Case Name: Insurance Co. v. Bonner
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1880-01
Citations: 36 Ohio St. 51
Docket Number: 
Parties: Insurance Co. v. Bonner.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 36
Pages: 51–68

Head Matter:
Insurance Co. v. Bonner.
In consideration of tie payment in cash of $130.75 and of a premium note of $91, and a like payment each year thereafter for ten years, a policy was issued on the life of B. for $5,000, payable at his death, after deducting any balance of the year’s premiums and all notes given for premiums. If default should be made in the payment of any premium, or of the interest on any premium notes, the company was to be liable only for as many tenth parts of the amount insured as there had been complete annual premiums paid. After payment of six annual premiums by cash and notes, and the interest thereon due at the sixth payment, default was made in paying the seventh annual premium, and byfailingto pay the annual interest on prior premium notes, and the policy was forfeited for such default. The principal of the notes, remaining unpaid by dividends, was to be paid by deducting the balance due thereon from the amount due on the policy when it became payable, and the interest thereon was to be paid annually or the policy was to be forfeited. These notes were secured by a lien on the policy under authority to loan part of the premiums thereon to the policy holder. — Held,
1. The notes are in the nature of a permanent loan to the policy holder, to be paid out of dividends to be declared, or by deduction from tlie policy when it became payable.
2. The payment of the annual cash premiums and the giving annually of these notes, which were in legal effect annual loans of part of the premiums, constituted as many complete annual payments; and the payment of said notes in cash was unnecessary to constitute such payments.
3. The amount remaining due on said notes, after crediting the dividends made at the time of forfeiture, together with the annual interest due thereon at the time the policy becomes payable, should be deducted from-the amount due on such policy.
4 By the forfeiture, for non-payment of the further annual premiums, and for non-payment of the annual interest due on prior premium notes, the right of the policy holder to share in future dividends was lost.
This was an action by defendant in error, as the assignee of a policy of insurance, issued by the plaintiff in error, a mutual insurance company incorporated under the laws of Wisconsin, on the life of Stephen P. Bonner, who died December 22, 1874.
From the pleadings and exhibits it appears, that on October 27, 1865, the policy was 'issued on the application of Mary Bonner, a sister of Stephen P. Bonner, the assignor of plaintiff below, at which time she paid $136.75, and gave the note of the assured for $91,’ making the total premium $227.75 for one year, for which a policy of $5,000' was issued on what is called the ten-year plan.
At the beginning of each successive year, the second, third, fourth, fifth and sixth years’ premiums were paid by payments of a like amount of cash, and by the notes of the assured for $91 each, except that at some time during these six years, the cash part of the premium was paid semi-annually in advance. The material parts of this policy are as follows :
- “ The Northwestern Mutual Life Insurance Come any.
“ Number, 13,161; age, 29; amount, $5,000; premium, $227.75.
“ By this policy of assurance, in consideration of the representation made to them in the application for this policy, and of the sum of one hundred and thirty-six dollars and seventy-five cents, to them in hand paid by Mary Bonner, sister of Stephen P. Bonner, physician, and of the annual premium note of ninety-one dollars and — cents, and the annual cash premium of one hundred and thirty-six dollars and seventy-five cents, to be paid at or before noon on or before the twenty-seventh day of October, in every year during the first ten years of the continuance of this policy, do assure the life of Stephen P. Bonner of Oincinnati, in the county of Hamilton, state of Ohio, for the sole use of the said Mary Bonner, in the amount of five thousand dollars, for the term of his natural life. And the said company do hereby promise and agree to pay the said sum assured, at their office, to the said assured, or her executors, administrators or ássigns, in ninety days after due notice and proof of death of the said person whose life is hereby assured (the balance of the year’s premium and all notes given for premiums, if any, being first deducted therefrom), and in case of the death of the said assured before the death of the said person whose life is assured, the amount of the said insurance shall be payable to the heirs at law of said Stephen P. Bonner. And the said company further • promise and agree that if default shall be made 'in the payment of. any premium, they will pay, as above agreed, as many tenth parts of the original sum insured as there shall have been complete tmnual premiums paid at the time of such default.”
The 2d, 3d and 6 th conditions are :
“ 2d. If the said premiums, or the interest upon any note given for pi'emiums, shall not be paid on or before the days above mentioned for the payment thereof, at the office of the company, or to agents when they produce receipts signed by the president or secretary, then, in every such case the company shall not be liable for the payment of the whole sum assured, and for such part only as is expressly stipulated above.
