The opinion of the court was delivered by
Bbeaux, J.In April, 1889, the late Harry D.Hays effected a policy of insurance on his life in the Equitable Life Assurance Society for the sum of fifty thousand dollars. A short time after the policy was issued, he became afflicted with a mortal disease. In his condition of ill health, and being without means, he applied on the 25th of August, 1889, to a practising attorney for money to pay the premium of insurance on said policy about to mature. The premiums paid, interest thereon and fees charged amounted to about five thousand seven hundred dollars. To secure this amount, the late Harry D. Hays made an assignment of the policy to the attorney, H. L. Lazarus, acting for a client who loaned the amount, and transferred notes, the latter amounting to more than thirty thousand dollars. He, Hays, became displeased and called at defendant’s office; sought their advice.
*750They prepared his petition in December, 1890, to the court for judgment to annul and set aside the assignment he had made of this policy and the ‘delivery of notes, in which he in substance alleged that being pressed for funds and his health not permitting him to work and support his family, he had applied to the attorney Lazarus in August, 1889, to whom he afterward assigned his policy, for an advance in money and for a monthly stipend of two hundred dollars to enable him to support his family. That he was, he says, imposed upon; the monthly allowance was not inserted as one of the conditions of the assignment, although he had been led to believe it was.
In the petition prepared for Hays by the defendants, in December, 1890, he alleges that the total amount advanced was only. $4150, for which the attorney received notes to the amount of $34,000, the deed of trust and the assignment of the policy of insurance; that Bright’s disease, from which he was suffering, was agonizing and torturing, impairing his health, enervating his mind and body and rendering him incapable of correctly understanding the nature and tenor of the documents and notes submitted to him for signature; that these assignees, Lazarus and Weil, had no interest in his life at the time of the assignment.
That the execution of the deed of trust and notes by said Hays for the excess beyond the amount actually advanced to him, to-wit: $4150, with interest from September 4, 1889, was a wagering policy, and said Weiss & Co. and said Lazarus were in equity and good conscience only entitled to the advances made thereon. The assignee, Judge Lazarus, attorney, prior to any suit, consented to cancel the assignment and surrender the notes, upon the payment of the sum already mentioned as claimed by him.
In December of 1890 the defendants advanced him the amount required to effect the compromise with the said assignee. The services of defendants here as attorneys for obtaining a relinquishment of all claims under this assignment and effecting the compromise was fixed at $5000.
In consideration of the advance made to enable him to pay Lazarus, attorney, and the fee of five thousand dollars due to defendants, the late Harry D. Hays transferred and assigned to the defendants his title and interest in the policy he held at the time.
Prior to this assignment he had executed a number of notes, pay*751able on demand, amounting in the aggregate to nineteen thousand four hundred and seventy-two dollars.
They were placed by the maker, Hays, in the hands of several persons (his friends), and they were treated by him as if he had received consideration from them, although he had not. Under his instructions, these notes were placed by the respective holders in the hands of different attorneys for collection or sale.
They were acquired, by a practitioner at the bar, for less than fifty cents on the dollar of their face value.
Afterward, to-wit: on March 3, 1890, he, the maker, Hays, executed and delivered to the holder of these notes, Fergus Kernan, a document admitting their binding character, and assigning his life insurance policy to secure their payment.
In February, 1891, the said assignee of these notes was a party to an authentic deed fixing his interest in the policy securing the notes held by him at two-fifths and the remaining three-fifths to the defendants, and thereby Hays secured time after the transfer, and he, Hays, admitted that the notes were held, as just stated.
Another note was subsequently executed by Hays and placed in circulation. It found its way into the hands of an attorney, who threatened to bring suit and to seize and have sold the insured’s interest in the policy. This note, among the number, we identify as the Dar ton note.
On the 10th day of January, 1891, the defendants purchased these, the Kernan notes, for about [$11,175, and the holder surrendered to them the life policy of $50,000, and from that time the defendants were in full possession. With interest, the amount collected was $50,125.
