Union Central Life Insurance v. Caldwell

58 S.W. 355, 68 Ark. 505, 1900 Ark. LEXIS 72

• Court: Supreme Court of Arkansas
• Decided: July 21, 1900
• Status: Published

Opinion

Wood, J.,

(after stating the facts.) 1. The policy under which the premium loans accrued was an Ohio contract, and the rule prevailing there for the computation of interest, when the contract was executed, is applicable. It was shown that Ohio had no statutory rule upon the subject. It was, therefore, proper to prove the unwritten law, custom, usage, or practice obtaining in Ohio upon the subject by one skilled in or familiar with it. Barkman v. Hopkins, 11 Ark. 157; McNeill v. Arnold, 17 Ark. 154; Bowles v. Eddy, 33 Ark. 645; Blackwell v. Glass, 43 Ark. 209. Taking the figures furnished by the secretary of the company, and applying the Ohio rule for the calculation of iuterest, we have the following result:

Loan July 7, 1869 .............................$ 63.00

Iuterest July 7, 1869, to July 7, 1871, two years..... 7.56

Loan July 7, 1870 ............................. 63.00

Iuterest on same to July 7, 1871, one year......... 3.78

$137.34

Less credit by dividend.........................$ 16.88

Balance due July 7, 1871...............$120.46

Loan......................................... 63.00

$183.4 6

Interest July 7, 1871, to July 7, 1872, 6 per cent..... 11.01

$194.47

Less credit by divideud......................... 14.89

$179.58

$242.58

Interest July 7, 1872, to July 7, 1873............. 14.55

$257.13

Credit by dividend............................. 20.82

$236.31

$299.31

Interest July 7, 1873, to April 12, 1894, twenty years, nine monlhs, five days, at 6 per cent........... 372.89

$672.20

Less dividends................................. 276.31

Due April 12, 1894.....................$395.89

This calculation does not allow interest on dividends. No interest should be allowed on these, because until declared they were not due the company, and when declared they were applied on the principal. But the amount of premium loans -for which, the note was executed was $487.80, which amount, it appears from the figures given by the secretary of the company, was ascertained as follows: In the years where the annual interest on the principal exceeded the dividend for those years, the excess was added to the original principal, and interest computed on this new principal for the next year, and so continued until the result ($487.80) was reached. This was the reverse of the rule that obtained in Ohio; for Mr. Meehem says: “If there was a partial payment made, and it was less than the amount of interest at the time it was made, it would not affect the principal. The principal would go on drawing its rate of interest.” And interest on the principal would not itself draw interest from year to year because no time was fixed for the principal to mature. The contract was “until paid by profits or otherwise.” So, according to the most liberal calculation that could legally be made for the company, Mrs. Caldwell, at the time the note was executed, owed it on premium loans $395.89, instead of $487.80. The difference, $91.91, represents the amount of cash which she should have received in addition to the $312.20 in order to have made the cash and premium loans, for both of which the note was executed, equal to the consideration named of $800. Can the appellee claim the benefit of this $91.91 in this proceeding? Proof of the' giving of a promissory note by one person to another, without anything else appearing, is prima facie evidence of an accounting and settlement of all demands between the parties, and that the maker at the date of the note was indebted to the payee upon such settlement to the amount of such note. But this is a mere presumption, which may be repelled by proofs of the consideration of such note, and the occasion for and circumstances attending the giving of same.” 1 Dan. Neg. Ins. § 71; Costar v. Davies, 8 Ark. 213; Carlton v. Buckner, 28 Ark. 66. Now, the occasion for and the circumstances attending the execution of this note show that the intention of Mrs. Caldwell, primarily, at least, wás to obtain an additional loan on her policy to that which she already had. As incidental to this, she, by signing the note, indicated that she was willing to acknowledge her indebtedness for the loans which had already accrued, and to pay an increased interest on same. The company rendered a general statement of- the amount of such loans, without itemizing or disclosing the methods by which it was ascertained. She had no access to the books of the company. The company had once before (July 1873), when her policy became a paid-up policy, indorsed upon the same total loan against the policy at that time of $299.63, showing substantially the correct amount, as per calculation supra. Mrs. Caldwell had the right to suppose that the same method of calculation was used in arriving at the amount which had accrued in the succeeding years. No statement of the amount of dividends for all those years from 1873 to 1894 was rendered her. She had no notice of a change in methods of calculation, by which a different amount was shown on the books of the company to be due in 1873 than that indorsed on her policy.

