Provident Life & Trust Co. v. Fletcher

237 F. 104 | S.D.N.Y. | 1916

LEARNED HAND, District Judge

(after stating the facts as above). There are two preliminary questions of fact which require solution: First, whether Braker understood the character of the transaction at the time of its execution; and, second, whether the New York Finance Company had recourse to any life insurance policies as security for the advances.

I have no hesitation in finding that Braker understood the character of the transaction. He was at that time 44 years old, and had been engaged with money lenders in four transactions within the year. His testimony is therefore not only inherently unlikely, but he is contradicted directly by Cochran, Depue, and Mrs. Jewell,' and in effect by his wife, who says that Helfrich told her that, if her husband died before February 25, 1913, the company would lose its money, information inconsistent with the idea that it was an unconditional loan, as Braker now says. Furthermore, neither side dared call Helfrich, a consideration counting against the defendant rather than the plaintiffs, because it rests upon him to show that the transaction was not whát the documents make it appear. The burden of proof in such cases rests upon those who would show it as of a different character from what is written.

I think it clear that the life insurance policies should not be taken as applicable to the transaction of February 25,' 1902, and yet it is only if they were so intended that they may be considered upon the question of usury. The parties meant Rabe to recover the whole face of the assignments of April 18 and June 13, 1901; they had no intention of regarding them as security for the advances. It is precisely on that account that one of them has already been held to be usurious, and that the other may be so held; at least, it has been challenged. If Braker were to die, the assignments became due; it was likewise the purpose of the parties, not that the policies should be security for a loan, but that Rabe should have the whole of them. At least, that is the way in which the documents read, and there is nothing to contradict them. The parties intended the transactions to take place just as they were written, and could not, therefore, have intended the policies to be available upon the transaction of February 25, 1902. It is irrelevant that they might have used the overplus of the policies to secure the repayment of February 25, 1902, if théy had regarded the Rabe advances as loans, because they did not consider that they were loans at all. On February 25, 1902, they also tried to get a policy, and they would have affected the whole transaction with usury if they had succeeded; but their effort 'shows that they did not regard the existing policies as available upon this transaction. Moreover, even if they, had intended the policies to stand as security for the transaction at bar, their intent would have been ineffectual, because the Rabe transactions were void for usury, and with them fell the policies. I do not, indeed, think that the fact of tírese policies’ being void affects the situation, which must be controlled by the intent of the parties on February 25, 1902; but the argument was made that intent was not the measure, and it is a perfect answer that the policies could not be added security, because, being usurious, they were available for no purpose.

[1, 2] These questions of fact being disposed of, the first question of law which arises is whether the transaction, without the security of any life insurance policies, was usurious. In Rex v. Drury, 2 Lev. 7, Lord Hale seems to have thought that the obligor must be bound to pay the principal in order to constitute usury; but such is certainly not the law, and that case was disapproved in Scott v. Lloyd, 9 Pet. 418, 447, 9 L. Ed. 178. The general test is whether the principal is put at any genuine hazard. Chesterfield v. Janssen, 2 Vesey, 125; Tyson v. Rickard, 3 Har. & J. (Md.) 109, 5 Am. Dec. 424; Colton v. Dunham, 2 Paige (N. Y.) 267. A number of cases have come up in the state of New York similar to that at bar, and, indeed, some of them transactions of the New York Finance Company. They have generally been held usurious, but in all cases which I have been able to find they have been so held because, under all the possible circumstances, the principal must be repaid. Wetzlar v. Wood, 143 App. Div. 311, 128 N. Y. Supp. 50; Id., 154 App. Div. 890, 138 N. Y. Supp. 1148; Id., 214 N. Y. 639, 108 N. E. 1111; Hall v. Eagle Ins. Co., 151 App. Div. 815, 136 N. Y. Supp. 774, affirmed 211 N. Y. 507, 105 N. E. 1085; Hartley v. Eagle Ins. Co., 167 App. Div. 230, 152 N. Y. Supp. 686; Merc. Ins. Co. v. Gimbernat, 134 App. Div. 410, 119 N. Y. Supp. 130; Otten v. Freund, 150 App. Div. 434, 135 N. Y. Supp. 59; Braker v. N. Y. Fin. Co., 155 App. Div. 894, 139 N. Y. Supp. 1117; Id., 214 N. Y. 683, 108 N. E. 1090. In all these cases, either in one way or another, the payment of principal was secured beyond any but colorable hazard. Now it is quite clear that in the case at bar the parties started out, as I have said, upon a usurious transaction, and if Braker had been able to secure a policy of life insurance nothing could be said for its validity, because the principal would have been secured under all contingencies. But he was unable to get any insurance policy, and the necessary result, whatever the original purpose, was to imperil the principal, not upon a mere colorable hazard, but upon a genuine one. At that time he was 44 years old, and had been refused by at least four insurance companies as an undesirable risk, on account of his kidneys. The question whether he would live 11 years or not was a genuine hazard of the most real sort, which cannot be disguised by the fact that he has in fact lived out the time. Whatever other illegality the transaction may have, it was certainly not usurious.

[3] The second question of law is whether the case is one of those “catching bargains” against which a court of equity will relieve. The jurisdiction is among the oldest of the Court of Chancery (Aylesford v. Morris, D. R. 8 Ch. App. 484, 489), and is certainly connected with the preservation of family property (Twistleton v. Griffith, 1 P. Wms. 310), and the importance of protecting wealthy young heirs from ruining a patrimony before they feel the force of family traditions. It has never been defined with much clearness, for the language of Lord Hardwicke in Chesterfield v. Janssen, 2 Ves. Sr. 125, 155, 156, which seems to have been regarded as the best statement of the doctrine, does not, with deference, define anything at all beyond saying that there are circumstances short of deceit in which the court will regard one of the parties as at a relative disadvantage to the other. Until 1867 mere “inadequacy of consideration” was undoubtedly enough in England. Earl of Aldborough v. Trye, 7 Cl. & F. 436, 456; St. Albyn v. Harding, 27 Beav. 11; Foster v. Roberts, 29 Beav. 467. But the situation proved intolerable, and in that year by 31 Viet. c. 4, it was provided that such inadequacy alone should not upset the bargain.

In this country it is uncertain just what is the true rule. In Pennsylvania the law was early settled as the statute of Victoria settled it in England in 1867. Davidson v. Little, 22 Pa. 245, 60 Am. Dec. 81; Re Jackson, 203 Pa. 33, 52 Atl. 125; Re Phillip, 205 Pa. 511, 55 Atl. 212. The same is true in Virginia. Cribbens v. Markwood, 13 Grat. (Va.) 495, 67 Am. Dec. 775 (an excellent discussion); Mayo v. Carrington, 19 Grat. (Va.) 74, 107. In two early cases, one in New York (Osgood v. Franklin, 2 Johns. Ch. 1, 25, 7 Am. Dec. 513), and the other in South Carolina (Butler v. Haskell, 4 Desaus. 651, 697), language was' used which certainly recognized the English rule, though it was not necessary to the decision. In Illinois the cases do not decide the point (Parsons v. Ely, 45 Ill. 232, Gary v. Newton, 201 Ill. 170, 66 N. E. 267; Hudson v. Hudson, 222 Ill. 527, 78 N. E. 917), but leave it likely that inadequacy of consideration is not enough. In Massachusetts an early case certainly looks the other way, but nothing is decided. Trull v. Eastman, 3 Metc. 121, 37 Am. Dec. 126.

I accept the Pennsylvania and Virginia rule as more appropriate to our modern society. We have no public concern for the preservation of family inheritances, and ought, I believe, have no tenderness towards expectants of rich reversions. It may be that the purchase of a remainder carries with it the burden of showing that there was no exploitation of extreme need, no beguiling of youthful heirs, and even that the ancestor consented, when there is one—a doctrine wery strange in American ears (Curtis v. Curtis, 40 Maine, 24, 63 Am. Dec. 651; Hale v. Hollon, 90 Tex. 427, 39 S. W. 287, 36 L. R. A. 75, 59 Am. St. Rep. 819; Boynton v. Hubbard, 7 Mass. 112); but I cannot believe that, in addition, it must be shown that the consideration was what the court may think adequate. Once the parties are shown capable of dealing with each other, I can see no possible reason for refusing them the right to malee their own bargain. Even allowing that youth or poverty in such circumstances create an incapacity to contract, there is certainly no valid reason in America for preventing the sale of expectancies. If it be not so, we shall find it necessary to permit it by statute, as was done in England, for the supposed protection to sfich persons foils itself; they become incapable of selling when they need to sell.

I have hitherto assumed that the consideration here was inadequate, and perhaps it was; at least, the purchaser cannot show that it was not. Yet the matter is surely open to doubt, for, although the remainder was ten times, or nearly, the principal with interest to February 25, 1913, the hazard was wholly unknown and unascertainable. Actuarial tables are founded upon average lives, and Braker’s was not such. His rejection by so many insurance companies proves that the hazard was not calculable, and it is quite impossible to fix the proper odds upon any basis but a guess. At least, we must concede that the consideration may have been adequate, though, were I to guess, I should say that it was not.

Except for that element, there is certainly no ground for interposing. Braker was 44 years old, and had had earlier experience in such matters. Even if the tutelage of his father would not have been pre: posterous under the circumstances, his father was dead; he was not an expectant heir, but a remainderman on his own estate for life. He had the assistance of Helfrich, an ambiguous intermediary, to be sure, but at least not shown to be of the lender’s party. Most important of all, he was already affluent; his income of $9,000 a year not only provided for his necessities, but gave him much greater wealth than of 99 men out of 100. I find it hard to have patience with the waterish sentiment which seeks to make such a man tire court’s ward, and to protect him against the consequences of his own folly. If he is to have the enjoyment of great wealth, let him share its responsibility. If the prospect of a dollar so teased his appetite that the future ceased to be a reality, either let him be regarded as an incompetent and put in ward, or let us treat him as a person in a world of persons, and let him weave his fate as he will. Whatever our judgment of those who profit by the irhbecilities of their fellows, their punishment should not, as I think, be through the repudiation of a promise made under such circumstances. A hard bargain with a hard-pressed man is one thing; we do not allow a workman to barter away his protection from injury. But a hard bargain with a well-furnished spendthrift is another; I can see no social purpose in giving such a one an immunity which the community at large does not enjoy.

[4] The next question is of the plaintiffs’ capacity to sue. The assignment of 1912 was clearly sufficient to pass any interest in the sixteenth item, for it was made to them as executors, and they did not take it by operation of law. However, it is quite likely that the remainder under this item will not be enough for the full debt, so that the question arises of their capacity to sue for the remainder created under the fifteenth item. They have filed the papers requisite under section 1836a of the New York Code to enable a foreign executor to sue in a New York court. The question is whether that statute should be held to cover a cause originally brought in a federal court. Had it been removed from the state court, Hayes v. Pratt, 147 U. S. 557, 13 Sup. Ct. 503, 37 L. Ed. 279, would control; but it was not. Section 1836a in form applies only to the state courts, and a literal interpretation of it would prevent its use in such a case as this, yet I am disposed to interpret it as meaning that the state of New York recognizes, under the conditions specified, the right of foreign executors to collect by process of law the property of their decedent within the state, a matter over which the state of New York has entire control. Such executors may come into a federal court, it is true, only under the terms of an act of Congress; but, if the substantive right is given them, the acts of Congress are sufficient. Their incapacity is not procedural, but because administration is in rem, and the law of the territory where the res is situated, may recognize any one as a proper representative of the decedent. I cannot believe that the purpose of section 1836a was to recognize the foreign executor as such a proper representative only when he sued in a state court. Lecouturier v. Ickelheimer (D. C.) 205 Fed. 683.

The last question is of the supposed prior conveyance by the New York Finance Company to Banes. At the trial I said that, if the trustee continued to press the point that the plaintiffs’ title was affected by these conveyances, the matter would have to come up again, because-it was not clear to me just what the situation was in that regard. If that matter, which certainly can be cleared up, is not pressed, the plaintiffs may take a decree as prayed, with costs, without further delay.