Court Opinion

ID: 3486679
Source: CourtListenerOpinion
Date Created: 2016-07-05 21:13:39.298684+00
Date Added: 2024-06-11T13:53:54.622624
License: Public Domain

I agree with Judge Smith's decision and his opinion. The printed record supports, as a conservative statement of Dr. Magness's physical and mental deterioration in 1932 when the changes of beneficiaries were made, Judge Smith's opinion after hearing the evidence and seeing the witnesses, viz.:
"I get the impression from hearing the evidence in this case that the situation which existed at the time when the change of beneficiary was made was this: That Doctor Magness was drinking heavily; he was neglecting his practice, and he was in financial difficulties, and I believe that those circumstances gave the members of his family a great deal of worry and concern about his future and their future. And, as a result of his course of life and professional activity, it became necessary for the family to draw on a savings account, and ultimately necessary to try to realize some money on insurance policies just in order to get along.
"Now I believe there was a discussion in the family about how to go about that, and the proposition discussed was how that insurance could be saved for the benefit of the family. Now Mr. Lynn was not approached on that subject as a stranger. He was a member of the family. He was the husband of Doctor Magness' daughter, and if he had not been he never would have entered into this transaction. Doctor Magness did not approach any stranger with a proposition to sell his insurance policies, or cash them in, or anything of that kind, but he did want to raise some money, and Mr. Lynn agreed to put up some money to try to save for Doctor and Mrs. *Page 686 
Magness the benefit of these insurance policies.
"I, perhaps, cannot find with that degree of certainty that ought to be required as to any business transactions at the particular time when Doctor Magness executed these changes of beneficiary that he was of unsound mind, did not know what he was doing, did not know the legal effect of the transaction, and did not understand it, so that they ought to be struck aside altogether, but I am convinced from the evidence that he was on the borderline of that condition. He was drinking quite heavily, and for a part of the time he was incompetent due to his indulgence of his craving for liquor, and he was not altogether in posession of the full command and use of his faculties — certainly not at all times. Now, under those circumstances, an arrangement was made the purpose of which was to try to save for the family the benefit of the insurance policies, and Mr. Lynn put up the money. I cannot persuade myself that if Doctor Magness had died right after that Mr. Lynn would have claimed the full death benefits under these policies. I think that the testimony of the parties as to the transaction, which is now some years ago, is affected by the fact that in 1942 a separation between Mr. Lynn and his wife occurred, so that now Mr. Lynn is outside the family, whereas, at the time, he was inside the family.
"Therefore, I will put it this way, that I feel that this transaction at the time when it occurred and under the circumstances in which it occurred, is not one which a court of equity should approve as an outright sale of these insurance policies, but that it ought to be set aside, and I believe that the real purpose of the transaction, which appeared to be an outright change of beneficiary, was, in fact, in all of its essentials, a mortgage, and it would follow that the disposition of the money which has been paid into court ought to be about an equal division of it between the parties, that is to say, that Mr. Lynn ought to recover every penny he has advanced, with legal interest to the date of the interpleader decree, and the *Page 687 
remainder of the money, less the cost, etc., be directed to be paid to the other party, Mrs. Stella L. Magness."
Even in the absence of fiduciary relations, the mere fact that a drunkard is "temporarily sober" and not of unsound mind (or even "on the borderline of that condition") is not sufficient to sustain a transaction with him. Kendall v. Ewart, 259 U.S. 139, 146, 147, 42 S. Ct. 444, 66 L. Ed. 862. Far less is it sufficient to sustain the burden of proving the fairness of a transaction with him by one who occupies a fiduciary relation toward him. Appellant occupied such a relation to Dr. Magness. As Judge Smith says, appellant was approached, on the subject of "saving the insurance for the benefit of the family," not "as a stranger", but as "a member of the family". The only purpose of approaching him was, not to enable him to get the insurance from the family, but to save it for the family. If "family" needs any explanation, Mrs. Magness was sole beneficiary in one policy and life beneficiary in the other two, with remainder to the son and daughter. The fact (if it be a fact) that before the first insurance transaction Dr. Magness may not have "reposed confidence" in appellant "in business matters" is immaterial; appellant, however, says the only reason he lived in Dr. Magness's house was that it cost him less rent than it would have cost to live elsewhere, and also says Dr. Magness "discussed his financial affairs with" appellant. The doctrine of confidential relations applies no less to a first transaction than to subsequent ones.
