PRAETORIANS v. McCRARY

Jacobson, Snow Covington, of Meridian, for appellant.

The loan agreement and the policy must be construed together and the provisions of the policy and of the loan agreement interpreted one in connection with the other.

We find in paragraph captioned "Loan Privilege" the last sentence thereof reads as follows: "No loan made under this provision shall avoid the insurance hereunder unless the loan and other accrued indebtedness hereon shall equal or exceed the cash value when the loan is due or when there is a default in the payment of premiums."

In order for the cash or loan value of the policy to have increased after April 1, 1935, insured would have had to pay his premiums. Then it would not have increased unless premiums were paid for another year. Therefore, the loan at the time of insured's death was equal to the cash value of the policy, and if insured had lived until April 1, 1936, the cash or loan value on his policy would not have been greater than $33, for no premium was paid on the policy subsequent to March 31, 1935. There was a default in the payment of premiums after March 31, 1935, and the policy was avoided by "non-payment of premiums" subsequent to March 31, 1935, under that portion of the sentence above quoted reading as follows: "or when there is default in the payment of premiums."

Further, in the loan agreement it is provided "that the insured relinquishing the options of paid up and extended insurance" etc. This agreement is in keeping with and specifically further establishes that insured gives up his right to extend insurance so long as the loan equals the cash value of the policy, and default in the payment of premiums occurs.

This is in keeping with the provision of the constitution as regards loans to policyholders and their rights under loan privilege and non-forfeiture privileges.

It will be further noted under the heading "Non Forfeiture Privileges" it is said: "The values under each option are shown in the table below if there is no indebtedness against this policy." The values shown are only available "if there is no indebtedness against the policy." And it is further provided "any indebtedness will be deducted from the cash value if Option 1 is selected, and will reduce the amounts under either Option 2 or 3 in the proportion that the indebtedness bears to the cash value, but the extended term period will remain the same as set out in the table, unless the total indebtedness exceeds the reserve, in which event all benefits shall become null and void."

If any meaning is given this provision of the policy it will be readily seen no amount of extended insurance was provided when no premium was paid subsequent to March 31, 1935. The amount of the loan and the cash value, as provided in the table of non-forfeiture values, were the same. Both were $33. Insured took the full amount which he could borrow on his policy. By reducing the amounts "under either options 2 or 3 in the proportion that the indebtedness bears to the cash value" no insurance was carried for any period, for the proportion of the loan to that of the cash value of the policy was equal. If the loan had been less than the cash value of the policy then some amount would have been payable under the policy on the death of insured at any time within 4 years, 6 months from March 31, 1935.

This case is governed by the principles announced in the case of Neal v. Columbian Mutual Life Assurance Society, 138 So. 353, 161 Miss. 814.

Eugene Seale and Walker Broach, Jr., both of Meridian, for appellee.

To state appellee's theory in plain language at the outset, the proof is undisputed in this case that the insured paid premiums to April 1, 1935, which would have paid for his insurance until Oct. 1, 1939, under the continued insurance provisions of the policy. It is further undisputed that he paid interest on a loan until Jan. 14, 1936. It is also undisputed that he died on Dec. 20, 1935, before the time for which he paid was up on either the insurance or the loan and that the appellee kept the money insured paid and still has it. If the insured is to get what he paid for, this policy was in full force and effect for the face amount thereof at the time of the death of insured. It is further undisputed that appellant never offered to return the loan agreement as paid, never at any time claimed it as due or accelerated before insured's death, which claim if made at the time of the alleged default would have resulted in usurious interest above twenty per cent per annum and have released the entire indebtedness, nor did appellant at any time prior to the death of deceased do anything except allow the loan to be earning the unaccrued interest. Appellee insists that appellant cannot keep the loan in force to earn the interest without keeping the policy in force and appellee further contends that it was to the financial advantage of the appellant not to lapse this policy.

Appellee insists that she is entitled to recover for the reason first, that the appellant had no right under the policy and competent and material parts of the loan agreement to forfeit this policy without declaring the loan due and refunding the unearned interest, which appellee insists was not done and to this day appellant has made no offer to return any unearned interest. That as long as the loan was not paid from the reserve fund the full amount of the reserve continued the policy in force.

There must be an enforceable or matured indebtedness before the lender can take the security or attach. James v. Fisk, 9 Sm. Marshall 144; Thomason v. Wadlington, 53 Miss. 560. One cannot be said to be indebted until the day of payment. Lum v. Buckeye, 24 Miss. 564.

Demand is necessary to start the statute of limitations to running on a demand note (to mature it). Shapleigh v. Spiro, 106 So. 209.

