Alperstein v. NAT'L CITY BANK OF NY

Maxwell A. Rubin for plaintiff. Shearman & Sterling & Wright for defendant. In providing special benefits for borrowers on small loans under subdivision 2 of section 108 of the Banking Law, the Legislature expressly provided for the refund of "the unearned portion of the interest previously deducted". The inference is plain that loans not coming within subdivision 2 are governed by the common-law rule that the holder of the note is entitled to the face amount thereof. In Tobin v. Holmboe (172 Okla. 546 [1935]) the Supreme Court of Oklahoma held that a creditor who had deducted one year's interest in advance, under an Oklahoma statute permitting such deduction, could make claim for the face amount of the note upon an acceleration of the note prior to the expiration of the term of the note. The court held that since the deduction of one year's interest in advance was lawful, the note was not usurious although the amount taken as discount was more than the lawful rate on the period the loan ran. When the bank collected the proceeds of the insurance policy the debt was discharged in accordance with the bank's agreement with the borrower. (Fehr v. Cawthon, 293 F. 152 [C. A. 6th, 1923], certiorari denied 263 U. S. 720 [1924].) The bank being the beneficiary of the policy was entitled to the entire proceeds. There is no evidence of any intention to limit the amount collectible by the bank on the insurance policy. The debtor had no right to change the beneficiary and the insurance company could pay to no one other than the bank or the bank's assignees. The fact that a debtor and creditor relationship existed between the parties did not give the debtor the right to any of the proceeds. The court in Zolintakis v. Orfanos (119 F.2d 571 [C. A. 10th, 1941]) after a careful review of all the authorities concluded:

"It follows, that absent a clear, convincing and cogent expression on the part of the insured to the contrary, the designated beneficiary in a policy of insurance is entitled to the entire proceeds on maturity of the contract. There are good and compelling reasons to hold that a named beneficiary is entitled to the proceeds of a policy upon maturity, else the fundamental purposes of life insurance would be frustrated.

"It is clear, therefore, that a debtor-creditor relationship created by a loan of money from the beneficiary to the insured, creates no presumption of a limited right of recovery on the part of the designated beneficiary". (P. 577.)

nature and extent of the loss must be shown, and only to the making good of the loss is the insurer bound in the very terms of his contract. No statute has gone so far as to declare that a life policy, valid in its inception because of a creditor's interest in the life of his debtor, shall be invalid the moment the debt is paid." (P. 311.) In Rawls v. American Mut. Life Ins. Co. (27 N.Y. 282 [1863]) plaintiff applied for and obtained insurance on his debtor's life. Plaintiff paid the original and all other subsequent premiums and he sued for the full amount of the policy. The debt exceeded the amount of the policy and at the time of the trial was still wholly unpaid. Although the Statute of Limitations had run against the plaintiff's demand at the death of the insured, judgment for the plaintiff was affirmed.

"But in the contract of life insurance it is enough that the party effecting the policy had an insurable interest, at its inception; and it is not required that that interest should continue and exist at the time of the death of the person whose life is insured, to entitle the holder of the policy to recover. Policies of insurance against fire and marine risks are properly contracts of indemnity, they are so in terms; but it is otherwise with life policies." (P. 289.)

"In the latter case [ Dalby v. The India & London Life Assurance Company, 28 Eng. Law & Eq., 312 (1854)] it was held that a life policy was not in its nature a contract of indemnity, but was what it purports to be on its face, a contract to pay a certain sum in the event of death; and if made by a person having an interest in the duration of the life, it was sufficient to make it valid in point of law that that interest existed at the time of making the policy. It seems remarkable to me that any other view should be taken of the question. The contract is not to make any loss good, or to make compensation. The debt is not insured. It is an absolute contract to pay, not the amount of a loss or damage arising from a death, but a specified sum of money upon the termination of the life insured." (Pp. 289-290.)

In Ulrich v. Reinoehl (143 Pa. 238 [1891]) the defendants insured their debtor, a healthy man of forty-two years of age, in the sum of $3,000 to protect a debt of about $100. His life expectancy according to the Carlisle Tables was twenty-six years and the assessment and annual dues during such time would have amounted together with interest to $4,336.31. The executor of the debtor sued to recover from the defendants the amount received over the debt and interest and premiums paid. The court held that defendants were entitled to the full amount of the policy although the insured had died within a few years. And in Olmsted v. Keyes (85 N.Y. 593, 598-599 [1881]) the court said: "So a creditor may take out a policy on the life of his debtor, and the policy will continue valid although the creditor has been paid and has thus ceased to have an interest in the life of the insured." It follows, by reason of all the foregoing, no issues of fact exist and that accordingly the plaintiff's motion for summary judgment should be denied and defendant's motion for summary judgment dismissing the plaintiff's complaint upon the merits is granted.