Case Name: JULIET M. COWLES, Individually and as Executrix, v. PROVIDENT LIFE ASSURANCE SOCIETY OF NEW YORK et al.
Court: Supreme Court of North Carolina
Jurisdiction: North Carolina
Decision Date: 1915-12-08
Citations: 170 N.C. 368
Docket Number: 
Parties: JULIET M. COWLES, Individually and as Executrix, v. PROVIDENT LIFE ASSURANCE SOCIETY OF NEW YORK et al.
Judges: 
Reporter: North Carolina Reports
Volume: 170
Pages: 368–378

Head Matter:
JULIET M. COWLES, Individually and as Executrix, v. PROVIDENT LIFE ASSURANCE SOCIETY OF NEW YORK et al.
(Filed 8 December, 1915.)
1. Issues — Insurance—loan Note — Consideration.
The forms of issues submitted to tbe jury are of little consequence if the material facts at issue are clearly presented by them; and where the controversy is whether an insurance company had the right to deduct the amount of a loan note from the amount of its matured policy before payment, for failure of a consideration for the note, an issue presenting the question of whether the note, in the stated amount, was given without consideration is amply sufficient.
2. Insurance, Life — Loan Note — Limitation of Actions.
Where the insurer has accepted a loan note with the express provision that its amount shall be deducted from the policy of life insurance issued by it, at maturity thereof, and the policy has since matured, the running of the statute of limitations cannot affect the right of the insurer to retain the money due on the note.
3. Insurance — Loan Jiote — Consideration—Burden of Proof.
A loan note expressing upon its face “for value received,” and given to an insurer of life, imports a consideration therefor and is prima facie evidence thereof, whether the note is negotiable or not; and where the note also states that its amount is to be deducted from the matured policy, its execution, and that of the policy and application therefor are admitted, the burden of proof is on the plaintiff, seeking to invalidate the note for want of consideration, to show the absence thereof.
4. Same — Exchange of Policies.
A note given by the insured for the difference between the amount of the premiums paid to the date of the issuance of á new for the old policy, upon the insured’s and the beneficiary’s request, the new policy, in its terms and provisions, being more valuable to the insured and the beneficiaries, is for a valuable consideration, and under the circumstances of this case the transaction is not invalid as being against public policy. '
5. Same — Contracts—Courts.
A note given for the difference in past premiums on a policy of life insurance, which policy by agreement of the parties is contemporaneously taken up and replaced by a new one of greater advantages to the insured and the beneficiary, but bearing a larger premium, and specifying that the note shall be paid out of the proceeds of the new policy when it matures, is construed as a part of the policy contract, which the courts are not at liberty to change or vary, when not contravening public policy.
6. Insurance — Loan Jiotes — Possession — Presumption — Payment — Pleadings — Evidence.
The insured before his death gave the insurer’a loan note to be paid out of his policy of life insurance at its maturity, and, alleging the want of consideration, and not payment, the plaintiff in his action on the policy seeks to show payment of the note. The note was introduced in evidence by the plaintiff, but was in defendant’s possession and procured on plaintiff’s notice: Held, under this and other circumstances of the case, the plaintiff failed to show by a scintilla of evidence that the note had been paid.
7. Trials — Insurance—Loan Jiotes — Tender—Costs.
The defendant in this action on a policy of life insurance, having a right under a valid contract of insurance to pay off a loan note-out of the proceeds of the matured policy, tendered a judgment to the plaintiff of the difference between this amount and the face value of the policy: Held, the defendant should be taxed with the cost theretofore accruing, and the plaintiff with the cost thereafter.
Appeal by plaintiff from Shaw, J., at May Term, 1915, of Ieedell.
This action is brought to recover on an insurance policy, issued 28 April, 1903, by the first named defendant, and thereafter assumed by the other, and tried upon these issues
1. Was the note executed by Col. H. C. Cowles to the Provident Savings Life Assurance Society, for $2,539.25, given without any consideration ? Answer: No.
2. Is plaintiff’s .cause of action barred by the statute of limitations, as alleged? Answer: No.
3. Is defendants’ cause of action on note referred to in the first issue above barred by the statute of limitations, as alleged? Answer: No.
It is admitted that the policy matured 21 September, 1912, during the life of the insured, and that under the endowment contract there ivas due five thousand dollars. The action was instituted 1 July, 1913, during the life of the insured by the plaintiff Juliet, his wife, as assignee and beneficia'ry, and after his death she became also party as admin-istratrix. .