Insurance policies, loan agreement and contract are to be construed most favorably to the insured. Morgan v. Sons and Daughters of Jacob, 90 Miss. 864, 44 So. 791; Columbia Woodmen v. Ramsey, 118 Miss. 454, 79 So. 351; Locomotive Engineers Acc. Ins. Co. v. Meeks, 157 Miss. 97, 127 So. 699; W.O.W. v. Thomas, 171 Miss. 99, 157 So. 83.

There seems to be no contention but that the continued insurance on this policy would automatically take effect, were there no loan involved. So let us examine the forfeiture provision of the loan provision in this policy. We quote the last sentence of the "Loan Privilege" contained in the policy, which is the only forfeiture provision in the loan provision: "No loan made under this provision shall avoid the insurance hereunder unless the loan and other accrued indebtedness hereon shall equal or exceed the cash value when the loan is due or when there is a default in the payment of premiums." Counsel for appellant claim that either of these alternatives will lapse this policy. But does it so read? Does it not mean that first the loan must be due before a default in the payment of premiums will avoid the insurance?

The payment of interest in advance, in the absence of agreement, extends the debt for the time interest is paid. Bank of British Columbia v. Jeffs (Wash.), 51 P. 348.

We respectfully submit that on a proper interpretation of this policy that it remained in force for its face amount as appellant had no right to forfeit it or reduce its benefits without first declaring the loan due and making an accounting for the unearned interest which even now appellant makes no offer to refund or account for. As the expression goes it "would eat its pie and have it too." It was never established by appellant that this loan was "due," nor that it at any time equaled or exceeded the pro rata amount of the Guaranty or Reserve Fund.

It can only be contended logically that the Praetorians loaned this money on the security of the policy with a lien thereon instead of the loan being a withdrawal of the reserve, in fact the loan agreement so reads: "an express lien being hereby given upon said policy and its accumulation to secure said loan and interest." Consequently this reserve fund remained intact as long as not applied to the debt and the lien enforced and as such maintained the policy in full force and effect for its full face amount. Jacobson, Snow Covington, of Meridian, for appellant, on suggestion of error.

It is difficult for us to see how the court could have misconstrued the policy here involved or the loan agreement. The same language has been construed by practically every appellate court in the nation, and there has been no difficulty heretofore. Our court, in other cases, had so readily accepted the plain interpretation of the language used, we felt it would have been an imposition upon the court to cite the numerous cases from other courts upholding these provisions when writing the original brief, and relied upon the outstanding case of Neal v. Columbian Mutual Life Assurance Society, 138 So. 353, 161 Miss. 814, which we humbly submit is on all fours with the case here under consideration.

The principles contended for were adopted by this court in the case of Fidelity Mutual Life Insurance Company v. Oliver, 71 So. 302, 111 Miss. 133.

The court by its holding has in effect held that the loan made to McCrary did not effect the cash surrender value of the policy, the amount of paid up insurance, nor the extended insurance, when every provision of the policy and of the loan agreement is to the effect that the loan governs each of these provisions of the policy. The opinion of the court in effect writes a new policy and ignores the contract in force when McCrary quit paying premiums.

The effect of a loan on a policy of this kind is simply an advancement, with the right in the insured to re-deposit this advancement and then take advantage of other benefits of the policy. The principle is aptly announced in Board of Assessors v. New York Life Insurance Company, 216 U.S. 517, 521, 522; 30 S.Ct. 385; 54 L.Ed. 597. In that case in deciding that advances made upon policies did not constitute taxable "credits" of the insurance company, the court explained such advances by saying that when premiums have been paid for a certain time, the company "becomes bound ultimately to pay what is called their reserve value, whether the payment of premiums is kept up or not; and this reserve value increases as the payments of premiums go on. A policy holder desiring to keep his policy on foot and yet to profit by the reserve value that it has acquired, may be allowed . . . to receive a sum not exceeding that present value, on the terms that, on the settlement of any claim under the policy, the sum so received shall be deducted with interest (the interest representing what it is estimated that the sum would have earned if retained by the . . . (company); and that, on failure to pay any premium or the above-mentioned interest, the sum received shall be deducted from the reserve value at once . . . As the . . . (company) never advances more than it already is absolutely bound for under the policy, it has no interest in creating a personal liability, and therefore the contract on the face of the (so-called) note goes on to provide that if the note is not paid when due, it shall be extinguished automatically by the counter credit for what we have called the reserve value of the policy . . . In form it (the advance) subsists as an item until the settlement because interest must be charged on it. In substance it is extinct from the beginning, because . . . it is a payment, not a loan." See, also, Williams v. Union Central Life Ins. Co., 291 U.S. 170, 179, 54 S.Ct. 348, 351, 78 L.Ed. 711, 92 A.L.R. 693.