The following are credits admitted by the plaintiff:
By cash paid first assignee.:. $5, <26 62
By cash paid for $19,472.18 of Hays’ notes. 11,1/6 00
Cash advanced to and for account of Hays. 14,770 00
Cash paid for the Davton note. 2,113 36
Cash deposited in registry of court to the credit of the succession of Hays 3,428 57
Total interest account admitted is. 4,373 55
Two items.. 25 00
Total credits...$45,674 19
Balance claimed as due at the time of statement. 4,550 81
The defendants claimed at least one amount, additional, paid by them, we do not find, and which, if not already credited, we think should be carried to their credit, viz.: five hundred dollars paid attorney’s fee in suit to collect the policy.
*752The facts, in regard to the assignment (the first in order of date), are, as already stated, that after the party (Lazarus) sued for the policy had expressed willingness to surrender the policy assigned to him for the amount the assignor, Hays, was willing to pay; he, Hays, did not have the amount required; it was then that the defendants made an advance which amounted with their fee, not contested, to more than eleven thousand dollars.
To that amount the plaintiff does not question the validity of the transfer.
The complaints relate principally' to the notes identified as the Kernan notes and the note held by Darton, all subsequently transferred to defendants by the respective holders.
As to these, it is alleged that they were issued without consideration; that defendants acquired them with full knowledge of all the circumstances under which they were issued.
The record discloses that a dissension arose between the defendants and the assignee, F. Kernan, Esq., the former, contended that the latter should pay forty per cent, and they sixty per cent, of the premiums. The defendants finally offered to sell their interest to Kernan; he stated that his means did not permit him to buy, and he in turn made a proposition to sell to them, which they accepted, and after some delay, the sale was completed.
They give as the reason for making this purchase of these notes, that that they had disbursed a large amount for Hays, some $11,100, and that their object was to get possession of the policy. They testified that the statement to them by Kernan, the holder, and by Hays and by Mordecai, who acted for Hays in negotiating these notes, was that they were notes representing debts which Hays had contracted while he was in some canning factory business, in which he failed, and that Kernan, the holder, had purchased these notes from different creditors who held them from Hays.
The transferror of these notes, Kernan, at the same time transferred to the defendants his interest in the assignment of the life insurance policy.
In these assignments no mention was made of premiums, or of the necessity of making provision for their payment. It was manifest that the insured was unable to pay them, and that to'keep the policy alive the assignee would have to pay the premiums as they became due.
*753During the life of the policy, from the spring of 1889 to March 30, 1894, five annual premiums, each two thousand four hundred and fifty dollars in amount, aggregating twelve thousand two hundred and fifty dollars, were paid by the assignees, not a cent was paid by the insured Hays.
It appears of record that the defendants were aware of the extreme illness of the insured Hays and of the mortal nature of his disease, and that he had no property or resource of any kind, save his life policy. Subsequently, his health improved, and it was reported that he had recovered from the severe attack which physicians had pronounced incurable. The improvement was temporary. In March, 1894, he died, leaving a will containing the following, “ There are some outstanding notes against which I request my wife to pay as the law directs.” These were the notes held by the defendants, regarding which one of the defendants testified as follows:
Question. “Was there any agreement between yourself and Mr. Hays as regards the amount that you should claim under the pledge of the policy to you on those notes that you acquired from Kernan? ”
Answer. “Well, we understood that we were to claim the full amount of the notes; and they were to be payable out of the policy after his death, an uncertain event, it is true. ”
Judgment was pronounced for the defendants, rejecting plaintiff’s demand. The plaintiff prosecutes this appeal.
The transactions whereby the defendants became the owners of these claims were open and direct; there was no disposition manifested to take undue advantage; they were endeavoring in a legitimate manner to protect their interest, and evidently believed that the maker of the notes, Hays, had received adequate value.