This is not like the case where there are disputed matters of account between parties, and a note is given to evidence the settlement of such account. The company was purporting to claim only that which was due, and Mrs. Caldwell was proposing to promise to pay only that. The company was not proposing to charge her a bonus for the additional loan. If so, it did not reveal the matter to Mrs. Caldwell. The company was representing that $487.80 was the true amount of the premium loans due, and Mrs. Caldwell, without knowing, or having the means of ascertaining, accepted that as the correct amount. But it turns out that, by an erroneous method of calculation, compounding interest, she was charged $91.91 more than she owed, which was carried into the note and collected by the company. It is unimportant to consider whether the mistake was wilful or occasioned by ignorance or inadvertance. It was a mistake for which the company, and not Mrs. Caldwell, was responsible, and she cannot be held to have acquiesced therein by merely signing the note. Acquiescence implies a knowledge •of the facts.

Then how stood the account between them April 12, 1895, when the first installment of interest was due? At. that time Mrs. Caldwell was due the company $64 interest, and the company was due her $91.91, aud also $18.34 dividend declared July 7, 1894. For the alleged default in the payment of this interest, the company proceeded to declare the whole amount of $800 due under the contract, and sold the policy having a cash value of $380 more than the amount of the debt, and closed up the account between them. Appellee shows that he had no notice of the proceeding until the death of his mother. Equity will not permit a forfeiture of his rights under the policy. To do so, under the circumstances, would be rank injustice.

But, to entitle him to the relief sought, it is insisted that he should have manifested a disposition to do equity himself by seeking earlier to undo that which had already been done, and making a tender of the amount due. Mrs. Caldwell died February 5, 1897, and the suit was begun in March following. The suit was begun in apt time. The correspondence shows that, after the sale, a tender of less than the full amount of the principal and interest would not have been accepted; and even this amount would not have been accepted unless accompanied by a certificate of good health. A tender does not have to be made where it is made clear beforehand that if made it would be rejected. Manhattan Life Ins. Co. v. Smith, 44 Ohio St. 170.

But, if there was no breach of the contract, no tender of any amount was necessary. In April, 1896, Mrs. Caldwell owed $64 interest. After paying the interest of 1895 out of the $91.91 and the $18.34 dividend, she would have a balance to her credit with the company of $46.25, and in May, 1895, she had paid the company $23 cash. These sums make $69.25, leaving an excess of $5.25 due her after paying the interest of April 12, 1896. So that there was no failure to pay the interest due April 12, 1896, and there could have been no breach of the contract at that time if it was proper to apply the declared dividend to the payment of interest on the loan note. This brings us to consider that question.

2. The company was a mutual company. The policy provides that the assured should participate in the profits. A by-law of the company shows that dividends were to be ascertained and declared yearly. The proof shows this was done. There is a clause in the policy to the effect that the premium loans ‘.‘are a just indebtedness against this policy until paid or cancelled by profits or otherwise.” The secretary testified “that the policy, application, and the loan note evidenced the contract relations between Mrs. Caldwell, and defendant. This was true in law, as well as fact. The-giving of the note for the premium loans did not abrogate the provision of the policy, “until paid or cancelled by profits or otherwise.” There is no provision of the note in conflict with this clause of the policy. The giving of the note ivas not in any sense a payment of the premium loans. These would not be paid until the note itself was paid. The note was but the receipt, pro tanto, for the premium loans already had, or an acknowledgment, in a new and different form, of an indebtedness to the company for premium loans, and the additional loan in cash. We think, therefore, that the assured may very well insist that the policy itself contained an express direction 'that the profits or dividends should go to pay the premium loans. Of course, if we are right about this, equity would compel the application of the dividends to the interest to prevent a forfeiture of the rights of the beneficiary under the policy.