Of course, (a) a contract that was fair when it was made would not become unfair upon the separation between appellant and his wife and (b) unfairness of a contract relating to insurance is not shown merely by the event in a particular case. It is, however, reasonable to conclude, as Judge Smith does, that if Dr. Magness had died promptly, before the separation between appellant and his wife, appellant would not have claimed the pound of flesh which he now says was nominated in the bond, and that appellant's present claim was not the true understanding between him and Dr. Magness. There was *Page 688 
no written contract between them. The written changes of beneficiaries imposed no obligation whatever upon appellant, though he testifies that he agreed to keep the policies in force until Dr. Magness became disabled or died, by paying premiums aggregating $341.75 per annum, including $21.73 for disability insurance. As between Dr. Magness and appellant, these writings are consistent with either an intention to make an absolute sale or an intention to give security for money advanced. Cf. Thomasv. Klemm, 185 Md. 136, 43 A.2d 193.
Appellant advanced $1771.74, the "cash surrender value" at the time, for $8000 life insurance. He paid $656.83 for premiums. If he gets the full amount of the policies, he will get back all he paid, plus interest at 6 per cent, plus a profit of about 144 per cent. If this were an unexpected windfall, due to the uncertainties of life and death, it might not show that his alleged bargain was unfair. But it was not an unexpected windfall. This profit, exorbitant as it is, is not more, but less, than was reasonably to be expected in 1932 when appellant took over the insurance. The "cash surrender value" of a life insurance policy represents the difference between the life expectancy, predetermined from mathematical averages of experience, of a man in good health at his age when a policy is issued, and his lessened expectancy, in continued good health at each successive subsequent age. Dr. Magness's policies were issued in 1920 and 1924, when he was in good health, at the ages of 43 and 46 respectively. Appellant was made beneficiary in 1932, when Dr. Magness was 54 and in anything but good health and his life expectancy was consequently far below average. In other words, appellant claims to have bought insurance on an uninsurable risk at the price an insurance company would have charged for insurance on a good risk. Only by some gross fraud could such insurance on Dr. Magness have been obtained in 1932 from an insurance company. Appellant's alleged purchase was as unfair as a sale of bad eggs for the price of good. *Page 689 
In 1932 a purchaser of Dr. Magness's policies would incur two possible pecuniary risks, (1) the risk of continued payment of premiums by reason of failure of Dr. Magness to become permanently disabled before reaching the age of 60, and (2) the risk of delay in maturity of the policies through unexpectedly long life of Dr. Magness.
The first of these risks, normally the major risk, was in this case nominal and nonexistent. In 1932 Dr. Magness was actually totally incapable of practising medicine and unfit to prey on the public by pretending to practice. As appellant testifies, "he was throwing away his practice by drinking"; "his finances had gone down to the point where he could not even pay the light bills." What was left of his so-called practice was a sort of medical brokerage, which consisted of accompanying other physicians who saw his patients and gave them medical attention, which he himself was unfit to give. Dr. Miller, one of these physicians, saw patients with him 88 times in 1932, and he was sober only three times; he was incapable of carrying on his profession, that is why Dr. Miller helped him. Appellant says, of his conditionafter the first insurance transaction; "Well, he was all right. Q. Did he appear normal to you? A. Naturally; he was not intoxicated, but I have seen him intoxicated on other occasions". As to his condition on the day of the second insurance transaction, appellant says, "It was all right, as far as I know. I am not a doctor. He was not drinking very much. He was not drunk". Neither of these transactions occurred on one of those rare occasions when he was "temporarily sober" or "fine as silk."
The second risk, as has been said, was far below average by reason of Dr. Magness's physical condition. For three years he had been drinking himself to death and, through drink or otherwise, had developed a complication of fatal diseases and conditions, including chronic Bright's disease, cerebral arteriosclerosis, high blood pressure (always over 200) and myocarditis, which offered a purchaser of post-obits a good prospect of his early death. The unexpected event is, not that he died as soon, but *Page 690 
that he lived as long, as he did. Any "loan shark" who knew his condition in 1932, as appellant and the rest of his family must have known it, would have jumped at an opportunity to make the bargain appellant says he made.
Whether the bargain between appellant and Dr. Magness be regarded as security for an advance, and enforced as such, or as a sale, and set aside as unfair, the result is the same. Appellant should get his money back with interest at 6 per cent — and no more. Judge Smith's opinion, and the printed record, sustain either view.