The defendants claim the right to deduct from the sum due on the policy the amount due on a loan note, viz.:
COLLATERAL LOAN NOTE.
$2,539.25/100. New York, 21 September, 1902.
For value received, I promise to pay to the Provident Savings Life Assurance Society of New York, or its order, twenty-five hundred and thirty-nine and 25/100 dollars with interest at the rate of five (5) per cent per annum, payable on 21 September in each year. In case interest hereon be not paid when due, it shall be added to the principal of this note; the collateral security of this note and interest being the absolute value of Policy No. 79030 of said society on the life of Henry O. Cowles, which policy, and all amounts payable thereon, are hereby assigned, pledged and hypothecated to said society, and if at any time the amount due on this note, together with any additional loan made on this policy with accru'ed interest shall equal or exceed the then net reserve value on the policy, computed according to the laws of the State of New York, said society is hereby authorized to cancel said policy and terminate the insurance under it, thereby releasing itself from all liability.
The assured has the privilege of paying this loan at any time prior to the termination of the policy. Should the policy become payable while this note is outstanding, the amount of the note with any additional loans and all interests due thereon shall be deducted by said society from the amount due on this policy. Henry C Cowles
Assured.
• The plaintiff excepted to the issues submitted and tendered the following: •
1. What amount is plaintiff entitled to recover of defendant ?
2. Is the defendant’s alleged right of recoupment or set-off, arising out of tbe collateral loan note, set up in the answer, barred by the statute of limitations?
At the conclusion of plaintiff’s evidence, defendants offering none, plaintiff requested- the court to instruct the jury: “That if the jury find the facts to be as testified to by the witnesses, and as shown by the documentary evidence, they will answer the first issue Yes.”
The court refused and plaintiff excepted.
Upon the issues, as answered, the court deducted the sum due on the note 21 September, 1912, viz., $4,094.60, from the sum then due on the policy, $5,000, and rendered judgment for balance, $905.40, with interest thereon from 21 September, 1912.
The court further adjudged that, in consequence of tender of judgment made .by defendants and refused by plaintiff, the plaintiff was liable for costs of action incurred after 16 December, 1913. Plaintiff excepted and from the judgment rendered appealed.
Tillett & Guthrie and L. G. Caldwell for plaintiff.
Ii. P. Grier, Z. V. Long and J ames H. Pou for defendant.

Opinion:
BnowN, J.
The objection to the form of the issues cannot be sustained. The only question involved is the right of the defendants to deduct the sum due on the loan note 21 September, 1912, from the $5,000 admitted to be due on the policy on that, the date of its maturity. The plaintiff had opportunity, under the issues as submitted, to present any pertinent evidence. The form of the issues is of little consequence if the material facts at issue are clearly presented by them. Paper Co. v. Chronicle Co., 115 N. C., 147; Patton v. Garrett, 116 N. C., 847.
There is nothing upon which to base a plea of the statute of limitations, for the policy matured 21 September, 1912, and, by the express words of the note, the- defendants were authorized on that date to deduct from the money then due on the policy a sufficient sum to pay the note.'
The court properly placed- the burden of proof upon the first issue on the plaintiff. The execution of the policy, of the application therefor, and of the loan note were admitted and the papers themselves introduced in evidence by the plaintiff. The loan note appears upon its face to be made "for value received." This recital imports a consideration, and is prima facie evidence thereof, whether the note is negotiable or not, and the same is true of words of equivalent import. 8 Cyc., .225. That an unsealed note which recites to be for value received furnishes proof prima facie of a consideration to support it is the adjudication of this Court in Stronach v. Bledsoe, 85 N. C., 474. As the note itself bears evidence that it was made upon valuable consideration, the court properly refused the plaintiff's prayer and put the burden on plaintiff to show a want of consideration. Stronach v. Bledsoe, 85 N. C., at page 476; 1 Daniel Neg. Inst., sec. 161.
But,- apart from all tbis, the judge might well have instructed tbe jury that there is no evidence to rebut the prima facie case of consideration made out by the instrument itself. All the evidence in this record was introduced by the plaintiff and shows the transaction between the parties to be about as follows:
The insured, H. C. Cowles, held a policy, No. 79030, issued by defendant some time previous to 28 April, 1903, at which date he and his wife made written application to defendant to exchange it for a twenty-year endowment bond 910 policy with annual premiums of $376.05, and expressly asked that the new policy be dated 21 September, 1892, so as to fall due 21 September, 1912, if Cowles lived so long.
