Opinion
January 8, 1957 —
March 5, 1957.
APPEAL from an order of the circuit court for Marathon county: LEWIS J. CHARLES, Circuit judge, Presiding. Reversed.
For the appellant there were briefs by Henry P. Hughes of Oshkosh, attorney, and Genrich, Terwilliger, Wakeen, Piehler Conway of Wausau of counsel, and oral argument by Mr. Hughes and Mr. Herbert Terwilliger.
For the respondents there was a brief by Welsh, Trowbridge, Bills, Planert Gould of Green Bay, and oral argument by Frederick N. Trowbridge.
Demurrer to complaint. This is an action for money had and received. It was brought by the plaintiff, Estelle Albrent, as administratrix of the estate of E. A. Albrent, deceased, against the defendants, William L. Spencer, O. F. Pinnegar, Lester Oestreich, Joseph Dahm, and Arthur Moriarty, on a claim that the defendants converted to their use the sum of $92,348 which belongs to the estate of the decedent. The defendant Spencer is a financier and investor, and the other defendants are officers or directors of the Clintonville Transfer Lines. Double damages are sought. The defendants demurred to the complaint on the ground that it stated insufficient facts to constitute a cause of action. The trial court by order sustained the demurrer and granted leave to the plaintiff to amend the complaint. The appeal is by the plaintiff from that order.
With reference to the complaint involved, the plaintiff alleges in substance that prior to March 29, 1954, E. A. Albrent and William L. Spencer each owned substantially one half of the stock in Albrent Freight — Storage Corporation, Inc. (hereinafter referred to as the "company"), which at the time was engaged in the business of storage and transfer. Albrent pledged his stock to Spencer as collateral to secure the payment of a note on which there was due approximately the sum of $140,000. Albrent had purchased policies of insurance on his life aggregating the face value of $110,000, of which $85,000 was payable to his estate, $20,000 was payable to Spencer as his interest as creditor might appear, and $5,000 was payable to the company. Those policies in principal amount of $85,000 which named Albrent's estate as beneficiary, were assigned by Albrent to Spencer to further collateralize the obligation to the extent of Spencer's interest, and with remainder, if any, to Albrent's estate. Albrent also carried a policy of $15,000 on his life which was not assigned. Albrent was the beneficiary of a $10,000 policy on the life of Spencer which on March 29, 1954, had a cash surrender value of $2,744. The policies on the life of Albrent in which his estate and Spencer, as creditor, held a beneficiary or assignee interest, had a cash surrender value of $15,972. The cash surrender value of the policy in which the company was named beneficiary was $1,680. The total cash surrender value of these policies (not including the $15,000 policy on Albrent's life which was not assigned) was $20,396. Albrent became ill in the latter part of 1953. He planned to take a six months' leave of absence in an effort to regain his health. Albrent and Spencer agreed that no change in the ownership of the corporation would occur during Albrent's absence. Albrent contemplated a stay in Florida, but before he could leave on such trip, his condition grew worse and he was obliged to go to a hospital. On March 4, 1954, Spencer entered into an agreement to sell all of the stock of the corporation to the Clintonville Transfer Lines, Inc., of which the defendants Moriarty, Pinnegar, Dahm, and Oestreich were officers and stockholders. Thereafter, Spencer threatened to foreclose the pledge of Albrent's stock. On March 29, 1954, Spencer and Albrent executed a written contract that provided for the settlement of the debtor-creditor relationship existing between them. The written contract is attached as Exhibit A to the complaint involved, and except for formal and prefatory parts, reads as follows:
"1. Albrent hereby transfers absolutely all of his right, title, and interest in and to all of said 4,980 shares of stock of Albrent Freight — Storage Corp., and authorizes the transfer thereof to Spencer, together with all the rights appurtenant to said stock including the right to vote the same in person or by proxy immediately as the owner thereof for all purposes whatsoever, including such corporate action as may be necessary in connection with the application for the transfer of all the operating rights and properties of Albrent Freight — Storage Corp., to said Clintonville Transfer Lines, Inc., pursuant to and in accordance with the contract of March 4, 1954, aforesaid, and the said Albrent conveys all of his right, title, and interest in and to said stock free from any equity of redemption therein other than the specific option and redemption rights hereinafter set forth.
