation, and choses in action not negotiable, and then concludes that there is no-distinction. But, as Mr. Pomeroy clearly points out, the court in-Moore v. Metropolitan do not make the slightest allusion to the narrow limits placed in McNeil v. Tenth upon the use of the estoppel, viz. to cases in which the assignor, by a written instrument over his-signature, confers, not only the apparent title, but the unconditional power of disposition over the security. But the most important distinction between the two cases lies in the fact that in the- McNeil case the subject of the assignment was not a mere nonnegotiable chose in action, but certificates of corporate stock, which are universally dealt in by business men as if they were in all respects negotiable, and are transferred from hand to hand by a blank assignment accompanied by a power of attorney giving the holder full power of disposition according to the usual course of dealing with like securities. The decision is but another instance of the manner in which business usages are adopted and incorporated into the law by the progressive course of judicial legislation.
But no such considerations exist in the case of an ordinary chose in action, like a life insurance policy, which is not only nonnegotiable in fact, but is so considered and treated by business men. And if, in the case of an ordinary nonnegotiable chose in action, the effect of an estoppel be produced against an assignor from a mere assignment, absolute on its face, executed by the owner and delivered to his assignee, it is but an easy step, as Mr. Pomeroy suggests, to extend the doctrine of equitable estoppel to the debtor or obligor himself, because he has issued an undertaking which creates an apparent liability against himself.
Our conclusion is that there was no estoppel against the plaintiff in favor of the bank. But, notwithstanding this, and that the consideration for the assignment from plaintiff to Hadley failed, and even conceding that the assignment was invalid, still Hadley had a lien upon the policy for the amount paid by him for premiums. The assignment from him to the bank transferred to it all his interest in the policy, which was the amount of the premiums advanced by him. To that amount the bank was entitled to the money on the policy, and to that extent the defendant rightfully paid the money to the bank; and this constituted a defense, pro tanto, to this action. Therefore, according to the findings, the court ought to have deducted from the face of the policy the amount of the premiums paid by Hadley, with interest, and ordered judgment against the defendant only for the balance.
The cause is remanded, with directions to the court below to modify its conclusions of law and order for judgment in accordance with this opinion.