But, if we concede that the policy is silent as to the application of dividends to premium loans, equity would still compel their application in this case to the payment of the interest on,the note. This, too, notwithstanding the “uniform practice and custom of the company to use the dividends to increase the-policy, unless requested or directed by the assured to apply otherwise.”

The proof showed that the assured had the right to have* the dividends applied otherwise. In the absence of any stipulation in the policy, and of any directions otherwise by the assured as to the application of dividends which have been declared, it is the duty of a mutual company to apply such dividends to the payment of interest on loans made on the policy,, when by so doing a forfeiture of all rights and benefits under-the policy will be prevented. This is the rule in the case of premiums to keep the policy in force from year to year, and, of course, would be for the payment of interest on an ordinary-loan, which prevents a sale of the policy. Chicago Life Ins. Co. v. Warner, 80 Ill. 410; Franklin Life Ins. Co. v. Wallace, 93 Ind. 7; Girard Life Ins. &c. Co. v. Mutual Life Ins. Co. 97 Pa. St. 15; Mutual Life Ins. Co. v. Girard Life Ins. &c. Co. 100 Pa. St. 172; Hull v. Northwestern Mut. Life Ins. Co. 39 Wis. 397; Northwestern Mut. Life Ins. Co. v. Fort, 82 Ky. 269: Phœnix Ins. Co. v. Doster, 106 U. S. 30; Manhattan Life Ins. Co. v. Smith, 44 Ohio St. 156; Home Life Ins. Co. v. Pierce, 75 Ill. 426; Eddy v. Phœnix Ins. Co. 65 N. H. 27; Smith v. St. Louis Mut. Life Ins. Co. 2 Tenn. Ch. 727; Van Norman v. Ins. Co. 51 Minn. 57; 1 Biddle, Ins. § 363; 2 May, Ins. §§ 345a, 572; 2 Joyce, Ins. §§ 1166, 1235; 2 Bacon, Ben. Soc. & Life Ins. § 365; 1 Beach, Ins. §§ 117, 118.

Most of the above cases are cited in the brief of counsel for the appellee. The learned counsel for appellant says: “These cases all arise under very different facts from those existing in the case at bar, and these differences are so vital and essential in their nature as to make them valueless as authorities.” We will not review them here. But in our opinion the difference in the facts does not destroy the application or'lessen the efficacy of the principle. It is true that in some of them there was a contract, custom or course of dealing. But because insurance companies enter upon contracts or establish a usage iu conformity to the doctrine above announced, from which they have not been allowed to deviate, does not prove the unsoundness of the doctrine itself, but, rather, the contrary. The doctrine does not arise out of the peculiar facts of any particular case. It does not depend upon contract, custom or course of dealing for its existence and potency. It has its oi’igin in that fundamental principle of justice which will compel one who has funds in his hands belonging to another, which maybe used, to use such funds, if at all, for the benefit, and not to the injury, of the owner; for his consent to the one, and dissent to the other, will be presumed. The language of Judge Cooper in Smith v. Ins. Co., supra, is pertinent here: “ I am of the opinion,” says he, “that the company was bound, upon the plainest principle of equity, to apply the dividend first in such manner as to save the forfeiture. The usage of the company in deducting the dividends from the principal in caues where the insured elects to continue the policy, even if uniform and unvarying, cannot control ivhere the Insured ceases to pay, and the contract is silent as to what should be done with the dividend. The law, which tempers justice tvith mercy, makes the proper application. * * * The dividend, as the property of the insured, should be applied to what he is bound to pay— the interest.”

3. The authorities also establish the rule that it is the duty of the company, before taking a forfeiture for default in the payment of a maturing obligation, to notify the assured or beneficiary of the amount of declared dividends where such dividends are insufficient to meet the obligation. See some of cases, supra. These principles are founded upon reason and common fairness and honesty, and they will have application wherever it becomes necessary to prevent a forfeiture, which is favored neither at law nor in equity. See following cases cited in appellee’s brief where the doctrine that forfeitures are not favored is applied to insurance cases: Chicago Life Ins. Co. v. Warner, 80 Ill. 410; Franklin Life Ins. Co. v. Wallace, 93 Ind. 7; Northwestern Mut. Life Ins. Co. v. Fort, 82 Ky. 269; Girard Life Ins. &c. Co. v. Mutual Life Ins. Co. 97 Pa. St. 15; St. Louis Mut. Life Ins. Co. v. Grigsby, 73 Ky. 310; Eddy v. Phœnix Ins. Co. 65 N. H. 27; Home Life Ins. Co.v. Pierce, 75 Ill. 426; Mutual Life Ins. Co. v. French, 30 Ohio St. 240; Froelich v. Insurance Co. 47 Mo. 407.