"2. In consideration of such transfer Spencer agrees that the indebtedness of Albrent to him hereinabove referred to shall be fully canceled and satisfied.
"3. Spencer hereby undertakes to cause appropriate corporate action to be taken to evidence and effect the assumption of the tax liability hereinabove referred to by Albrent Freight — Storage Corp., and will hold Albrent harmless from any liability therefor including legal expenses and costs which might be incurred in connection therewith.
"4. Spencer agrees to pay at the time of the execution hereof to said Albrent the sum of $2,211.46, and further agrees to cause the corporation to pay the unpaid balance of the sick-leave salary of $3,600 agreed to be paid by the corporation at its directors' meeting of February 9, 1954.
"5. The parties agree that such payment to Albrent shall be in full and complete satisfaction of all claims between the parties, and that all claims and obligations existing between Albrent and Albrent Freight — Storage Corp., are fully discharged each to the other by virtue thereof.
"6. It is further agreed that all the insurance policies effected by the parties hereto or the corporation upon the life of either of the parties hereto shall all be transferred to and become the property of Spencer or his assigns, all of said policies having been on this date delivered to the attorneys for said Spencer, and said Albrent will on demand execute all such instruments and documents as may be required to effect such transfer and such changes of beneficiary as Spencer or his assigns may desire. Excepted from the above is one certain policy upon the life of said Albrent in the principal sum of $15,000 in the Aetna Company the possession of which has been retained by said Albrent.
"7. Albrent agrees upon demand to execute all necessary documents and assignments of certificates of title as may be required to transfer the title to such tractors, trucks, and other equipment that have been purchased by the funds of the company, title to which may be standing in his name.
"8. In the event that final approval of the sale of said 9,990 shares of stock and the transfer to Clintonville Transfer Lines, Inc., of the operating and property rights of Albrent Freight — Storage Corp., by the Interstate Commerce Commission and Wisconsin Public Service Commission be not obtained after due prosecution of proper applications therefor, Spencer or the Albrent Freight — Storage Corp., agree to give notice in writing to Albrent of such nonapproval. Spencer hereby grants unto Albrent, in the event of such nonapproval and upon Albrent's payment of the sum of $2,211.46 within ten (10) days after service of said notice, an option to reacquire said 4, 980 shares of stock hereinbefore referred to upon the payment by Albrent to said Spencer of the sum of $119,268.28 plus interest thereon at the rate of three per cent (3%) per annum from September 17, 1948, and Spencer agrees upon payment of such sum under such conditions to convey said shares of stock to Albrent. In the event of the exercise of said option as above specified, Albrent shall be entitled to have his accounts with Albrent Freight — Storage Corp., audited as of this date, and Albrent shall be entitled to a repayment of any portion of said $2,211.46 shown by said audit to be due him.
"9. This instrument and the payments and conditions hereunder shall constitute a complete discharge and release not only between Spencer and Albrent, but as between Albrent Freight — Storage Corp., and Albrent as against each other."
In the complaint it is also alleged that prior to the time that the written instrument of March 29, 1954, was signed by Albrent and Spencer, they totaled up their respective claims, one against the other, and that there was due to Spencer from Albrent the sum of approximately $140,000; that in full payment of said amount, Albrent transferred to Spencer stock valued by them at $119,268.28, plus the cash surrender value of the various policies in amount of $20,396, or assets valued by them in the sum total of $139,664.28, and that Spencer accepted said cash surrender value, plus stock, in full discharge of the claimed obligations to him from Albrent.
It was further alleged that the language of paragraph Six of the written agreement which apparently conveyed full ownership of the policies to Spencer, was necessary to enable him to obtain the cash surrender value, and was in no way intended by the parties to change the nature of the transaction which they were consummating; that Albrent assigned the policies to Spencer for the sole purpose of collecting the cash surrender value, and that he never consented or authorized any use of said insurance policies, and that he never consented to allow Spencer to keep said policies in force and effect, Spencer actually having no insurable interest after the settlement was agreed upon; further, that Albrent at no time was advised that Spencer had given to four strangers an interest in said policies, nor did he consent thereto, but that on the contrary, the condition of Albrent grew steadily worse after the settlement was made, and he was transferred to the Mayo Clinic at Rochester, Minnesota, on or about April 11, 1954, where he died on May 28, 1954. It was also alleged that Spencer, pursuant to a conspiracy between himself and the other defendants, sent to Albrent at the hospital before his death, absolute assignments to the policies in which he had only collateral interest, but that Albrent refused to execute such assignment.