There is a brief on the question in 113 A.L.R. beginning at Eugene Seale and Walker Broach, Jr., both of Meridian, for appellee, in reply to suggestion of error.

A careful analysis of appellant's brief on suggestion of error will reveal that no new matter whatsoever has been called to this court's attention from that presented to the court in appellant's original brief and that practically, if not all, of the authority cited by appellant is entirely in line with the holding of this court in the Neal v. Columbian Mutual Life Assurance Society case, 138 So. 353, 161 Miss. 814, so strongly depended upon by appellant and entirely relied upon by him in his original brief filed herein.

We respectfully submit that unless the loan was extinguished the reserve carried this policy in full force and effect and since appellant shows no action on its part extinguishing the loan, unless the policy did so automatically by the policy, such provision would have been for the benefit of the appellant and could have been waived by it. However we find no such provision in the policy and insist to the court that no debt was paid in this case and that therefore the reserve was with the appellant to extend this policy. But be that as it may, we find in this case most positive evidence of a waiver of such right, even admitting for the sake of argument (but which we do not otherwise admit) that the policy automatically applied the reserve to the payment of this loan.

Deceased paid enough premiums to provide insurance to October 1, 1939, and he paid enough interest to provide for the use of the money he obtained to January 14, 1936, both of which times expired after his death. We respectfully submit, that what a man pays for is usually a good guide to determine what he shall receive under the law, always admitting that he is governed by a valid contract, but here there is nothing in the contracts in this case (which is supported by lawful consideration) to prevent him getting what he paid for. Another elementary principle of law, we respectfully submit, is that parties intend to do the lawful thing. If as appellant contends, it forfeited the policy on April 1, 1935, it retained interest in excess of 20 per cent per annum which is illegal under our usury statutes, even to the point of forfeiting the principal. Having kept this unearned interest is it not reasonable to assume that appellant intended to let the loan run so as to earn what it already had collected. In fact it shows that it did so elect and if it did not do so its acts are so flagrantly unfair and discriminatory as to be forbidden by our statutes on usury and discrimination by insurance companies. (See Great Southern Life Ins. Co. v. Jones, 35 F.2d 122.) We humbly submit that no ordinary lender of money can resort to his security prior to a time the loan is due, that the loan in this case was due, and we also submit that an insurance company lending money has no greater rights than an ordinary lender of money.

The rights of an insurance company are the same as those of any other lender of money, at least as to the rate of interest which it may collect and the mode in which it may enforce payment, it having the right to foreclose only in the mode provided by law or agreed upon by the parties. 32 C.J. 1166; Travelers Ins. Co. v. Lazenby, 16 Ala. A. 549, 80 So. 25, 29; Emig v. Mutual Benefit Life Ins. Co., 127 Ky. 588, 106 S.W. 230, 32 Ky. L. 484, 23 L.R.A. (N.S.) 828; New York L. Ins. Co. v. Curry, 115 Ky. 100, 72 S.W. 736, 24 Ky. L. 1930, 103 A.S.R. 297, 61 L.R.A. 268.

We respectfully submit that a careful reading of the cases on the question of extended insurance will show to the court a few outstanding essentials, contained in all the cases, among which are, (1) that there must be an enforceable indebtedness (Occidental L. Ins. Co. v. Jamora (Tenn. Civ. App.), 44 S.W.2d 808), and that there has been an application by the insurance company of the reserve to the extinguishment of the debt with provision made for unearned interest and all proper applications of funds held by the insurance company for the insured. There was no such application nor accounting by the appellant. In fact it made its election under this contract with the idea of keeping all monies it had its hands on, and with good risks, if it did this in a thousand cases, considering the cost of writing new business and other features of the insurance business it was to its distinct advantage to carry this and similar risks for a few months to earn the interest and possibly have premium payments resumed. Now it is merely attempting to change its bet after death has thrown the dice. We further submit that under the facts of this case it devolved upon the appellant to show how it applied its security to this loan indebtedness and that it has wholly failed to show that it has so applied it at all.

It has kept the interest, without any other action. "It is generally held that the reception of interest in advance upon a note is prima facie evidence of a binding contract to forbear and delay the time of payment; and no suit can be commenced against the maker during the period for which the interest has thus been paid." 15 R.C.L. 12; Skelly v. Bristol Sav. Bank, 63 Conn. 83, 26 A. 474, 38 A.S.R. 340, 19 L.R.A. 599; Drew v. Towle, 30 N.H. 531, 64 Am. Dec. 309; British Columbia Bank v. Jeffs, 18 Wn. 135, 51 P. 348, 63 A.S.R. 875.

