Security Life & Annuity Co. v. Costner

CoNNOR, J., after stating the facts: The sole question presented is, whether by reason of the provisions of sec. 4775, Revisal, forbidding insurance companies from giving any special benefits, or any rebate of premiums on policies to one person not given to all others of the “same class and expectation of life,” the entire contract, policy and note are void. Conceding that the contract, set out in the record, violates the provisions of the statute, it does not follow that the policy of insurance issued, or the note given for premiums are void. It is not always easy to distinguish between those cases in which the illegal element enters into and so permeates the entire contract as to render it void, and those in which two covenants or obligations are assumed which are 'either severable, or which the parties have so severed that the valid may be separated from the invalid, and enforced. Pollock thus states the law: “A lawful promise, made for a lawful consideration, is not invalid by reason only of an unlawful promise being made at the same time and for the same consideration.” Again: “Where a transaction, partly valid and partly not, is deliberately separated by the parties into *296 two agreements, one expressing the valid and tlio other the invalid part, then a party who is called upon to perform his part of that agreement which is, on the face of it, invalid, cannot be heard to say that the transaction, as a whole, is unlawful and void.” Contracts, 482 and 483. In Price v. Green, 16 M. & W. (Exch.) 346, the defendant, for one consideration, covenanted not to engage in trade in the cities of London and AA^estminster, .or within 600 miles of either of said cities. The action was for breach of the first covenant. Patterson, J. held that the two were divisible, and sustained the action for breach of the valid covenant, saying, “No doubt the covenant formed the consideration for the payment of 1,500 pounds, and possibly Gosnell would not have given so large a sum, unless the prohibition to trade had been as extensive as, by the whole of the covenant, it is made to be; but this is conjecture only.It should be observed that the restriction as to 600 miles from London and AYest-minster is only void and not illegal.” In the same case, reported in 13 M. & W., 695, Pollock, C. B., said : “It is not like a contract to do an illegal act; it is merely a covenant which the law will not enforce; but the party may perform it if he choose.” In Fishnell v. Gray, 60 N. J. L. 5, Beasley, C. J., said: “The proposition posited is, that as this part of the consideration of defendant’s promise is illegal, the entire contract falls and that no part of it can be enforced.” After discussing the cpiestion, he says: “As a consideration it was, in the earlier cases, treated as devoid of legal force, but it was deemed to vitiate all other considerations with which it was blended. On this theory an agreement to abstain'generally from carrying on a certain business, as in the present case, was treated as though it were an agreement to commit a crime, and, as a consequence, it i'llegalized everything that it touched. But this view, it has since been perceived, is unnecessarily *297 stringent and is, in fact, quite unreasonable. Tliere is nothing immoral or criminal in a stipirlation not to engage in a certain business. A man may bind himself to such an abstention without incurring any legal penalty. The only effect is that such an engagement cannot be enforced, either at law or in equity. And this is the aspect in which it is regarded by modern authorities.” The same view is stated by Page in his recent work on Contracts, 1 vol., section 509. “Tf A. makes a promise to B., consisting of two, or more, covenants, upon a valuable and legal consideration, and one of the covenants made, by A. is illegal, and the other is legal, the question of whether the legal covenant can be enforced or not, depends on whether the contract is severable or not. Tf the contract is severable, consisting in legal effect of distinct contracts, the legal covenant can be enforced.” Eor this statement of the law, the author cites a large number of decided cases. • The distinction is sometimes made between contracts -malum in se and malum prohibitum, but this is not recognized with us. When the statute prohibiting a contract declares it to be void, as in the statute against gambling in “futures”, no enforceable promise or obligation can grow out of it. Burns v. Tomlinson, 147 N. C., 645. The statute, see. 4775, does not declare that contracts, made in violation of its provisions, shall be void. There is nothing immoral in the contract made by plaintiff with defendant, and it is not clear that, it comes within the statutory prohibition. Muller v. Ins. Co., 60 N. E. Rep., 958. It seems that, for what the company regarded a valuable consideration, it proposed to give to a class of 600 of its policy-holders certain benefits. However this may be, it is manifest that the note was executed for the exact amount of the regular premiums charged-all persons of defendant’s age for that kind of policy. It would hardly be contended that the policy was void and that, if defendant had died within the year, the company would not *298 have been compelled to pay it. The company, in consideration of the payment of the premium or the execution of the note, made two separate and distinct contracts with defendant, assuming entirely different obligations. One was that, upon the payment of the premiums named in the policy, at stated annual periods during his life,-it would, upon liis death,-pay to the beneficiary named, the amount of the policy. This was a valid, binding contract. At the same time, the conn pany made a separate contract with defendant that, upon the payment of the second annual premium and the one due each year thereafter, it would deduct certain amounts by way of renewal commissions, which should be credited on said premiums. Assuming, for the purpose of this decision, that this contract is void, that is, not enforceable by reason of sec. 4775, Revisal, Ave are unable* to perceive how it can affect the validity of the contract of insurance or the promise to pay the premium. It Avould be a strange result if a statute, passed to prohibit rebates or commissions being paid to the insured, should invalidate the policies issued to persons A\dro pay the premiums, or invalidate notes given for them. Defendant says that he learned, in a ícav days after the policy Avas issued, that the contract Avas void, but that he retained it in his safe until the next premium fell due, Avlien he let it lapse. He was certainly insured for one year, and this Avas a valid and Araluable consideration to support his promise to pay the premiums. Roddey v. Talbott, 115 N. C., 293. To hold that, upon his oavh evidence, he may, in' the light of the facts in this case, take the consideration and their repudiate his promise to pay, would subject the Court to the charge of violating “the dictates of justice.” In Lindsay v. Smith, 78 N. C., 328, the contract was to suppress a criminal prosecution and to ditch plaintiff’s land, with an express provision that it Avas not to be. of any “binding force” until the prosecution was dismissed. Eor manifest reasons the Court held that the plaintiff could not recoArer. *299 In Covington v. Threadgill, 88 N. C., 186, notes were given for the payment of liquor, sold in violation of a statute, which imposed a penalty. While these and other decisions of this Court may be distinguished from this case, it must be conceded that language is used indicating a failure to note, the distinction made by more recent decisions. In all of the cases in our reports, the contract was made in violation of a penal statute. In this appeal it will be observed that no commission was to be credited to defendant until after the second premium was jpaicl. lie has never paid it, and the company has never come under obligation to him on this contract. We do not attach any importance* to the fact that the note was payable to Scarborough and transferred to plaintiff. He was the agent of the company, and it was bound by his acts. There is No error. Hoke, J.,.did not sit.