It was also alleged that Spencer's only right under the agreement was to take the cash surrender value of the policies, but that the other defendants prevailed upon Spencer and conspired with him to breach the agreement, and to keep the policies alive for six months or a year, and to gamble that Albrent would die within that period, and upon the death of Albrent would wrongfully collect from the insurance companies the excess of the cash surrender value of the policies to the damage of Albrent's estate, and to deprive the estate of the proceeds of the policies over and above the cash surrender value.
It was further alleged that no premiums fell due on any of the policies in question between March 29, 1954, and the date of Albrent's death; that Spencer furnished to the insurance companies proof of loss, including an affidavit, that he was the sole owner of the policies, and that Albrent's estate had no interest therein, and that there would be no administration of the estate; that the insurance companies paid Spencer $110,000, and that in addition he took the cash surrender value of the policy on his own life in which Albrent had been named beneficiary; that upon receipt of the checks for the insurance from the several companies, Spencer retained approximately $30,000, and distributed the balance of $80,000 in equal shares to the other defendants who now claim no right thereto except as a gift from Spencer; that Spencer's claim to the right of the retention of the entire amount is as a windfall; that Spencer having taken no action to collect the cash surrender value, the policies remaining in force on the death of Albrent would have been paid to the estate except for the conspiracy and the false statements of Spencer to the insurance company, and that the plaintiff would have been entitled to the proceeds of the insurance less the cash surrender value; that Spencer became a constructive trustee for the estate of the insurance proceeds over and above the cash surrender value; that the defendants have been unjustly enriched and refuse to disgorge. The amount paid to Spencer on the policies on Albrent's life was $110,000. The cash surrender value was $17,652. Spencer collected $2,744 for the cash surrender value of the policy on his own life and in which Albrent, previous to March 29, 1954, had been named as beneficiary. The plaintiff claims that the defendants converted to their use the sum of $92,348 which belongs to the Albrent estate. An amount in double such sum is demanded in the complaint.
The plaintiff contends here, as she did below, that parol evidence is admissible to establish the true intent of the parties, viz., that the assignment covered only the cash surrender value; further, that there is an ambiguity in the written instrument relating to the option of Albrent to repurchase in event the sale of the stock to Clintonville Transfer Lines was not consummated, — the contract being silent as to Albrent's right to reacquire the insurance, and there being no provision as to disposition of the proceeds in the event of Albrent's death after the transfer of the insurance, but before the cashing in of the policies. Parol evidence, it is submitted, would be admissible with regard to such ambiguities.
It is also the position of the plaintiff that since the only legitimate interest which Spencer had in the insurance policies on Albrent's life was the cash surrender value, and that since none of the other defendants had an insurable interest in the life of Albrent, the agreement between the defendants to keep alive the policies on Albrent's life was a conspiracy to illegally speculate on a profit out of the excess, and that the same constituted a gambling contract, which is forbidden as a matter of public policy in this state. Plaintiff submits that parol evidence would be admissible to show such conspiracy. The plaintiff also contends that the doctrine of unjust enrichment applies to the situation as alleged in the complaint.
The defendants maintain that since the written contract between Albrent and Spencer was made a part of the complaint, its terms cannot be varied, and that the demurrer does not admit the construction of the contract as placed on it by the plaintiff ; further, that since there is no claim of fraud or mutual mistake, parol evidence may not be introduced as to any contemporary oral agreement, the contract being unambiguous; further, that the contract was not illegal as against public policy; and also, that no wrongful conspiracy to the damage of the plaintiff was alleged, and that there was no unjust enrichment.