“ 3d. In every case where this policy shall cease and determine or become null and void, for other reasons than non payment of premiums, all payments thereon shall be forfeited to this company.
-x- -x- -x- * «-
“ 6th. This policy shall not take effect and become binding on the company until the mshpremium shall be actually paid to the company or to some person authorized to receive it during the lifetime of the person whose life is assured.”
The applicant, in answer to the question as to the “ sum to be assured, and what kind of policy; premium, how paid, .whether all cash or part note; annually, semi-annually or quarterly ? ” answered; “ $5,000 annually; ten years; cash and note.” *
On October .27, 1870, when the sixth payment on the annual plan became due, the following premium receipt was presented and paid, and the last note there termed, “ Annual Loan Note, No. 6, $91,” was given as follows :
“ Northwestern 'Mutual Life Insurance Company, General Office, Milwaukee, Wisconsin. prem, Cash prem. for six months, . . . $69 60 Interest on Loan Notes, 16 47 Total cash, $86 07 Note Annual Loan No. 6, ". . . $91 00 Premium, as above, received this 27th day of Oct., 1870. John F. Johnson, Agent. (Per A. Hagemeyer.) Policy No. 13,161, insuring the life of Stephen P. Ponner, is herefyy made binding for sine months from the 27th day of Oetober, 1870, provided payment, as per mai’gin, is made in due time, and the receipt is countersigned by J. F. Johnson, agent at Cincinnati. Aug. Gaylord, Secretary.”.
This payment continued the policy to April 27, 1871, when another receipt for half cash premium, then paid, was given, as follows:
“Northwestern Mutual Life Insurance Company, Home Office, Milwaukee, Wisconsin. Cash prem. for six months, . . ,. $69 60 Interest on Loan Notes,--$69 60 Note Total cash, . Annual Loan No....... Premium, as above, received this 27th clay of April, 1871. J. E. Johnson, Agent. Policy No. 13,161, insuring the lire of Stephen P. Bonner, is her Ay made binding for six months, from the 27th day of April, 1871, provided payment, as per margin, is made in due time, and the receipt is by J. F. John-countersigned son, ., agent at Cincinnati. Aug. Gaylord, Secretary.” \
From this, it appears, that the cash payment and interest on loan notes, $16.47,and a sixth “Loan Note of $91,” was given, for which said policy on the life of Stephen Bonner “ is hereby made binding for six months from April 27th, 1871;” i. e., to October 27, 1871.
The first and second premium notes are here copied. The others are the same as No. 2.
Exhibit “_S.” Note No. 1.
“$91.00. Cincinnati, October 27, 1865.
“ For value received, I promise to pay to the Northwestern' Mutual Life Insurance Company, ninety-one dollars, with interest at the rate of seven per cent, per annum, which interest shall be paid annually, or the policy be forfeited / this note, being given for part of the premium on policy No. 13,161, is to remain a lien upon said policy until the death of Stephen P. Bonner, when it shall be deducted from the amount of said policy, unless sooner paid. The di/oidends on the policy are\ to be applied to the payment of the note.
“ S. P. Bonner.”
Exhibit “ O.” Note No. 2.
“91.00. Milwaukee, October 27, 1866.
“For value received, I promise to pay to the Northwest eral Mutual Life Insurance Company", ninety-one dollars, with in-\ terest at the rate of seven per cent, per annum, which interest shall be paid wivnualh/, or the policy be forfeited; this note being gi/ven for part of the premium on policy No. 13,161, is to remam a lien upon said policy until it becomes due by limitation, or by the death of Stephen P. Bowner, of Cincinnati, when the note shall be deducted from the said policy unless sooner paid.
“ The dividends on the policy are to be applied to the payment of the note.”
“ S. P. Bonner.”
The payment made April 21,1811, was the last made. On October 21, 1811, there was due, by the terms of the policy, $136.15 cash, and another loan note of $91, and one year’s interest on balance due on previous notes, but default was then made, and no payments have, since been made.
Dividends were made on this policy, one in 1868, on the business of 1865 ($111.53), and one in 1869, on the business of 1866 ($108.25), which paid off premium notes Nos. 1 and 2, and all of No. 3, except $53.22, leaving that balance, and the third, fourth, fifth and sixth notes unpaid at the time default was made, and also one year’s interest, $22.83, due thereon from October 21, 1810, to October 21, 1811.
