Swift v. Columbian National Life Insurance

Rugg, C.J. The holder of three several life insurance policies brings this action of contract against the insurer to [402] recover amounts alleged to have been wrongfully withheld by way of interest collected in advance on loans made on his policies. The plaintiff borrowed money of the insurer on his policies. The insurer took interest at six per cent in advance for each year or fraction of year on the amounts borrowed. It is provided by G. L. c. 175, § 142, as amended by St. 1924, c. 75, § 3, that “After three full annual premiums have been paid on any policy . . . , the holder thereof, . . . shall . . . be entitled to a loan from the company, on the sole security of the policy, with interest at not exceeding six per cent per annum or, at the option of the company, with interest as aforesaid compounded annually, of a sum not exceeding its loan value . . . .” The sole question of law is whether the insurer has a right to discount a full six per cent at the beginning of the loan period not exceeding one year, or whether the interest, if deducted in advance, must be calculated so as not to result in the receipt by the insurer of a higher rate than if the interest were paid at the end of that loan period. In Agricultural Bank v. Bissell, 12 Pick. 585, the question decided was that St. 1783, c. 55, did not prohibit the taking of interest in advance at the maximum permissible rate. The relevant words of that statute were, “No person . . . upon any contract . . . shall take directly or indirectly for loan of any Monies, . . . above the value of six pounds, for the forbearance of one hundred pounds for a year, and so after that rate for a greater or less sum, or for a longer or shorter time . . . It there was said by Chief Justice Shaw, at pages 588, 589, “That this sum a little exceeds six per cent, for one year, as fixed by the statute, is very obvious. ... as the statute prescribes the rate of interest for one year, and so at the same rate, for a longer or shorter time, it is obvious, that when the interest is to be computed in days or months, it is impossible to follow the prescribed rule precisely, without taking the fraction of a day; and that this is not required, is now settled by the whole current of authorities. From the impossibility of executing the statute with literal exactness, has resulted the necessity of resorting to an execution cy pres, in many cases, where it is intended to conform to the intent and spirit of the statute. . . . The same [403] difficulty arises, in computing interest for a small number of days; and therefore some approximation, which can be made by an easy and practicable mode of computation, if made in good faith and without being intended as a cover for usury, has been considered allowable, without drawing after it the penalty of the statute. Such being the universal practice of other persons, as well as banks, we think a jury would not be warranted, from the mere fact that the interest thus computed slightly exceeds the legal rate, to infer a corrupt and usurious agreement.” The essential words of the statute there under consideration do not differ in substance and effect from those to be interpreted in the case at bar. That decision governs. The circumstance that the earlier statute related to usury, and the present to loans on insurance policies, is immaterial. Both statutes establish a rate of interest and thus relate to precisely the same subject. Other decisions to the same effect as Agricultural Bank v. Bissell are collected in Williston on Contracts, § 1695, and Ann. Cas. 1915 C, 1156, et seq. Thornton v. Bank of Washington, 3 Pet. 36, 40. Each policy contained a clause to the effect that “after three years’ premiums have been paid hereon, the Insured, on the sole security of this policy properly assigned, may borrow at the interest rate of six per cent, per annum, payable in advance, any sum not in excess of the Loan Value shown in the table of values” set forth in the policy. This clause in the policy could not override the contrary terms of a statute. Lorando v. Gethro, 228 Mass. 181. Opinion of the Justices, 251 Mass. 569, 607-610. It is, however, not in conflict but in harmony with the statute. This clause expressly permitting collection of interest in advance is a condition in a policy which must have been approved by the commissioner of insurance under G. L. c. 175, § 132, and, forming a part of the contract between the parties, indicates that there was no unlawful intent. Stark v. Coffin, 105 Mass. 328, 333. There was no error in granting and denying requested rulings. Order dismissing report affirmed.