In its memorandum decision the trial court declared that while a demurrer ordinarily admits all the facts pleaded, it does not admit of the construction of an instrument when the instrument itself is pleaded, and that the very object of the demurrer in such case is to submit the question as a matter of law for the determination of the court. The court found that there was neither a patent nor a latent ambiguity existing with reference to the provision in paragraph Six of the written instrument pertaining to the absolute assignment of the insurance to Spencer, and paragraph Eight of that instrument relating to Albrent's option which makes no mention of reassignment of the insurance to him, and which does not provide for disposition of the proceeds of the principal amounts of the insurance in the event of Albrent's death after transfer and before the cashing in of the policies. The court tested the matter under the rule laid down in Klueter v. Joseph Schlitz Brewing Co. (1910), 143 Wis. 347, 353, 128 N.W. 43, that "The words of a contract, in themselves, may be plain, yet when applied to the situation with which it deals, not plain, the literal sense leading to such unreasonableness as to suggest that the parties probably did not so intend." The court was of the opinion that the language in the paragraphs of the written instrument referred to, was plain, and that it did not lead to a result which was so unreasonable as to suggest that the parties probably did not so intend. The court was also of the view that the omission of any provision as to reassignment or disposition of the proceeds of the insurance in the event of Albrent's death while the policies were still in force, was consistent with an absolute and inconsistent with a conditional or qualified transfer, and that hence parol evidence was not admissible with respect to the same.
The court was also of the opinion that the agreement in question was neither illegal nor against public policy. Such view was predicated principally on considerations that in this state it has heretofore been held that an assignment of a life insurance policy to one not having an insurable interest, is not of itself invalid, but that if made for cloaking an agreement whereby the assignee is to engage in a gamble upon the life of the insured, it is invalid. Strike v. Wisconsin Odd Fellows Mut. Life Ins. Co. (1897), 95 Wis. 583, 70 N.W. 819, and Opitz v. Karel (1903), 118 Wis. 527, 95 N.W. 948; that no facts are alleged from which the court may property conclude that the contract was made for the purpose of allowing Spencer to gamble on Albrent's life; that there is nothing upon the face of the complaint from which the court could properly conclude that after March 29, 1954, Spencer any longer had an insurable interest in Albrent's life, that if intent on the part of Spencer and the other defendants to gamble on Albrent's life after March 29, 1954, could successfully be established, such consideration would be of no avail to Albrent's estate for the reason that neither when the policy was issued, nor when it was assigned to Spencer, had it been tainted with a gambling interest. The court noted that Spencer may not legally be condemned for the reason that he made an exorbitant profit; that everyone has an unquestioned right to enter into an improvident contract, or to profit by his being more financially astute than his fellowman, so long as fraud, illegality, or the like are not factors in his success. The court pointed out that neither fraud, duress, nor mutual mistake are claimed.
The contentions of the plaintiff challenge largely the conclusions of the trial court that parol evidence would not be admissible in an attempt to establish that Spencer and Albrent did not intend that any interest in the policies over and above the cash surrender value was to be transferred under the contract, and that parol evidence would not be receivable to show that Albrent did not consent to or authorize any use of the policies except as related to the cash surrender value. Notwithstanding that it were to be held that the trial court's conclusions as to these and the other of the plaintiff's contentions are correct, we are of the opinion that the demurrer must be overruled.
We consider that the case presents the issue of whether it is against public policy for a creditor of the insured to avail himself of an absolute assignment of a previously pledged life insurance policy issued upon the life of the debtor, which assignment is intended to end the creditor-debtor relationship, for any other purpose than enabling the creditor to realize the cash surrender value of the policy.
It is a well-established principle that there must be an insurable interest present at the inception of a policy of life insurance. 29 Am. Jur., Insurance, p. 309, sec. 353. In considering the nature of an insurable interest, and the underlying reason why the absence of such an interest renders the policy void, the United States supreme court speaking through Mr. justice FIELD declared in Warnock v. Davis (1881), 104 U.S. 775, 779, 26 L.Ed. 924:
"But 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 expect 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, independently of any statute on the subject, condemned, as being against public policy."
It offends one's sense of justice that a creditor should realize more out of the proceeds of the policy than the principal and interest due on the loan for which the policy was pledged plus any expenditure of the creditor for premiums necessary to protect his security. To uphold the result reached below in the instant case would be to encourage creditors to bring pressure upon necessitous debtors to convert the rights of the creditor from that of pledgee to that of owner in order that he might gamble upon the life of the insured in the hope of realizing the difference between the amount due on the loan and the face of the policy. In the instant case it is alleged that such difference amounted to the huge sum of approximately $90,000.