"When default was made, October 21, 1811, the company, claiming the right so to do, declared the policy forfeited, as to eight-tenths thereof. This was done on its interpretation of the second condition of the policy providing for a forfeiture.
The plaintiff below claims, that by the payments made, and by the terms of the policy and the premium receipts, it was a .’paid-up policy for six years, and therefore that only four-tenths was subject to forfeiture.
The controversy is, whether the payment of the cash premiums and the notes constitute six “complete annual premiums,” or whether the j>remium notes must also be paid in cash.
The plaintiff in error claims that, inasmuch as only two of these notes were paid, only two complete annual payments were made.
Erom tbe evidence it appears that, in 1871, a third dividend was made, of §35.96, which was credited on the balance due on -Qia principal of the third note. If this dividend should have been credited on the witerest then due on all the notes, there would have been no default at that date, as to interest on prior premium notes.
It also appears, that by the non-payment of interest on these notes, the insrued was not entitled to dividends. Notwithstanding this, the company declared dividends on a two-tenths policy in the years 1872, 1873, 187J and 1875, payable in cash, which were not applied in payment of either notes or interest, or otherwise paid. The court below gave a judgment for six-tenths of the face of the policy, less the balance due on premium notes without interest, and without any credits for the subsequent dividends. Of this the plaintiff in error complains.
Sayler <& Sayler, for plaintiff in error :
1. The construction of that clause of the policy which makes the giving of the note a recognition that so much of the premium has not been paid, brings this contract of insurance within the chartered powers of the company. A construction that makes the giving of the note a payment of the premium, takes it out of the chartered powers of the company, and thereby causes the trustees and agents of the company to commit a breach of trust. Nowhere in the charter are the trustees allowed to receive notes in payment of premiums. They can receive notes for loans made to those insured, as evidence of the indebtedness of the assured for so much of the premium loaned. Railroad Co. v. Kelley, 5 Ohio St. 180; 11 Ohio St. 96; 8 Ins. Law Jour. 70; 11 Wis. 307; Angell & Ames on Corp., § 111; Green’s Brice’s Ultra Tires, 610, 611.
2. The giving of the. note is not a payment of that part of the premium, unless it is so expressly understood and agreed at the time of the transaction. The giving of a note does not pay the debt or obligation. The most that can be claimed for it is the extension of the debt or obligation to the date of the maturity of the note. 16 Md. 396 ; 18 Cal. 330; 12 Cal. 317; 1 Hill, 516; 1 N. H. 281; 1 Doug. (Mich.) 507; 5 Day, 511; 9 Johns. 310; 3 E. D. Smith, 507; 1 Cowen, 359 ; 11 Johns. 409 ; 15 Johns. 241; 27 Ala. 244; 30 Mo. 263 ; 2 Parsons on N. & B. 153, note d ; 5 Ohio, 353 ; 4 Ohio St. 60 ; 15 Ohio St. 159.
But even in those states where the taking of a note is held to be the payment of the debt, it is held that the note must be a “ negotiable ” note. Not such a note as was given in the case at bar. Greenwood v. Curtis, 4 Mass. 93 ; Maneely v. McGee, 6 Mass. 143; Trustees, &c. v. Kendrick, 12 Me. 318; Bartlett v. Mayo, 33 Me. 518; Jose v. Baker, 37 Me. 465 ; Follett v. Steele, 16 Vt. 30; Farr v. Stevens, 26 Vt. 299. Outside of the policy and notes there is no evidence in this case as to any agreement of any kind that these notes should be received as payment of so much premium. What the contract was must be gathered from the terms of the application, policy, notes, charter, and receipts, and from these it must elea/rly appear, as held in Merrick v. Boury, 4 Ohio St. 60, that it was expressly agreed that these notes should be taken in payment, and as payment of the premium. There is nothing in all these to show that these notes were taken “ as payment ” of the premium — much, less does it appear “ clearly” that there was an “ express agreement ” between Bonner and the company, that these notes were to -be taken “ as payment ” of the premium. The company, then, can only carry that amount of insurance for which it has received payment, and which premiums are yielding and bearing compound interest. It can only carry that sum of insurance for which the premiums have been paid —absolutely, completely paid. Eor that alone is the sum of money that produces compound interest. Erom the nature of the business this is self-evident. But, in order to have the matter distinctly understood, the policy provides “ that if default shall be made in the payment of any premium, they will pay . . . . as many tenth parts of the original sum as there shall have been complete annual premiums paid at the time of such default.” The -policy does not say that the company will pay as many tenth parts as there have been premiums settled, or received, or adjusted by giving notes for part of tlie premium unpaid.
