Putnam's Handy Law Book for the Layman Part 11

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.

Pa.s.sing 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, const.i.tute 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 a.s.signed unless forbidden by statute, therefore a policy payable to the wife of the insured, or another may be a.s.signed by the united act of the insured and the beneficiary. Thus a policy taken out for a wife's benefit is often a.s.signed by her and her husband to his creditors to secure their debts. In some states statutes forbid the a.s.signment of such policies for the benefit of creditors. The written a.s.signment must be delivered to the a.s.signee to be effective. On some occasions a.s.signments have been declared valid where the intention was clearly proved though both the written a.s.signment and the policy remained in the possession of the a.s.signor. An a.s.signee who holds a policy as security is ent.i.tled 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 a.s.signee 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 a.s.suming 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 ent.i.tled 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 ent.i.tled 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 rest.i.tution 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 a.s.suring 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 pa.s.s 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 t.i.tle 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 a.s.signment that the vendor may make for the benefit of creditors, provided he enforces his lien before the a.s.signee 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.

The mortgagor in most states is regarded as the real owner and remains in possession; and the mortgagee has a lien, or security for his advance of money or whatever it may be. The mortgagor may sell his land at any time subject to the mortgage, in other words he cannot by any sale impair the mortgagee's security. On the other hand, the mortgagee can transfer, sell or a.s.sign his mortgage to another, and this is often done.

Both parties may insure the premises though the mortgagee cannot exceed his debt. If they are destroyed by fire, the mortgagor cannot claim to have the insurance applied in liquidation of the mortgage debt. The mortgagee, therefore, can first collect the insurance money and then proceed to collect the debt that is due to him from the mortgagor. If the sums collected from the two sources exceed the amount advanced to the mortgagor that is only the mortgagee's affair.

But if he insures the property at the mortgagor's request or at his expense, then the mortgagor would have the benefit of the insurance.

Frequently several mortgages are made of the same property. The one that is the first recorded has the first lien, the one recorded next the second lien, and so on. And if the property is subsequently sold to pay the mortgage, the first mortgagee has the first claim to the money received, the second mortgagee next and so on. If there is not enough to pay all, the last mortgagee is the first to be cut off, or to receive less than the full amount due to him.

If a testator devises mortgaged land, is the devisee or person who receives the land also ent.i.tled to the money due from the mortgagor?

Generally, but not everywhere. A bequest of money securities includes a note secured by mortgage. The mortgagor's interest in the land on his death, if leaving no will directing who shall take it, goes to his heirs, and not to his executor or administrator like other personal property. Of course, if there were no other property that could be used to pay his debts, if he had any, it could be claimed and taken by his creditors for that purpose.

The mortgage usually states a time for paying the debt, and if the terms are not observed, the mortgagee may proceed to take the property. This he cannot do in an arbitrary way, except in the case of mortgages in which the mortgagee is entrusted with power to sell the property and apply the money in payment of the debt. In other cases the mortgagee must apply to the court to fix a time for the sale of the property, if the mortgagor fails to make payment. The courts usually give the mortgagor a period of several weeks or months to pay, and if payment is not made at the end of this period, the land is sold by an officer of the court, who conveys the t.i.tle to the new purchaser, and if there is any surplus left after satisfying the mortgage, this is returned to the mortgagor. If there is a deficit, he is still liable therefor. Any person who is interested in a mortgaged estate has the right to redeem it; heirs, devisees, creditors. On the death of a mortgagor his heirs may call his executor or administrator to pay the mortgage out of the personal estate if there is any, and not from the sale of real estate, because it was given, so the law presumes, for the benefit of the personal estate belonging to the mortgagor. Or, if the land has been given to a devisee, he can require the executor or administrator to pay the mortgage. Again, if two persons are jointly liable for the debt, and one of them pays it, he may call on the other to contribute his portion. See _Chattel Mortgage_.

=Negotiable Paper.=--By negotiable paper is meant paper that can be sold and transferred. The law on this subject is now regulated by a statute that is nearly uniform in almost all the states of the Union.

The courts are constantly applying it, and in doing so are putting their meaning or interpretation on the words of the statute. Thus far they have looked with quite similar eyes, and no serious differences have arisen.

The statute declares that a promissory note must be in writing and signed by the maker or drawer; that it must contain an unconditional promise or order to pay a certain sum of money on demand, or at a fixed future time to order or to bearer. And if the note is addressed to a drawee he must be named or indicated with reasonable certainty. A note may be written payable with interest or by stated installments, or with exchange, or with costs of collection, or an attorney's fee in case payment shall not be made at maturity.

An unqualified order or promise to pay is unconditional within the meaning of the law even though it indicates a particular fund from which it is to be paid, or a statement of the transaction on which the note is based. Thus the indors.e.m.e.nt of the words "per contract" on the back of a note written at the time of its execution does not affect its negotiability.

