Hartford Life Ins. Co. v. Benson

KEY, C. J. (after stating the facts as above). The controlling question involved in the appeal is the validity of the agreement between the insurance company, on the one side, and the insured and beneficiary named in the policy, on the other side, embodied in the loan note, by which it was stipulated that, if the note should remain unpaid 30 days after maturity and demand, or if any interest payment remained unpaid 30 days after maturity, etc., the amount of paid-up insurance guaranteed in the policy should be reduced in the same proportion as the indebtedness bore to the cash surrender value, and stipulating that the company should not thereafter be liable on the policy, except for the amount of paid-up insurance so reduced, etc. Counsel for plaintiffs in error make the contention that the contract referred to does not violate any written law or any rule of public policy of this state; that it provides a reasonable, fair, and just method of settlement in the event of a breach of the contract embodied in the loan note, and therefore it is binding upon Mrs. Benson, the defendant in error, who signed the contract Counsel for defendant in error present two counter propositions in support of the judgment of the trial court, which are: (1) That the insurance company had no right to can *353 cel the policy because of a note which provided that upon a failure of the insured to pay interest on the note the policy could be canceled by the company so as to deprive the beneficiary of the proceeds of the policy, less the debt and interest due thereon; and (2) that the acts of the company in declaring the policy canceled and issuing a small amount of paid-up insurance without any proceeding to foreclose their pledge was not sufficient to deprive the beneficiary of paid-up insurance as originally provided in the policy, less what might be due under the pledge. While it seems to have been held otherwise by the Supreme Court of Kentucky, and perhaps a few o£her courts, we think the weight of authority, based upon sounder reason, supports the contention urged in behalf of the insurance company, as is shown by some of the following authorities cited in the brief of their counsel: Sherman v. Mut. Life Ins. Co., 53 Wash. 523, 102 Pac. 419; Hayes v. N. Y. Life Ins. Co., 68 Misc. Rep. 558, 124 N. Y. Supp. 792; affirmed Id., 150 App. Div. 927, 135 N. Y. Supp. 1116; Palmer v. Mut. Life Ins. Co., 114 Minn. 1, 130 N. W. 250, Ann. Cas. 1912B, 957; Wilson v. Royal Union Life Ins. Co., 137 Iowa, 184, 114 N. W. 1051; Palmer v. Mut. Life Ins. Co., 38 Misc. Rep. 318, 77 N. Y. Supp. 869; Eagle v. N. Y. Life Ins. Co., 48 Ind. App. 284, 91 N. E. 814; Frese v. Mut. Life Ins. Co., 11 Cal. App. 387, 105 Pac. 265; Rye v. N. Y. Life Ins. Co., 88 Neb. 707, 130 N. W. 434; Cilek v. N. X. Life Ins. Co., 95 Neb. 274, 145 N. W. 693; Salig v. U. S. Life Ins. Co., 236 Pa. 460, 84 Atl. 826. It is a well-settled rule of law relating to pledges that the agreement may authorize the pledgee to sell the property, either at public or private sale, and with or without notice to the pledgor, and the pledgee may himself become the purchaser at the sale, the proceeds to be applied to the liquidation of the debt, and the balance held in trust for the pledgor. Of course, the sale must be fairly made and for a fair price, but the power to sell exists, and< by the sale the pledgor is deprived of all interest in the property. It is true that the contract in this case did not provide for the sale of the policy, which was pledged for the security of the debt, but it does not follow that it was unreasonable or unjust or illegal for that reason, as will be shown hereafter. The contract here involved not only does not violate any constitutional or statutory law, nor contravene any rule of public policy, but is in harmony with the policy impliedly sanctioned by article 4741 of Revised Statutes 1911, which article, in part, reads as follows: “It shall further be stipulated in the policy that failure to repay any such advance, or to pay interest, shall not void the policy untii the total indebtedness thereon to the company shall equal or exceed the loan value.” To say the least of it, that provision of the statute impliedly recognizes the right of insurance companies to make and enforce contracts similar to the one involved in this ease, and therefore it is clear that such contracts do not violate any rule of public policy ; and the fact that the Legislature enacted that statute is some indication that the lawmaking department of the government did not regard contracts impliedly sanctioned therein as invalid or unreasonable. Recurring to the question of the reasonableness of such contracts as the one here involved, attention is called to the fact that in this state there can be no general market for life insurance policies, such as exists for stocks, bonds, and other obligations to pay money. This results from the fact that no one except relatives and creditors can become a beneficiary in a life insurance policy. This rule applies to an assignee, as was held in Cheeves v. Anders, 87 Tex. 287, 28 S. W. 274, 47 Am. St. Rep. 107; and