The forfeiture clause in tbe note must be construed with tbe clauses of the policy referring to tlie same subject-matter, and must be held to mean tbe same as tbe analogous clauses in tbe policy.
Thus construed, what do these clauses of the policy and notes mean ? They distinctly say, “ that should Bonner at any time make default in the payment of the premium, or of the interest of any note given for premiums, that then the company “ shall not be liable for the payment of the whole sum assured,” but that the company shall be liable, “ and will pay as many tenth parts of the original sum insured as there shall have been complete annual premiums paid at the time of such default.”
As regards the payment of the premiums, see 1 Disney, 364; 24 Ohio St. 67; 34 Ohio St. 222; Bliss on Life Ins. 272, § 178; May on Ins. 406, § 341; 3 Hill, 161; 8 H. L. Cas. 745; 2 C. B. (N. S.) 257; 2 Big. L. & A. 497; 8 Vroom, 487; 1 Big. L. & A. 336 ; 44 N. Y. 284; 23 N. Y. 516 ; 103 Mass. 254; 8 Ga. 534 ; 4 Big. L. & A. 483.
As regards the payment of interest on the notes, see 3 Central L. Jour. 354, 375; Bliss on Life Ins. 253 ; May on Ins. 406; 1 Disney, 355; 2 Disney, 106; 12 East, 133; 3 Hill, 161; 100 Mass. 500; 43 N. Y. 283; 8 H. of L. 745; 8 Vroom, 487 ; 4 Vroom, 487, and cases there cited ; 8 Ins. L. J. 544; 2 Woods, 547; 35 Iowa, 582; 42 Iowa, 239; 39 Wis. 111; 39 Wis. 121; 19 Mich. 451; 2 Tenn. Ch. 727; 6 Ins. L. J. 426; 5 Id. 875.
Ma/nnix ds Oosgrave, for defendant in error:
1. The cash paid and note given each year, as required by the terms of the policy, constituted a complete annual premium. 2 Parsons on Contracts, § 486 ; May on Ins. 412; 40 Iowa, 357; 39 Wis. 398; 23 Minn. 491; 4 Mo. App. 386; 7 Ins. Law. Jour. 50; 6 Id. 368; 55 Ga. 111; 95 U. S. 269.
2. But if annual payment of interest on a note were necessary to constitute tlie note a payment of premium gyro tanto, and to prevent partial forfeiture, it was the duty of the company to apply the dividends to such payment. 2 Parsons on Contracts, § 631, and rióte a to § 632; 17 Ohio St. 22; 1 Mo. App. 228; 2 Tenn. Oh. 744; 8 Ins. Law Jour. 349; 67 Me. 85, 438.
3. Forfeitures are not favored by the law; and if the policy contains repugnant conditions, preference must be given to those which are in favor of the assured, and will prevent a forfeiture, which is to be enforced only when there is the clearest evidence that that is what was meant by the stipulations of the parties. Among the many authorities which might be cited in support of the proposition, in addition to those already cited bearing upon the subject, we coniine ourselves to-the following, believing, however, that this case does not properly involve any question of forfeiture: May on Ins. §§ 175, 342; Bliss on Ins. §§ 404, 405 ; Union Central Life Ins. Co. v. Pottker, 33 Ohio St. 459; Montgomery v. Phœnix Mutual Life Ins. Co., 14 Bush, 51; Ins. Co. v. Norton, 96 U. S. 242; Rann. Home Ins. Co., 59 N. Y. 387; Hoffman v. Ætna, Ins. Co., 32 N. Y. 413; Linden v. Hepburn, 3 Sandf. 670; Doe v. Dixon, 9 East, 16 (New ed. 5, p. 23); Bennett v. Eufaula Home Ins. Co., 46 Ala. 11; McAllister v. N. E. Mutual life, 101 Mass. 558.

Opinion:
Johnson, J.