Inasmuch as counsel for appellant has cited the provisions of the policy regarding the loan privilege and the loan agreement, we will now take up his brief paragraph by paragraph and show that not only has he defined "ambiguous" but that in these policy and loan provisions is an illustration as stated by the decision of the court in this case. Counsel for appellant says that the following provision is clear, but we respectfully submit that it is not clear as we shall show.

We now come to the case of Fidelity Mutual Life Insurance Company v. Oliver, 71 So. 302, 111 Miss. 133, which we do not consider applicable to this case, because the facts of that case clearly show that the loan was past due and the company had by letter (affirmative action) notified the insured that his policy had lapsed.

Counsel makes much to do over "Past due" and over an indebtedness not having to be past due to reduce the amount of benefits. However, no clause of the policy nor the loan agreement is automatic until the aggregate of the principal and interest due on the loan exceeds the Reserve Fund and counsel has not shown that the loan was due at all, and has shown no demand and no crediting of the amount of the loan by appellant, indeed appellant's witness stated that the loan agreement was still valid and binding. Under our law there must be an enforceable indebtedness and an indebtedness is not an enforceable indebtedness until it is due. "There must be an enforceable or matured indebtedness before the lender can take the security or attach." 32 C.J. 1166; Travelers Ins. Co. v. Lazenby, 16 Ala. App. 549, 80 So. 25, 29; Emig v. Mutual Benefit Life Ins. Co., 127 Ky. 588, 106 S.W. 230, 32 Ky. L. 484, 23 L.R.A. (N.S.) 828; New York L. Ins. Com. v. Curry, 115 Ky. 100, 72 S.W. 736, 24 Ky. L. 1930, 103 A.S.R. 297, 61 L.R.A. 268.

"One cannot be said to be indebted until the day of payment." Lum v. Buckeye, 24 Miss. 564; and to quote the Neal v. Columbian Case, there must be a liquidation of the debt under the policy.

Hence we humbly submit that the reserve in the form of the personal liability under the loan agreement remained with the appellant and the automatic continued insurance took effect as long as this loan remained outstanding which continued until after the death of the insured and therefore the appellant is liable for the entire amount under this policy.

Additionally permit us to emphasize that the only way the advance interest deducted under this policy could become earned was for the appellant, the insurer, to leave the loan outstanding, and waive the right, if any, to enforce its security until January 14, 1936, one year after the loan was made; and until such date (prior to which insured unfortunately died) the aggregate amount of principal and interest (earned) could not and did not even equal, much less exceed, the Reserve Fund, and hence appellant is entirely precluded from the benefit of any such provisions.

No lender can both fully collect its indebtedness and also enforce the security therefor. If after default, the lender does not enforce the pledge, but elects to carry the indebtedness, the security is released upon full payment. This is exactly what happened in this case. The Praetorians, the appellant, elected to waive the default, refused to enforce any security against the policy, elected to earn, instead of refunding, its unearned interest, and was (by the death of insured while policy was being continued) repaid the full amount of its loan, prior to the due and extended date thereof; — and cannot now be heard to claim both its money and the security therefor.

Further, by the provisions of this policy and the loan agreement this was a loan and not an advancement as contended by counsel and we say that the case he cites of Board of Assessors v. New York Life Insurance Company, 216 U.S. 517, 522, 30 S.Ct. 385, 54 L.Ed. 597, does not meet the facts of the instant case and the instant case is under the same category of Provident Life and Trust Co. v. Gratz, 114 A. 498, 271 Pa. 133, which case cites the former case and distinguishes it on its facts.

Now turning to an analysis of the brief in 113 A.L.R. beginning at page 606, as we have previously stated this brief is not helpful to a solution of the present case as this brief expressly states "it is the purpose of the present annotation to present those cases dealing with the effect upon the computation of the amount of the cash surrender value, the amount of the paid up insurance, and the amount of the extended insurance, and the length of term of its continuance, of the extension of a loan against the policy," because as we have previously stated, the insuror, the appellant in this case, never at any time computed anything under this policy and put it in liquidation as described in the Neal v. Columbian Mutual case, the loan agreement standing at all times unsatisfied and in place of the reserve fund as aptly stated by the able opinion previously rendered in this cause. However, inasmuch as an analysis of these cases impresses the true principles underlying these transactions, we will analyze as many of them as possible although we are not dealing with the other briefs cited in A.L.R. which do not appear to have any helpful bearing upon this particular question.

Argued orally by Eugene Seale and Walker Broach, Jr., for appellee.