The great difference in value between the old policy and the new is well described in the evidence. The old policy was a term policy insuring the life of Cowles for one year at a time with the privilege of renewal for each succeeding year at a higher and constantly increasing rate of premium. It had neither cash surrender value, paid up nor extended insurance values; and must be carried until death to have any value whatsoever, and was limited in amount to five thousand dollars. It was in evidence that the premium upon this policy would have, before the death of Cowles, reached a very large sum, probably eight hundred dollars a year.
The new policy was almost the exact opposite of the first. Instead of having to be carried to death, it was so framed as to mature less than ten -years from its issue, or twenty from its date, and be payable during the life of Cowles if he lived longer than the endowment period, which expired 21 September, 1912. Unlike the old policy, it had cash surrender, loan, paid up and extended insurance values, all of which are set out in the table on the third page of the policy. It had also, in addition to the amount of five thousand dollars absolutely guaranteed, a term feature, by which additionál protection was given to the beneficiary 'had the insured died .before the maturity. of the policy. Thus, while the policy was issued in 1903, it had immediately a loan value of twenty-four hundred and ninety dollars and a paid up endowment value of twenty-six hundred and thirty dollars; and a death benefit, had death occurred during that year, of seventy-two hundred and twenty-five dollars. These amounts all increased; and during the year ending 21 September, 1911, or the year before the maturity of the policy, it had a loan value of five thousand dollars, a death benefit value of ninety-six hundred and forty-five dollars, and a paid up endowment insurance value of forty-seven hundred and thirty-five dollars. The next year the policy matured; and during that year, or the year of maturity, these values had so increased that, had the assured died during the year ending 21 September, 1912, the beneficiary would have received five thousand dollars endowment, and, in addition thereto, five thousand dollars more under tbe term insurance feature. Tbe witness Conklin was asked: "Had Col. Cowles died tbe last year be was paying premiums, wbat would bis beneficiary bave received under tbe new policy?" To wbicb be answered: "Sbe would receive ten thousand dollars, less tbe indebtedness."
Besides tbis, tbe new policy was predated more tban ten years by agreement between tbe assured and beneficiary on one side and tbe society on tbe other; and by reason of such predating bad immediate and larger values tban it would bave acquired without such predating; and it required only ten payments, one of wbicb was made cash at tbe time, to mature tbe policy, instead of twenty bad it been dated on tbe day it was issued, instead of being dated ten years prior thereto.
By tbe predating of tbe policy tbe assured got tbe benefit of a premium based upon bis age in 1892, fifty years, instead of sixty years, bis age in 1903; and tbe rate of premium paid by him was consequently much less tban if bis policy bad been dated in 1903. Assured bad all tbe benefit in values, loan, rate* of premium, protection of legal reserve, etc., under tbe policy delivered him in 1903 that be would bave bad under a similar policy actually delivered to him 21 September, 1912. Tbe new policy required only ten premiums — less in case of earlier death— while tbe old one required payments during life. These appear to be substantial and material values, inherent to tbe new policy, wbicb did not appertain to tbe old one, and amply supported tbe consideration for tbe note.
Tbe great difference in tbe value of the two policies is apparent even to one not versed in tbe intricacies of life insurance. Dating tbe new policy back ten years made tbe fixed annual premium much less, and made it mature as to its endowment ten years earlier. Tbe ten years back premiums bad to be paid. For making tbe exchange of policies, Cowles contracted to pay $2,915.30, as shown by tbe following extract from application:
It is also understood and agreed that tbe assured pay to tbe Provident Savings Life Assurance Society of New York at or before tbe delivery of tbe policy hereby applied for,' tbe sum of twenty-nine hundred and fifteen and 20/100 dollars, and in consideration thereof at tbe time of tbe delivery of tbe policy hereby applied for tbe Provident Savings Life Assurance Society of New York agrees to loan to tbe assured tbe sum 'of twenty-five hundred and thirty-nine and 25/100 dollars ($2,539.-25/100) upon tbe security of said policy, and tbe said amount shall be a lien upon said policy when issued until tbe same shall be paid.
And it is also understood and agreed fbat tbe, assured is b.ereby authorized to. sign a collateral note to secure tbe repayment of said sum in the form in use by said society.
It is further understood and agreed that all statements and warranties upon which the validity of said policy No. 79030 is conditioned are hereby renewed as to the date when made, and are hereby made a part of the contract under the policy hereby applied for, and of the consideration therefor.
Dated at Statesville, 28 April, 1903. HeNey C. Cowles.
Juliet M. Cowles.