The company issuing this policy was purely mutual. By its charter: "Sec. 3. The corporation hereby created shall have the power to insure the lives of its respective members, and to make all and every insurance appertaining to, or connected with, life risks, and to grant and purchase annuities."
" Sec. 4. Persons who shall hereafter insure with the said corporation, and also their heirs, executors, administrators, and assigns, continuing to be insured in said corporation as hereinafter provided, shall thereby .become members thereof during the period they shall remain insured by such corporation, and no longer."
The corporate powers were vested in a board of trustees, to be elected from among the members.
Prior to 1863, the premiums were to be invested in bonds secured by mortgages on unincumbered real estate, worth twice the amount loaned; or the trustees might invest not exceeding one-half the premiums, in the public stocks of the United States, the state of Wisconsin, or of any incorporated city thereof.
There was then no authority to loan to policy-holders any part of premiums on their policies.
To remedy this, and to enable the company to loan to policyholders part of their annual premiums, in case they desired thus to borrow, instead of paying all cash, the charter was amended March 23, 1863, as follows:
" Seo. 11. The trustees shall have power to invest a certain portion of the premiums received, not to exceed one-half thereof, in public stocks of the United States or of this state, or of any incorporated city of this state, mid the company may loam, to policy-holders in said compamy, from time to time, sums not exceeding one-hedf of the armual premiums on theim policies, upon notes to loe secured loy the policy of the person to whom the loans may loe made."
Under this amendment the policy was issued. This power was valuable to the company, as thereby its business could be greatly increased by loaning to the insured not exceeding one-half the premium, instead of • requiring all to be paid in cash.
The applicant was given the option to .pay in this method. When asked how the premium should be paid, whether all cash' or part note, she answered that she would pay by " cash and note," and the contract -was made accordingly.
The sixth condition of the.policy is, "This policy shall not take effect and become binding until the cash premium shall be actually paid." The distinction between that part of the premium payable in cash, and that part paid by note, as well as the effect of non-payment of either, is shown by this clause, as well as in the following, found in the body of the policy:
" And the said company do hereby promise and agree to pay the said sum assured, at their office, to the said assimed, or her executors, administrators or assigns, in ninety days after due notice and proof of death of the said person whose life is hereby assured (the balance of the year's premium a/nd all notes given for premñwns, if amj, being first deckbated therefrom), and in case of the death of the said assured before the death of the said person whose life is assured, the amount of the said insurance shall be payable to the heirs at law of said Stephen P. Bonner."
These premium notes are in the nature of a permanent loan. If not paid by dividends they remain as loans payable, " when the policy becomes due by limitation, or by the death of Stephen P. Bonner."
All notes given for premiums remaining unpaid by dividends, as well as the balance of the year's premium, are to be deducted from the amount due on the policy. There is no personal obligation to pay these notes. They are, as designated in the annual renewal receipts ; " Loan notes." The renewal receipts are themselves a contract to keep the policy binding, when the cash premium and the interest is paid, and the annual loan note is given for the future year. To determine the real character of this contract, we must look to the act of incorporation of the company, with its amendments in force when it was made, with the object sought by that amendment, as well as to the application, the policy, the notes and to the premium receipts renewing the policy from year to year.
By the express terms of the last receipt, dated April 27, 1871, the policy was made binding for its face to October 27, 1871.
Had Bonner died at any time after the policy took effect, under the 6th condition, and before default made, it is clear that the whole policy would have been payable, less all premium notes then unpaid by dividends.
When default was made October 27, 1871, the right to declare a forfeiture arose under the 2d condition of the policy. It is there provided that:
" 2d. If the said premiums, or the interest upon a/ny note given for premiums, shall not be paid on or before the days above mentioned for the payment thereof, at the office of the company, or to agents when they produce receipts signed by the president or secretary, then, in every such case, the com pany shall not be liable for the payment of the whole sum assured, and for such part only as is expressly stipulated above." The right thus reserved arises, " if the said premiums or the interest on any note given for premiums shall not be paid." This excludes the idea that a right of forfeiture exists for the non-payment of the notes themselves. Forfeitures are not favored, and if the policy contains doubtful or repugnant conditions, preference will be given, other considerations being equal, to that construction which will prevent a forfeiture. If, therefore, this policy was in force for its face, down to October 27, 1871, what right of forfeiture vested in the company upon default made? The default consisted in failing to pay the cash premium, and give the premium note for the seventh year, and in failing to pay the past year's interest, on the unpaid premium notes or " annual loans " remaining unpaid by dividends. This interest amounted to $22.83, and if the dividend declared that year, of $35.96, should have been applied on the interest, there would have been no default, except for the premium for the seventh year.