In the act of compromise annulling the first assignment made of the policy by the insured, there is reference to the claim here, general in terms it is true, yet sufficient to excite and put on inquiry.
Direct and express notice is not always indispensable to take notes out of the rule of commercial law and cut off the equities.
When the circumstances are such as to bring a particular case under the operation of that rule the maker of the note is legally entitled to insist upon its application regardless of the question of actual knowledge on the part of the purchaser of the note.
*754We pass to the next ground urged:
The defendants can not take-more than their investments from the life insurance' policy.
It is but justice to state that the transactions in regard to the policy were intended by the defendants to be fair and just.
Owing to favorable circumstances about twenty-nine thousand dollars have been realized by the succession, for which no actual value was paid by the insured.
There has been considerable discussion and diversity of judicial opinion upon the subject here involved. The defendants refer to several decisions holding that a valid policy of insurance effected by one upon his life is assignable like any ordinary chose in action, and they contend that, as holders of the notes of the insured prior to maturity, they had an interest in the whole policy. .
In regard to the first proposition, in our view, if a policy is invalid when taken out by one who has no interest in the life of the assured, the assignment, of a policy to one without interest is equally as invalid. The reason for holding the former invalid should invalidate the latter.
Mr. Justice Field, in Warnock vs. Davis, 104 U. S. 779, as organ of the court, upon that subject said:
“It is not easy to define with precision what will in all cases con- ■ stitute insurable interest,
“It may be stated generally, however, to be such an interest, arising from the relations of the party obtaining the insurance, either as creditor of or surety for the assured, or from the ties of blood or marriage to him, as will justify a reasonable expectation of advantage or benefit from the continuance of his life. It is not necessary that the expectation of advantage or benefit should be always capable of pecuniary estimation; for a parent has an insurable interest in the life of his child, and a child in the life of his parent, a husband in the life of his wife, and a wife in the life of her husband. * * *' 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 from the continuance of the life of assured.”
These principles have been re-announced in subsequent eases: Insurance Company vs. Luchs, 108 U. S. 503; New York Mutual Life *755Insurance Company vs. Lewis, 15 Wal. 643; Cammack vs. Armstrong, 117 U. S. 597.
In the last case, the learned justice said, “that an assignment of the policy to be valid, must be made for valuable consideration.”
In the following cases the decisions of the Supreme Court of the United States have been followed: Stevens vs. Warren, 101 Mass. 564; Cooper vs. Shaeffer, 11 Atlantic Reporter, 548; Roller vs. Moore, 10 Southeastern Reporter, 241, and authorities cited.
Reasoning from the premises of the defendants, these decisions do lnot apply ; they claim that they were creditors for the whole amount for which the assignment was. made, and plead the face value of their notes.
But, in our opinion, while they have a right to their fee, advances and interest, they are without the benefit of the law applying to negotiable instruments prior to maturity.
It is true that, technically, these notes were delivered prior to maturity, but they were payable on demand; the maker had informed the defendants that he was much pressed for payment by the holders; they were held for collection from the proceeds of the policy, and all the transactions were directed to the collection to be made from the policy, and it is conceded that this was all that the holders expected to realize.
Where a note is made for a special purpose, or taken to be collected exclusively from a policy of insurance under the circumstances of this case, we think it is taken out of the rule which governs negotiable instruments, in so far as relates to the equities.
The defendants are entitled to their fees and to all they have advanced, and all they have paid for the claim they hold and interest. Their demand for the remainder, after these will have been paid, is rejected.
It is therefore ordered, adjudged and decreed that the judgment appealed from be reversed, annulled and avoided. It is further ordered, adjudged and decreed that plaintiff recover judgment for the sum of fifty thousand one hundred and twenty-five dollars, less all advances, also amounts paid as transferees of the notes, and fee and interest as already stated, and that the case be remanded to the District Court and a judgment entered in accordance with this decree.
The defendants and appellees to pay costs of both courts.