It is quite certain that the defendant would not swap policies with Cowles without charging him "boot." There was entirely too great a difference in the intrinsic value of the two policies, especially as the new one was dated back ten years and the premium fixed at a date when Cowles was ten years younger than he was at date of his application. The difference which Cowles agreed to pay, as shown by the written application, was $2,915.30. He executed this note for $2,539.25 at five per cent interest and paid 'balance in cash. It is perfectly patent that the consideration for the note was the exchange of policies. The cash payment which Cowles made of $376.05 was evidently for the premium on the new policy for the ensuing year, which must be paid in cash in advance.
The note represented the difference between the premiums which the assured paid upon his old policy from 21 September, 1892. The amount of the note differs very slightly from the reserve required to be kept on this policy had it been issued in 1892, and very slightly from the loan value which such a policy, issued in 1892, would have had in 1903, according to the testimony of the witness Hubbard.
Plaintiff contended that the note was illegal because its effect, if legal, would be to reduce the amount of insurance available to the beneficiary to a sum less than the guaranteed amount of five thousand dollars. When the policy was delivered the amount payable at death was seventy-two hundred and twenty-five dollars, less twenty-five hundred thirty-nine and 25/100 dollars, the amount of the note, slightly below the five thousand dollars guaranteed.
This objection seems to be without force; and no authority was cited to sustain it, and we have found none. In principle we do not think the objection well founded, for to give it effect would be to very seriously hamper the borrowing privilege of the assured, which privilege sometimes may prove very valuable. The unavoidable effect of any loan against a policy is to reduce the amount payable under the policy; and,* if the loan be made during the early life of the policy, it will ordinarily reduce the value of the policy below the guaranteed amount. If a considerable loan be made, as was the case in this instance, contemporaneously with the issue of the policy, almost of necessity the amount available after the payment of the loan will be less than the face of the policy.
The unprofitableness of this contract to tbe insured, urged by counsel so earnestly, is a matter which, should not influence us. Had the insured died before the maturity of the policy, it would have turned out very differently for the beneficiary. But, however it may finally result, insurance is a contract; and, when a contract is admitted, the Court can .no more change its terms than it can the terms of any other contract. The Court cannot, after the maturity of the policy by death or by any other cause, look back to the beginning and say that this policy, having been proven unprofitable to the assured, should be changed so as to make it profitable. Any such construction of a policy would destroy the business of insurance and make it impossible. The courts, instead of interpreting, would be making a contract after all mutuality between the parties to the contract had ceased.
We do not find in our own reports a case analogous to the one at bar, and none were cited to us in the argument. We find in the courts of sister States cases similar and some almost analogous. In McIntyre v. Ins. Co., 82 Georgia, 478, Chief Justice Bleckley discusses learnedly a suit brought on a fifteen-year endowment policy, in which the insured objected to a deduction from the endowment fund of interest which had acctued on notes which he had given for one-half of the premium. He contended that the interest on these notes, at least, should be deducted entirely from the profits of the company, it being to some extent a mutual company; and that in no event should the interest on these premium notes be deducted from the principal of the endowment, because that would be to reduce, the amount of the guaranteed endowment. The Court held to the contrary; and the principal of the notes given for part of the premiums, together with interest thereon until the end of the endowment period, were deducted from the face of the endowment, leaving so small an amount that plaintiff was dissatisfied and brought suit.
Whether a policy loan was without consideration, was against public policy, or was a discrimination is discussed in Life Ins. Co. v. Woods, 11 Indiana App., 338. The Court said:
"We see no valid reason why an insurance company and an applicant for life insurance may not enter into a binding agreement to the effect tha.t the company will undertake to loan the insured a sum of money, as well as to insure his life, and that the money loaned is to be deducted from the proceeds of the policy at the time of the maturity thereof. Such a contract is not in violation of the principle of indemnity upon which insurance is generally based, for the money may be needed for the payment of premiums and other purposes to enable the insured to secure the full benefit of such insurance. Hence, if the contract in suit had provided in terms for a loan of money, and the repayment of the same out of the proceeds of the insurance, that having such a provision would be binding upon all parties, although the policy be written for tbe sole benefit of tbe wife. It is true tbat in ordinary life insurance, where tbe wife of tbe insured is tbe beneficiary, tbe title of tbe policy vests in ber immediately upon execution and delivery thereof, and no arrangement between tbe company and tbe insured affecting tbe interest of tbe wife in tbe insurance money, wbicb is not provided for by tbe terms of tbe policy itself, will be binding upon ber."