The forfeiture operated to relieve the company of "the whole sum assured," but left the policy binding for, " as many tenths of the original sum insured as there shall have been complete annual premiums paid, at the time of the default."
These provisions are utterly inconsistent with the idea, that a failure to pay the pri/ncipal of the notes would authorize a forfeiture to any extent. The words " said premiums," in this clause, cannot include the " loan notes," for there was no personal obligation to pay them. The failure to pay the interest on these notes is made a cause of forfeiture, but a failure to pay these notes is not. ' They were loans, not to be paid except by dividends, or by deduction from the policy when due.
The application, the terms of the policy and of the premium notes, as well as the stipulation of the company on the margin of the premium receipts, considered in connection with the power to loan part of the premium to the policy-holder, leave no room to doubt the real character of this contract.
It was an agreement to pay an annual premium, part in cash, and part by note, which were to be regarded as loans payable out of dividends, or out of the policy when it became due. Its legal effect was the same as if the whole premium had been paid in cash, and then the amount for which the note was given borrowed back. It is true, as a general rule, that giving a note is only a conditional payment of a debt, but if it is given and accepted as payment, it is otherwise. These premium notes, or annual loan notes, as they are called, are not, in legal effect,, notes, but rather receipts for money borrowed, with an obligation to pay interest thereon, and to allow any balance unpaid thereon by dividends to be deducted from the policy, when it became payable. They are not negotiable, nor payable at any fixed time, nor for any certain amount, nor by the maker personally, but in a special mode. They are in the nature of loans to the assured, which he was under ño personal obligation to repay, and were only to be repaid by the company itself out of dividends, or out of the policy. This is shown by the policy, where it provides for part cash and part note; in the application, where the election is made to pay in " cash and note;" in the 6th condition, where it is provided that the policy shall take effect when the "cash premium shall be actually paid;" and finally, in the clause requiring the unpaid notes to be deducted from the amount due on the policy.
We cannot better enforce the argument in support of this conclusion, than to quote from the opinion of Mr. Justice Swayne in Insurance Co. v. Dutcher, 95 U. S. 269, a case involving the same principles, but where the policy was much more favorable to the company than here.
There the policy was issued in consideration of a sum paid, and a like payment annually for ten years, on a day named, with the right to share in the profits. On the death of the assured, the policy, less the balance of the year's premiums and all indebtedness, was to be paid. If the premium should not be paid on the day fixed, or any note given in part payment of premium, the policy to become void. After two annual payments by the insured, the company was to issue a paid-up policy for as many tenths as there had been complete annual premiums paid in cash.
These notes were in the nature of permanent loans, payable out of dividends, and at each time of payment in this mode, receipts were given, as in this case, showing payment in full for the year. After four annual payments thus made, and while there was still a balance dire on the four premium notes, Mrs. Dutcher demanded a paid-up policy, but the company refused unless she would first pay the balance due on the premium notes in cash.
The learned justice says :
" But it is said the policy declares that the amount of the paid-up policy should be determined by the sum of the premiums ' paid in cash.'
" To this there is an obvious, and, we think, a conclusive answer. The part of the annual premium, for which a note was to be given, was in substance and effect a loan of so much money by the company to the assured. It was so described in the receipt of the company for the premium, and in the contract of the parties.
" If the money had been actually paid to the company, and the next moment loaned back, and the note then taken, there would not have been room even for a quibble upon the subject.
" Why go through such a ceremony ? Why not go directly, as was done, to the end in view ? The intent which animated the conduct of the parties determines its character. The receipt and contract both show that the transaction was regarded by both parties as a payment of money to one and a loan back to the other, for which the note was taken. The receipt was for the full amount of the premium. _ The note and loan were mentioned by way of memorandum, as a distinct matter. The law never requires an idle thing to be done. It would clearly have been this, and nothing else, if the assured had actually handed over the money and note with one hand, and, eo mstcmti, with the other taken back the money.