While it must be conceded that the majority rule is that, where an owner of a life insurance policy has an insurable interest therein he may make a valid assignment of the policy to a third party having no such insurable interest (29 Am. Jur., Insurance, p. 313, sec. 357), it clearly is in the interest of public policy to engraft an exception onto such rule to cover situations such as that which confronts us here. A desirable exception and one that we are compelled to adopt is that any purported absolute assignment by a debtor to a creditor of a policy, which had previously been pledged as security to the creditor is only valid between the immediate parties to the extent of enabling the creditor to realize the cash surrender value of the policy. If the creditor after receiving such absolute assignment and the creditor-debtor relationship is terminated, continues to hold the policy for the purpose of gambling upon the life of the insured, he becomes a constructive trustee for the benefit of the estate of the deceased of any proceeds received upon the death of the insured, to the extent that such proceeds exceed the amount that would have been due such assignee if the creditor-debtor relationship had not been extinguished.
A precedent for enforcing such a constructive trust is provided by the decision of the United States supreme court in Warnock v. Davis, supra. In that case the insured assigned a policy upon his life to a trust association, which had no insurable interest, in consideration for the association agreeing to pay the premiums due on the policy, it being agreed that upon his death the association was to retain nine tenths of the proceeds received on the policy. The insured died and the insurance company paid the amount of the face of the policy to the association and it accounted for one tenth thereof to the widow of the insured. The court held that it was against public policy to assign a life insurance policy to one not having an insurable interest in the insured. Therefore, the agreement between the insured and the association whereby the latter was to retain nine tenths of the proceeds was void. The court then went on to state ( 104 U.S. at p. 781):
"It [the agreement] is one which must be treated as creating no legal right to the proceeds of the policy beyond the sums advanced upon its security; and the courts will, therefore, hold the recipient of the moneys beyond those sums to account to the representatives of the deceased. It was lawful for the association to advance to the assured the sums payable to the insurance company on the policy as they, became due. It was, also, lawful for the assured to assign the policy as security for their payment. The assignment was only invalid as a transfer of the proceeds of the policy beyond what was required to refund those sums, with interest. To hold it valid for the whole proceeds would be to sanction speculative risks on human life, and encourage the evils for which wager policies are condemned."
Likewise, in Wagner v. National Engraving Co. (1940), 307 Ill. App. 509, 512, 30 N.E.2d 750, the court declared:
". . . we also assume the correctness of plaintiff's legal theory, namely, that when insurance is payable to a beneficiary who has no insurable interest and the insurer pays the same without raising this defense, the beneficiary will hold the amount so paid as trustee for the estate of the insured. While the precise question has not been decided in this state, so far as we are aware, the courts of many states of other jurisdictions have so decided. [Citing Warnock v. Davis, supra, and other cases.]"
For other cases imposing a constructive trust upon a creditor in favor of the estate of the deceased insured as to proceeds collected by the creditor upon the policy in excess of the principal and interest of the loan, and other advances made by the creditor, see Anno. 115 A.L.R. 741, 745.
Under the principle herein declared that an absolute assignment by a debtor to a creditor of a life insurance policy which had previously been pledged as security to a creditor is only valid between the immediate parties to the extent of enabling the creditor to realize the cash surrender value of the policy, it is manifest that a cause of action is asserted in the complaint. It is the rule that if a complaint states any facts on which the plaintiff can recover, it must be held to state a cause of action and will not be subject to demurrer. Nelson v. La Crosse Trailer Corp. (1949), 254 Wis. 414, 37 N.W.2d 63; Local 1111 v. Allen-Bradley Co. (1949), 255 Wis. 613, 39 N.W.2d 740. If the facts relating to the assignment of the policies as to such cause of action, are established at the trial, the court will be obliged to hold as a matter of law that Spencer and the other defendants who are his assignees are constructive trustees for the benefit of Albrent's estate of that portion of the life insurance proceeds which exceeds the amount which would have been owing on Albrent's indebtedness to Spencer if the absolute assignment of the policies had not been taken. If any premiums had been paid by the defendants to continue the policies in force, such advances would also be deductible in determining the amount subject to the constructive trust.
Since a valid cause of action under the principle just above stated is asserted in the complaint, the order which is the subject of the appeal, cannot stand. The order is to be reversed.
By the Court. — Order reversed.
BROWN, J., dissents.