In Life Assurance Society v. Dunkin, 1st Tenn. Chancery App., page 562, tbe Court said tbat "where tbe husband gives a loan certificate to tbe insurance company as part of tbe first premium paid by him, bis beneficiary, bis wife, will not, after bis death, be allowed to repudiate tbe note and claim tbe face of tbe policy."
Hay v. Ins. Co., 101 N. E., 651, from Indiana, is a case very similar to tbe one at bar. In tbat case tbe insurance policy was predated seven years, a loan agreement executed, note given and an agreement tbat tbe indebtedness was to be a lien on the policy. Tbe Court held tbat tbe loan agreement was binding on tbe beneficiary, even though executed without ber knowledge or consent.
It is a general principle of tbe law of contracts tbat two or more instruments executed contemporaneously, by tbe same parties in reference to tbe same subject-matter, constitute one contract. Therefore, 'the policy and note must be taken as one transaction and construed together. According to their terms tbe beneficiary would receive stipulated sums, varying in amount, if insured died before tbe end of tbe endowment or accumulation period. If be outlived tbat period she would only receive $5,000. Whether tbe insured died before or after tbat period a sum sufficient to pay tbe note was to be retained by defendant out of tbe sum due on tbe policy.
It was suggested on argument tbat Cowles may have paid tbe $2,915.30 in cash. If so, then why did be give tbe note, tbe execution of wbicb is admitted? There is no evidence tbat be paid anything more than $376.05 in cash, and tbat was for tbe premium on tbe new policy for •ensuing year. Deduct tbat from $2,915.30 and we have left tbe sum of $2,539.25, tbe principal of tbe note. There is no plea of payment set up against tbe note, and not a scintilla of evidence tbat any part of it has ever been paid.
It was admitted tbat tbe collateral loan note and agreement were in tbe possession of tbe defendants at tbe time of trial, and there was no denial of tbe rightfulness of their possession. There was no claim tbat plaintiff or her husband bad ever bad possession of tbe note or application after tbe execution of the same, more than ten years before the death of insured. Tbe note or loan agreement and application were both offered on tbe trial and put in evidence by tbe plaintiff; but, before offering them, plaintiff requested tbe defendants to furnish them, wbicb w;as done.
Upon the consideration of all the evidence we find nothing that warrants the conclusion that this transaction is illegal, oppressive or immoral. Doubtless had the insured died prior to the end of the endowment period a very different result would have followed, and no such charge would have been made.
The view we have taken of this case renders it unnecessary to consider the fifty assignments of error in the record except the one relating to the tender and costs.
Plaintiff objected that the court awarded costs against her from the time of the tender of judgment made by defendants on 16 December, 1913. It is not denied that the tender was made. It is recited as a fact in the judgment and is set out in the defendants' answer. The only objection made to the tender is that it was not enough. Plaintiff contended that tender should have been made upon a basis of computation of interest on the policy, and likewise on the note to 16 December, 1913, instead of to 21 September, 1912. Nor is there any objection to the form of the tender. It is treated as being regular.
The policy matured 21 September, 1912. The note provided as follows : "Should the policy become payable while this note is outstanding, the amount of the note, with any additional loans and all interest thereon, shall be deducted by said society from the amount due on this policy."
The note was outstanding when the policy fell due. Defendants admitted their liability on the policy for the full amount, subject to a deduction of the amount due on this note. The date of settlement was 21 September, 1912, when the policy matured. ~We have upheld that contention. The defendants, therefore, were indebted to plaintiff on said date in the sum of nine hundred five and 40/100 dollars. The tender of judgment was not for nine hundred five and 40/100 dollars, payable 16 December, 1913, but the tender was for nine hundred five and 40/100 dollars, together with interest thereon at the rate of six per cent per annum from the 21st day of September, 1912, when it should have been paid, and for the costs of the action, incurred up to the date the tender was made, 16 December, 1913.
The defendants might have gone further and paid the money into court and stopped interest. They did not do that, however; and we hold that the tender was good, and that plaintiff cannot recover any costs, except such costs as had not been incurred on 16 December, 1913, the date of the tender. Certain costs not then payable were determinable before that time and were costs matured as of that date, such as rendition and enter of judgment, filing papers, etc. These costs must be paid by the defendants, notwithstanding its tender; but the other costs thereafter accruing, such as jury trial, taking of depositions, etc., which would have been avoided in toto had defendant's offer been accepted, must be paid by plaintiff.
Upon a review of the record, we find
No error.