"The company had the power to waive the actual production and payment of the money, and to receive a note bearing interest as the same thing. It has exercised this power, and is estopped to deny the consequence. Where a surety, by giving his note, extinguishes the liability of his co-surety, he can maintain an action against the co-surety for money paid; be cause the effect is the same that would have been wrought by the actual payment of the money."
That this was the construction placed upon this policy by the company itself is evident from the fact that, on policies subsequently issued, the provision as to the liability of the company for as many tenths as there shall have been complete annual premiums paid, was qualified by adding to that clause this limitation : " But in order to secure such proportion of • the policy, all premium notes must lye taheh up, or the interest thereon lyepand annually in cash, on the 'date of the annual maturity of the premiiom, until the notes are canceled liy returns of the surplus, or the whole policy will lye forfeited." Hull v. N. W. M. Life Ins. Co., 39 Wis. 397; Ohde v. The Same, 40 Iowa, 357; Symonds v. The Same, 23 Minn. 491; Little v. The Same, 7 Ins. Law Jour. 50.
If, as was held in the Hull case, that the dividend declared in 1871, of $35.96, should have been applied on the interest then due on the previous notes, there was then no default in payment of interest on premium notes, for which a forfeiture could be declared.
This case'differs from that in this respect, — there the dividends were to be applied to the principal and interest of the notes, while here the interest is to be paid ainnualljj' in cash, and the dividends are to be applied on the notes.
Holding, as we do, that the giving of these premium notes was in effect a payment of the premium, and also a loan of that amount to the policy holder, the right to have a paid-up. policy for as many tenths as were thus paid became fixed, and that no subsequent default in the payment of interest on these notes would divest this right; the question of the application of this third dividend to the interest then due, instead of upon the note, becomes immaterial, in determining how many complete annual payments were made. The interest then due, as well as the subsequently-accruing interest on these notes, if not paid, followed the notes; and the amount due thereon when the policy became payable should be deducted from the $3,000 due. on the policy.
The failure to pay the interest due October 27, 1871, on the previous notes, gave to the company tbe right to declare the policy forfeited as to the intime, but it did not defeat the right of the assured to a paid-up policy for the six annual payments actually made as provided for, before such failure.
The court below so adjudged, but refused to allow any deduction for unpaid interest on the balance due on these premium notes.
The reason given is, that from the time the insured ceased to pay interest to his death, the company, under its rules and under its construction of the policy, cut him off from the benefit of dividends as to four-tenths of the policy, in part represented by these notes; and that if the company was entitled to interest, he would be equally entitled to dividends on these four-tenths, which would exceed the interest.
These notes stipulated for the payment of interest annually on the premium notes, or the policy should be forfeited. The policy provides that if it be not paid on or before the days named, the company shall be liable only for as many tenths as there were complete annual payments. This liability was, as we have found, for six annual payments, out of which must be deducted all notes given for premiums unpaid by dividends. This is the whole extent of its liability after forfeiture. The complete annual payments save only as many tenths of the policy. The contract was one of mutual covenents. In consideration of the payments of the annual premiums in cash and notes, and the annual payment of interest in cash on the notes, the company agree to keep the party insured, and to pay an equitable share of the profits in dividends from time to time. The payment of this interest is a vital part of this contract; its non-payment forfeits the policy, and but for the clause limiting the forfeiture, default in such payment would forfeit the whole policy.
Prompt payment of interest is also essential to the successful prosecution of the business, and to enable the company to make and declare dividends. The assured has agreed that if there is a failure to pay this interest, the policy shall be forfeited, except as to the tenths paid for.
It would be inequitable to allow the assured • to remain in default for interest due, and yet participate in the dividends declared after the policy is forfeited, which are fruits of prompt payments by other policy holders. By the very nature of the contract, the annual payment of interest was a condition precedent, to entitle the policy holder to future dividends.
We hold, therefore, that there were six complete annual payments of premiums made prior to October 27, 1871, and that the failure to pay further premiums, or the interest annually due on the balance of the notes remaining unpaid after the application of the first three dividends, forfeited said policy, except as to six-tenths thereof, and all right to future dividends thereon. We hold, further, that the unpaid interest on these notes, computed according to their terms, became part of the amount due on the notes, to be deducted from the amount found due on the policy.
As the court below erred in not allowing interest on tbe balance due on these unpaid premium notes, tbe judgment is reversed, and tbe cause is remanded for proceedings according to the foregoing opinion.