therefore, if such a policy were offered for sale, a vast majority of the public would be prohibited from purchasing, and those eligible to purchase would be so few that practically no market for such property would exist. And for that reason, if the contract or the law should require the property to be disposed of by sale, as is generally the case as to other pledges, the result in most instances would be that the insurance company would be the only bidder, and could buy in the policy upon terms much more injurious to the insured and beneficiary than has resulted in this ease. Of the authorities hereinbefore cited in Palmer v. Mut. Life Ins. Co., 114 Minn. 1, 130 N. W. 250, Sherman v. Mut. Life Ins. Co., 53 Wash. 523, 102 Pac. 419, Eagle v. N. Y. Life Ins. Co., 48 Ind. App. 284, 91 N. E. 814, and Palmer v. Mut. Life Ins. Co., 38 Misc. Rep. 318, 77 N. Y. Supp. 869, contracts similar to the one now under consideration were involved and -held to be valid, and we copy the following, excerpts from two of those cases: In Palmer v. Mutual Life Insurance Co., 114 Minn. 1, 130 N. W. 250, the Supreme Court of Minnesota said: “The rule requiring the sale of the property cannot well be made applicable to a life insurance policy, pledged to the company issuing it as security for the payment of a loan; for, whether fully paid or not, it has no marketable sale value, and an attempt to thus dispose of it would be futile. So that some method of enforcement, other than a sale, or unconditional relinquishment of ownership by the pledgor, must be resorted to. A careful consideration of the subject leads to the conclusion that the remedy by cancellation at the cash surrender value of the policy is not inconsistent with sound public policy or violative of the substantial rights of the pledgor. On the contrary, it is a reasonable and practicable method of bringing the contract to a final termination.” In Sherman v. Mut. Life Ins. Co., 53 Wash. 523, 102 Pac. 419, the Supreme Court of Washington dealt with the question as follows : “We think the applicable principles of law are well settled. It is true, as the appellant *354 urges, that the general rule is that a contract, whereby the pledged property becomes forfeited to the pledgee for the nonpayment of a debt at its maturity is void on the ground of public policy. Denis, Contracts of Pledge, § 302. The reason for the rule is that in most instances the disparity between the amount of the loan and the value of the security is so great as to make such a contract unconscionable. It is a rule proceeding from equitable principles, and, like other equitable rules, where the reason ceases, the principle fails of application. It is competent for the parties to the contract to stipulate that the pledgee may buy the securities at private sale at the market price, in case of default in payment of the debt, or that he may sell at public or private sale with or without notice, and that he may become the purchaser. [Citations omitted.] In such case the pledgee is treated as the trustee of the pledgor, and is held to the rule of good faith. Not only did the parties stipulate in the assignment that the cash surrender value of the policy was $781, but at the time of the trial they further stipulated that • such was its value at the time the loan was made, according to the hooks of the respondent. Indeed, it may be said that there is nothing in the record which rises to the dignity of evidence tending to show that at such time, or upon the date of its cancellation, it had any greater value. As we have seen, the rule that forbids the parties to stipulate for the forfeiture 'proceeds from equitable principles, to the end that the creditor may not make an unconscionable contract with one in necessitous circumstances. We have seen that an agreement which permits the creditor to take the security at the time of default at its market value has the sanction of law. In effect, that is what the respondent did.’ The policy had no market value in excess of the surrender value. We must determine the lights of the parties from the ultimate result of what was done, rather than the form employed to accomplish the result. Measured by this rule, the acts of the respondent have the sanction of law.” In our opinion, the two cases last mentioned are in line with both reason and the weight of authority, and therefore we hold that the present case should have been decided in accordance with plaintiff in errors’ contention. Dor the reasons stated, the judgment of the trial court is in part reversed and rendered for plaintiffs in error, and is reformed so as to permit the plaintiff in the court below, Mrs. Ora Benson, to recover of the defendants in the court below, the Hartford Bife Insurance Company and the Missouri State Bife Insurance Company, the sum of $50, and no more; and, inasmuch as the insurance companies conceded their liability for $50, and tendered that sum before the suit was brought, all the costs of both courts will be taxed against Mrs. Benson. Reversed and rendered in part, and in part reformed and affirmed. Footnotes [1] <@=^For other-cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes