189 S.W.2d 542 | Mo. | 1945
This is a suit on a life insurance policy. The policy was issued in 1919. In 1923 insured obtained a policy loan from the insurance company which was later increased from time to time and never repaid. Interest that was not paid annually when due was added to the principal. In 1938 the policy lapsed for nonpayment of the premium. Thereupon, in accordance with the provisions of the policy, the entire indebtedness was deducted from the cash surrender value and the policy changed to extended term insurance. The extended term insurance expired May 31, 1938. Insured died August 17, 1939. It is conceded that had the company charged only simple interest on the loan instead of compound interest the balance of the policy reserve, after deducting the indebtedness, at the time the policy lapsed would have been sufficient to carry the extended insurance beyond the date of death.
The question for decision is whether the policy loan provision permits the company to charge compound interest under the collateral agreement governing the loan. *395
Trial was by the court, a jury being waived. Judgment was for the insurance company. Plaintiffs appealed to the Kansas City Court of Appeals which reversed and remanded with directions to enter judgment for plaintiffs. Edwards et al. v. Northwestern Mut. Life Ins. Co., (Mo. App.), 183 S.W.2d 359.
[1] On January 2, 1945 this court granted a writ of certiorari to review the decision of the Kansas City Court of Appeals for conflict with our decisions under the Amendment of 1884 to Article VI of the Constitution of 1875. On March 30 the new Constitution of 1945 went into effect having been adopted by the people on February 27. Section 10 of Article V of the 1945 Constitution provides in part: "The supreme court may finally determine all causes coming to it from any court of appeals, whether by certification, transfer or certiorari, the same as on original appeal."
Plaintiffs argue since the judgment in their favor in the court of appeals became final with the overruling of the motion for rehearing, their rights under it then became fixed and may not be affected by a subsequent change in the law. But the judgment was not then final in sense that it was not subject to review and reversal. Review by certiorari was still available. Timely notice was given and timely application for certiorari was made. See State ex rel. Berkshire v. Ellison,
The new constitutional power granted this court to determine a case which comes to it by certiorari in the same manner as one which comes on original appeal, that is to determine it on the merits, is one having to do with procedure. It is the rule in this State that a law dealing with procedure applies to all actions falling within its terms whether commenced before or after its enactment unless the contrary intention is expressed. Wentz v. Price Candy Co.,
We turn now to the merits of the case. The policy provision relating to a loan is as follows:
"At any time while this Policy is in force except as extended term insurance, and without the consent or participation of any beneficiary not irrevocably designated, the Company will on receipt of this Policy properly assigned advance on the sole security hereof any amount up to the limit secured by its cash surrender value. The sum advanced shall bear interest at a rate of not to exceed six per cent per annum and may be repaid at any time while this Policy is in force except as extended term insurance. Failure to pay either the sum advanced or interest thereon shall not avoid this Policy unless the total indebtedness to the Company on account hereof shall equal or exceed the then cash surrender value, nor until thirty-one days after notice shall have been mailed to the last known address of the Insured or any Assignee."
The assignment agreement executed by insured upon making the loan with the company provides:
"In Consideration of the loan to the undersigned by The Northwestern Mutual Life Insurance Company, of the sum of ____ Dollars, payable at its Home Office in the City of Milwaukee. Wisconsin, with interest at the rate of six (6) per cent, per annum, payable annually, the undersigned, as security for the payment of said loan with interest, hereby assign, transfer and set over to the said Company at Milwaukee, Wisconsin, Policy No. ____ issued by the said Company on the life of ____ including all present and future additions thereto.
"In case of the non-payment of any interest on said loan as above provided, such interest shall be added to and become a part of the principal of said loan and shall bear interest at the rate aforesaid. Whenever the total indebtedness to the said Company on account of said loan and accrued interest shall equal or exceed the cash surrender value of said policy, and thirty-one days after notice shall have been mailed to the last known address of the insured, and of any assignee of said policy, the said policy shall, without other action on the part of the said Company, become void and be deemed surrendered in consideration of the cancellation of said loan."
Plaintiffs assert the provision of the policy that "the sum advanced shall bear interest at a rate not to exceed six per cent per annum" is a clear and unambiguous statement requiring the payment of simple interest only, and since there is no specific provision as to when interest is to be paid it would become due only at the same time as the principal. With this premise, plaintiffs contend that the company can not compel the insured to pay compound interest as that exceeds the condition of the policy under which insured is entitled to make a loan, and there is no consideration for such added obligation. *397
[2] It is clearly established that where provisions of a policy and an assignment agreement conflict the policy controls. But when we examine the policy for the matters covered by the assignment agreement about the time of interest payment and the action to be taken for failure to make them, we find the policy silent. The policy does provide that failure to pay the sum advanced or interest shall not avoid the policy unless the total indebtedness shall equal or exceed the then [546] cash surrender value, but that provision is a restriction on the company to prevent cancellation of the policy until the condition set forth shall occur, — until the cash surrender value is exhausted. The time when such condition occurs can not be said to be the maturity of the loan, in the sense that term is used in a promissory note, because there is no promise by insured to repay the loan then or at any other time. The same is true of the time when the policy lapsed for non-payment of premium. Repayment of the loan is merely permissive. The loan "may be repaid at any time while this policy is in force except as extended term insurance."
[3] We must recognize the essential differences which exist between the policy loan and an ordinary commercial loan. In doing so there is no need to enter the discussion about whether a policy loan is in fact a loan or an advance of funds which insurer must ultimately pay if the policy remains in force.
The policy loan imposes no personal liability on insured. Cases in this State holding to the contrary based their ruling on loan agreements wherein there was an express promise to repay the loan at a stated maturity. Equitable Life Assurance Society v. DeLisle,
The usual commercial loan imposes a personal liability to repay the loan at a stated maturity. If default is made suit may be brought, judgment obtained and execution levied. In a policy loan such as the one we are considering, the principal and interest are to be satisfied only out of the reserve of the policy unless the privilege of repayment as exercised. A policy loan must necessarily be fitted to the conditions and requirements of the insurance business of which it is a part and *398
must be considered in that connection. A policy loan is not an independent transaction like one evidenced by a negotiable promissory note but is a part of and dependent upon the contract of insurance. See Burridge v. New York Life Ins. Co.,
Even though there are such distinctions, yet the decisions in promissory note cases announcing rules for determining the time interest becomes due are not applicable for other reasons. In cases where a promissory note has fixed the rate of interest at a certain per cent per annum without providing for periodic payments of interest installments, courts have generally held that interest became payable upon the maturity of the note. This is a rule of decision only and arises from the promise contained in the note. There is no rule of law, independent of contract, establishing such a doctrine. For example in Koehring v. Muemminghoff,
The cases hold the time for interest payments is fixed by the agreement of the parties and is not prescribed by any independent principle of law. So it follows the policy provision that "sum advanced shall bear interest at a rate of not to exceed six per cent per annum" merely fixes a limit on the rate of interest to be [547] charged. It does not fix the time for the payment of interest at the so-called maturity of the policy loan, or at the time the policy lapses, or at any other time.
[4] The policy contemplates separate interest payments. While payments of the principal is permissive, payment of interest appears to be mandatory. The policy provides: "The sum advancedshall bear interest . . . and may be repaid . . ." Another statement in the policy indicates separate interest payments. "Failure to pay either the sum advanced or interest shall not avoid this policy . . ." Otherwise it appears to us the statement would have been worded "failure to pay the sum advanced and interest" rather than "either the sum advanced or interest." No mention being made in the policy as to the time the separate interest payments are to be made, it is obvious that such matter is left in the assignment agreement. *399
[5] Besides the amount of the loan we find the rate of interest to be charged (not to exceed 6%), the time for interest payments, and the action to be taken if interest is not paid when due are matters absent from the policy provision and supplied by the assignment agreement. Thus the policy provision may not be considered as the complete loan agreement. It merely establishes the right of the insured to obtain a policy loan and sets out some general conditions pertaining to the loan. Specific details which would make the transaction complete are missing. Where a contract is incomplete it is held to be the understanding of the parties that terms usual and customary to such a transaction will be used to supply the deficiencies. Hind v. Oriental Products Co., Inc.,
[6] We hold the policy provision together with the assignment agreement make up the complete loan contract. This was held in Cory v. Massachusetts Mutual Life Ins. Co.,
The usual provision which we find here that "this policy and the application herefor (a copy of which is attached hereto) constitute the entire contract between the parties" does not oppose our conclusion that the policy and the assignment agreement together make up the loan contract. That provision necessarily refers to the contract for the insurance then and there made and not to some future contract for a loan, the terms of which are left to a collateral agreement to be subsequently made. See Bernblum v. Travelers Ins. Co. of Hartford Conn.,
[7] Plaintiff's argument that the policy limits the interest chargeable to simple interest making the provision in the assignment agreement for compound interest invalid is based on those decisions following the statute that compound interest may be collected only upon an express agreement of the parties. Stoner v. Evans,
[8] The assignment agreement is in nowise unconscionable or oppressive. It has become a general business practice to provide for the payment of interest at fixed periods during the continuance of a loan unless payment is required to be made in advance. See Am. Jur. "Interest", sec. 11. Requirements for interest to be paid monthly, or semi-annually or annually are usual business practices depending on the nature of the loan. That failure to pay an installment of interest when due shall accelerate the maturity of the loan is a common proviso.
In the early days the courts opposed and denied compound interest on the ground it was harsh and oppressive. Whitworth v. Davey,
In adding the amounts of unpaid interest installments to principal the company followed the usual practice employed by insurance companies. The trial court found:
"It was at all times the universal, uniform, notorious and open custom usage and practice of all life insurance companies to make all computations affecting insurance policies and insurance contracts, which involved interest or interest assumptions, on the basis that interest will be so paid annually and immediately reinvested and compounded, *401 and all actuarial computations relating to life insurance policies were at all said times based upon the compounding of interest annually.
"It was at all times that said Policy was in force the uniform custom and practice of the defendant to provide for addition of unpaid interest to principal and to provide for payment of interest thereon in all Assignment Agreements securing loans on policies containing provisions like, or similar to, those contained in the Policy sued on herein, and such custom and practice was openly and notoriously followed by life insurance companies, to require payment of interest annually on all policy loans."
"Assignment Agreements in substantially similar form providing that interest unpaid when due shall be added to principal, were used by defendant in the making of all policy loans since July, 1906, and several hundred thousand loans to policyholders were made on such forms upon policies containing loan provisions substantially identical with those in the Policy sued on herein; for more than 25 years, the validity of such agreements, as applied to such policies, was not questioned in a single case brought by any interested party."
It also appeared from the evidence that:
"The validity of the form of Assignment Agreement executed by the Insured when used to secure loans upon the form of Policy issued herein, and the validity of interest on unpaid interest which has been added to principal thereunder, as an asset of the defendant company, was passed upon and approved by the duly authorized examiners of the Insurance Department of the State of Missouri, both prior to the issuance of the Policy sued on herein and subsequent to the issuance thereof."
There are cases on insurance policies which hold that a requirement for compound interest in the assignment agreement is not enforcible where it was not expressly provided for in the policy. Murray v. Prudential Ins. Co.,
[9] Our conclusion that in this case the assignment agreement does not alter, modify or conflict with the policy, but supplements it and *402
completes the agreement pertaining to loans is in accord with the evident understanding of the insured. Any uncertainty or doubt about the policy provision has been settled by the conduct of the parties. In the course of insured's dealing with the company he executed eight assignment agreements in connection with this policy during the years 1923 to 1930. He made two annual interest payments. From 1931 through 1938 when the policy lapsed the company gave insured written notice each year that the interest had not been paid when due and that it had been added to the principal. Insured accepted without question the terms of the assignment agreement and followed them. "It is a well-established rule of law that the construction placed upon a contract by the parties as evidenced by acts, conduct, or declarations indicating a mutual intent and understanding will be adopted by the courts where the language of the contract is ambiguous, or there is a reasonable doubt as to its meaning, but not where it is plain and unambiguous. 32 C.J. page 1150, sec. 260; page 1195, sec. 328; Lee v. Mo. State Life Ins. Co.,
The judgment of the Kansas City Court of Appeals is quashed and the judgment of the trial court is affirmed. All concur.