4. A more righteous application of these principles than to the case at bar would be difficult to conceive. For more than twenty years the uniform practice of the company under the policy had been to apply the dividends to the loan. The only statement of her account ever rendered showed that they had been so applied. If the giving of the note abrogated the provision of the policy requiring this to be done, then it left the parties without any contract upon the subject. How could Mrs. Caldwell know what had been the custom of the company except as to her own policy? The company does not bring home to her any knowledge of what its custom was. Only one dividend was declared after the note was signed and before the sale of the policy. She had no notice that the company would proceed differently under the policy from what it had done for all those years with reference to dividends. She would be justified in concluding that the company would do as it had done before — credit the loans with the dividends. She had no knowledge of what the dividend was. Without consulting her as to her wishes about her own money in its hands, the company, assuming to act for her, proceeds to make a contract with itself for increasing her policy and its own security. Leaving out of view for the moment the $91.91, which the company disputes, on April 12, 1895, the company had in its hands $18.34 of dividends which belonged to Mrs. Caldwell. True, it claims it had appropriated this to the purchase of additional insurance. But this purchase was made of itself, aud the whole matter was in its hands. It was a matter of bookkeeping. When it saw that Mrs. Caldwell “ had overlooked the items of premium loans,” and understood, as its letter of May 25, 1895, indicates, that she was probably confused as to the amount of interest she ought to pay, what was 'its duty! Clearly to inform her of the true status of her account; to notify her that she had $18.34 to her credit which might be used, if she so elected, to pay interest on her note. Mrs. Caldwell paid to Yowell & Williams $23, and, it seems, notified the company that she had paid the interest, thus indicating that she thought that the interest would be $23. The company realized that she seemed to be in error and confusion about the matter. Under the circumstances, a notice to her of the amount of the declared dividends was imperatively demanded.

The clause of -the contract providing for sale of the policy in case of non-performance of the stipulation for the payment of interest, making the whole debt due, etc., if not a forfeiture in the strict technical sense, certainly lias that similitude, and should be treated accordingly. Pom. Eq. Jur. § 437; Chicago & V. R. Co. v. Fosdick, 106 U. S. 47; Noyes v. Clark, 7 Paige, 179; Wilcox v. Allen, 36 Mich. 160-169, A court of equity will relieve against the effect of such provision where the default of the debtor is the result of accident or mistake, and a fortiori when it is procured by the fraud or other inequitable or improper conduct of the creditor. 1 Pom. Eq. 439; 2 Jones on Mortgages, § 1185. No fraud is charged or proved. But the facts do show that the sale of the policy was compassed by a mistake of the appellant, and by conduct which was improper and inequitable, for which the sale should be set aside. We conclude, therefore, that there was no breach of the contract for failure to pay interest for the years 1895 and 1896. Hence there could have been no forfeiture for either of those years, and no tender was necessary.

Other interesting questions are elaborately presented in the excellent briefs of counsel. But wu pretermit a discussion of them, as it becomes unnecessary, in the view we have taken. The court made an allowance of $.65.78 of dividends up to February 5, 1897. We have only taken into consideration the declared dividend July 7, 1894, and in rendering the decree for the amount due under the policy the dividends which should have been declared July 7, 1895 and 1896, should also be considered. The dividend estimated for 1895 was $18.72, and, considering that it would be the same for 1896, the total amount of these dividends would be $55.78 or a difference of $10. But this difference would be a little more than offset in the interest of $91.91 for one year which the company received the benefit of, and in the small balance that would have remained to her credit after the payment of the installments of interest which had accrued before the death of the assured.

The decree upon the whole is therefore correct, and is in all things affirmed.

Battle, J., dissenting