Irons v. U. S. Life Ins.
128 Ky. 640
Ky. Ct. App.
1908
Check Treatment

Opinion op the Court by

Judge Lassing

Affirming in, part and reversing in part.

In 1890 Benjamin Wells., an unmarried man, caused his life to be insured for the sum of $2,500 in the United States Life Insurance Company of New York, the premiums to be paid in 10 annual installments, and the money, at his death, to go and be payable to Ms sister, Lydia Spriggs Bunch, and her surviving children, share and share alike. At that time Mrs. *647Bunch was a widow, with three small children, six, eight, and ten years old, and all dependent upon her brother, Benjamin Wells, for' a support. The premiums were regularly paid, when due, during each year until the year 1900, when the last of the 10 payments called for under the terms of the policy was paid, and the policy became a paid-up policy. At that time the children of Mrs. Bunch were 16, 18, and 20 years of age, respectively. They had no estate whatever; and their mother, for the alleged purpose of raising money to complete their education and to support them, instituted an equitable action in the Gray-son circuit court for the purpose of securing an order for the sale of the paid-up policy of insurance. Prior to the institution of this suit she had appeared in the Grayson county court, and had been, on her motion, appointed and qualified as guardian for her three children. She caused her brother, Benjamin Wells, and .the United States Life Insurance Company of New York, to be made parties defendant to this equitable action. In this equitable suit she set forth fully the needs and'necessities of her children, alleged that the policy of insurance was the only estate of any kind whatever owned by them, and' that a sale of it was necéssary in order to raise the funds needed to support and educate them. Her brother, Benjamin Wells, filed an answer, consenting to said sale, and joining in the prayer of the petition. The insurance company answered, asking that its interest be protected. Proof was taken by affidavits in support of the allegations of the petition, and it was also shown by the affidavit of Lydia Spriggs Bunch that she was 45 years of age, •and had passed the change of life, and could not bear further issue. Thereafter the case was submitted, and! judgment was rendered in conformity with the prayer *648of the petition. The plaintiff, Lydia Spriggs Bunch, was appointed a special commissioner for the purpose of selling the policy. At the following term of court she, as special commissioner, filed her report, setting forth the fact that she had sold! same to appellees Gosnell and Jones for the sum of $731.18. No exceptions having been filed to this report of sale, it was confirmed, and, acting under the direction given in the judgment ordering the sale, the company transferred to Gosnell and. Jones as purchasers the policy of insurance. In May, 1906, Benjamin Wells died. Proofs of loss were promptly furnished the company by Gosnell and Jones, and on the 17th of May, 1906, the insurance company paid to them in satisfaction and settlement of the policy the sum of $2,500, the full face value thereof. On August 16, 1906, Mary E. Irons, Minnie M, Dense, and Benjamin Bunch brought suit in the Grayson circuit court against the United States Life Insurance Company of New York, Jess T. Gosnell, W. O. Jones, and. their mother, Lydia Spriggs Stevenson, she having married again, setting up the facts as to the issuing of the policy of insurance in their favor, the judgment of the Grayson circuit court directing its sale, and the sale and transfer theréof to appellees Gosnell and Jones, the death of their uncle, Benjamin Wells, and the payment of the money, as above recited, to them. The circuit court dismissed the petition, and the plaintiff’s appeal.

Neither Gosnell nor Jones, when they purchased the policy, had any insurable interest in the life of Benjamin Wells. In a long line of decisions this court held that the purchaser of a policy of insurance on the life of another in which he has no insurable interest except as creditor, will hold the proceeds of the policy over and above his debt in trust for the *649beneficiaries of the policy; and that, where he hás no insurable interest, the assignment will operate at most only as a pledge, and that he will hold the proceeds of the policy over and above the amount that he has paid for it, with interest, in trust for the beneficiaries of the policy. Basye v. Adams, 81 Ky. 368, 5 Ky. Law Rep. 91; Barbour v. Larue, 106 Ky. 546, 21 Ky. Law Rep. 94, 51 S. W. 5; Lee v. Insurance Co., 82 S. W. 258, 26 Ky. Law Rep. 577; Insurance Co. v. Brown, 66 S. W. 613, 23 Ky. Law Rep. 2070; Baldwin v. Haydon, 70 S. W. 300, 24 Ky. Law Rep. 900; Schlamp v. Berner, 51 S. W. 312, 21 Ky. Law Rep. 324; Bramblett v. Hargis, 94 S. W. 20, 29 Ky. Law Rep. 610. The doctrine of constructive trusts applies no less to judicial sales than to private sales. If the purchaser at a private sale will hold the property in trust for another, the purchaser at a judicial sale under like circumstances will equally so hold it. If the property is impressed with a trust, the trust is enforeable as well against the purchaser at a judicial sale as at a private sale. Miller v. Antle, 2 Bush, 407, 92 Am. Dec. 495; Roach v. Hudson, 8 Bush, 410; 2 Pomeroy’s Equity, section 1052. If the appellants had been of age and had sold this policy to Grosnell and Jones, the latter under the above authorities would only take an interest in the policy to the extent of the amount which they paid for it and interest. The court was applied to simply because the children were not of age. The action of the court supplied the want of capacity in the children by reason of their nonage, but the court only did for the children what they might have done themselves if of age. What Grosnell and Jones took under their purchase, is to be determined, not alone from the judgment of the court, but from their capacity to take. The court transferred the policy to them, *650but the effect of the transfer is to be determined by the law which regulates what interest they could take in such a policy. The transaction having been made under an order of the court, which had' all the parties before it, Gosnell and Jones must be adjudged entitled out of the policy to the amount they paid with interest. To' give it greater effect would be entirely to ignore the rule that where a purchaser at a private sale would hold as trustee, he equally holds as trustee where he purchases at a judicial sale under like circumstances; the reason for the rule being that his title in both cases depends upon his capacity to take, and that, if he cannot take the title in one ease absolutely, he cannot take it in the other. When a proposed purchaser is reported to the court, it does not consider whether he has capacity to take the property or what interest he can take, unless the question is raised by exception to the sale. This is a matter which he is to see to for himself. The court, unless objection is made, does not consider whether he is trustee for the parties and will hold the property for them. In the case of a sale of a life insurance policy the court does not inquire sua sponte whether the purchaser has an insurable interest in the life of the assured. The order confirming the sale where no exceptions are filed does not establish the fact that the purchaser is not a trustee for the parties or that he has capacity to take the property absolutely. If, in fact, he has capacity only to take a limited estate in it and holds the remainder in.trust for the parties, to show this fact in. a subsequent suit in no wise impeaches the judgment in the former case. The question is what he took under that judgment, and he could not take any greater interest than he had capacity to take. If he had no insurable interest in the life of the *651assured, the law allowed no greater interest to he vested in him by his purchase than a lien for his money with interest. Every reason for the rule exists in sales made by order of court as in private sales; for there is the same temptation in each ease to wrongdoing and a mere gaming venture.

We have not referred to section 678, Ky. St. 1903, as that is in the division of the statute applicable to co-operative insurance, and there is nothing in the section to show that it was intended to apply to other policies. The right of the mother cannot be adjudicated in this action, as she has brought no suit.

Judgment reversed as to Grosnell and Jones, and cause remanded, with directions to the circuit court to adjudge Gosnell and Jones out of the proceeds of the policy $731.18 with interest at 6 per cent, from May 10, 1900, and to adjudge to the plaintiffs three-fourths of the remainder, and for further proceedings consistent herewith. As to the insurance company, the judgment is affirmed.

Petition by appellants for modification of opinion overruled.