A note payable at a fixed future time may be at a fixed period after date or sight, or on or before a fixed future time specified therein, or on or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening be uncertain.

A note that is payable on a contingency is not negotiable, and the happening of the event does not cure the defect. Likewise a note which contains an order or promise to do any act in addition to the payment of money is not negotiable. To this rule, though, are some exceptions.

Thus a note may be negotiable that authorizes the sale of collateral securities that have been delivered to the holder if the note is not paid at maturity. But a note stating that the t.i.tle to property for which it is given shall remain in the payee, and that he shall have the right to declare the money due and take possession of the property whenever he may deem himself insecure "even before the maturity of the note," is not negotiable.

Again, the validity and negotiable character of a note is not affected by the fact that it is not dated, or does not specify the value given or the place where it is drawn, or the place where it is payable, or bears a seal, or designates a particular kind of current money in which payment is to be made. Furthermore, a note is payable on demand when it is thus stated, or is payable at sight or on presentation.

Also an overdue note accepted or indorsed is regarded as payable on demand, so far as the maker is concerned.

A note may be drawn payable to the order of a specified person, or to him or his order, or it may be drawn payable to the order of a payee who is not the maker, drawer or drawee, or it may be drawn payable to the order of the drawer or maker, or to the drawee, or to two or more payees jointly, or to one or some of several payees, or to the holder of an office for the time being.

Again, a note is payable to the bearer when it is thus expressed, or to a person named therein or bearer, or when it is payable to the order of a fict.i.tious or non-existing person, and the fact is known to the person making it so payable, or when the name of the payee does not purport to be the name of any person, or when the only or last indors.e.m.e.nt is an indors.e.m.e.nt in blank. On one occasion funds were deposited in a bank in the name of a federal disbursing agent under treasury regulations that "any check drawn by a disbursing office upon moneys thus deposited must be in favor of the party by name to whom payment is to be made and payable to order." The disbursing officer fraudulently drew checks payable to fict.i.tious payees and cashed them under forged indors.e.m.e.nts of the fict.i.tious payees' name. The court held that the checks were not payable to bearer and that the bank was not protected in paying them.

A note is not invalid for the reason only that it is ante dated or post dated, provided this is not done for an illegal or fraudulent purpose. The person to whom it is delivered acquires the t.i.tle from the date of delivery. If a note expressed to be payable at a fixed period after the date is issued undated, or the acceptance of such a note is ante dated, the holder may insert the true date of issue or acceptance. Nor does the insertion of the wrong date avoid the note in the hands of a regular subsequent holder. More generally, when a note is wanting in any particular material, the holder or possessor has the authority to complete it by filling up the blanks. This authority extends to every incomplete feature of the note and may be used for inserting the date, amount, name of the payee, and time and place of payment. When authority is conferred on another to fill blanks it must be strictly followed. If a note is drawn payable with interest at the rate of __ per cent, it draws interest at the legal rate, although the blank is not filled. The presumption that a note was completed before it was signed and not afterwards does not arise in a note written in several inks and by different hands. And the purchaser of a note with an unfilled blank is put on inquiry respecting the authority of a person entrusted with an incomplete note. Thus A signed blank forms of notes and left them with his attorney, but with no authority to complete and issue them until instructed. The attorney filled them up without further instructions and issued them to a person who knew they had been signed, that the attorney had a power of attorney to act for A, but did not attempt to read or otherwise ascertain its terms. A was not prevented from denying the validity of the notes. In another case a person who signed a number of notes in blank as to date, payee and amount, and left them in his desk in his office, whence they were stolen, filled in and indorsed to B for value before maturity and without notice of any defects, was nevertheless not liable on them.

When therefore an incomplete instrument has not been delivered it cannot be completed and negotiated without authority, and if it is, it is not a valid contract in the hands of any holder as against the person whose signature was placed thereon before delivery.

Every contract on a negotiable note is incomplete and revocable until its delivery. As between the immediate parties, and also a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by the authority of the party making, drawing, accepting or indorsing as the case may be. The delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property of the note. But where the note is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him is conclusively presumed.

When the language of a note is ambiguous the following rules of construction are applied: (a) if there is a discrepancy between the words and figures in expressing the amount, the words control, if the words are ambiguous or uncertain, reference may be had to the figures to fix the amount; (b) if the note provides for paying interest without specifying the date from which it is to run, the interest runs from the date of the note, if this is undated, from the issue of it; (c) if not dated a note will be considered as dated from the time of issue; (d) if there is a conflict between the written and printed provisions, the former will prevail; (e) if it is doubtful whether the instrument is a bill or note, the holder may elect which it shall be; (f) it is not clear in what capacity the person making the note intended to sign he is to be deemed an indorser; (g) when a note containing the words "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon.

The signature of any party may be made by a duly authorized agent. No particular form of appointment is necessary for this purpose, and the authority of the agent may be established as in other cases of agency.