Case Name: Robert S. Stevens and Frederick C. Stevens, as Executors, etc., of Frederick C. Stevens, Deceased, Respondents, v. The Mutual Life Insurance Company of New York, Appellant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1918-05-03
Citations: 183 A.D. 629
Docket Number: 
Parties: Robert S. Stevens and Frederick C. Stevens, as Executors, etc., of Frederick C. Stevens, Deceased, Respondents, v. The Mutual Life Insurance Company of New York, Appellant.
Judges: 
Reporter: Appellate Division Reports
Volume: 183
Pages: 629–652

Head Matter:
Robert S. Stevens and Frederick C. Stevens, as Executors, etc., of Frederick C. Stevens, Deceased, Respondents, v. The Mutual Life Insurance Company of New York, Appellant.
Fourth Department,
May 3, 1918.
Insurance — loan to insured by insurer secured by pledge of paid-up policies — bailment — respective rights of parties — provision for foreclosure of equity of redemption without notice — assignment construed — waiver of forfeiture by pledgee — extension of time of payment — notice of time and place of subsequent forfeiture essential — demand that pledgor pay interest only at date of maturity — agreement of insurer to carry policy although interest is not paid — pleading — allegations establishing waiver — practice — direction of verdict — failure of defendant to request to go to jury.
Where the owner of fully paid life insurance policies assigns them to the insurer as security for the payment of a loan to him, a trust relation arises by implication of law. The insurer as pledgee takes a qualified title as indemnity to the loan, and until this is lawfully foreclosed an equity of redemption continues in the pledgor. In order that the equity may be foreclosed there must be a demand of payment of the loan and reasonable notice to the borrower of the time and place of sale or forfeiture.
However, the borrower as an inducement to the loan may stipulate a waiver of demand of payment and notice of sale or forfeiture, which waivers do not violate public policy.
Where the written contract of assignment, among other things, provided that in the event of the failure of the insured to pay his notes on the due day, or in the event of the non-payment of interest, the insurer could cancel the policies without further notice and without further demand for payment and apply the surrender value of the policies on the notes and pay the balance, if any, to the insured, and further provided that the payment of the loan could be extended upon the request of either party for six months or one year upon the payment of certain premiums and accrued interest, the insurer by demanding only the payment of interest at the time the notes became due elected to waive its right of forfeiture for non-payment of the principal, and it cannot thereafter arbitrarily cancel the policies under the terms of the assignment without making a further demand for payment of principal and giving to the insured notice of the time and place of sale and forfeiture. This, because a definite due date is indispensable to the right of foreclosure and forfeiture without notice. In other words, the extension of time without fixing a new due date constituted a waiver of the right of the pledgee to foreclose or forfeit without notice and demand under contract authority.
Where a party has a right of forfeiture created by contract and limited to a particular time for the enforcement thereof, and he extends that time, and the other party in reliance upon such extension has permitted the contract time to pass without performance, the holder of the right of forfeiture cannot recall such consent to extension and treat the nonperformance within the original time as a breach of contract. He must thereafter make formal demand for performance and give to the other party reasonable notice of the time and place of the enforcement of the forfeiture.
Where after the maturity of the notes the insurer made a demand for the payment of interest only in a notice which stated that the loan might he repaid in small installments at any time there was a waiver of forfeiture and an extension of time of payment.
So, too, a statement in the notice that if the premiums on the policies be paid in cash and the interest be not paid the latter will be added to the principal and the new amount shall bear interest and the loan be extended automatically for the period for which the premium- has been paid, amounted to an explicit notification that the loan would be carried during the lifetime of the policy, which was paid up, even if the insured did not pay interest.
Where the facts aforesaid were fully set forth, the insurer cannot defeat a recovery upon the ground that a waiver by it was not alleged by the plaintiff, for the facts implied a waiver and an allegation thereof would be a mere conclusion.
Where both parties moved for a direction of a verdict and the defendant
. made no request to go to the jury any question of fact determined by the directed verdict is binding upon the defendant.
Merrell and Foote, JJ., dissented, with opinion.
Appeal by the defendant, The Mutual Life Insurance Company of New York, from a judgment of the Supreme Court in favor of the plaintiffs, entered in the office of the clerk of the county of Wyoming on the 19th day of June, 1917, upon the verdict of a jury rendered by direction of the court, and also from an order entered in said clerk’s office on the 28th day of April, 1917, denying defendant’s motion for a new trial made upon the minutes.
Frederick L. Allen [Daniel M. Beach and Murray Downs of counsel], for the appellant.
Stevens & Reynolds [Louis L. Babcock of counsel], for the respondents.

Opinion:
Lambert, J.:
On January 24, 1900, Frederick C. Stevens procured the defendant to issue to himself upon his life five equal policies of insurance, aggregating $100,000. The policies were payable upon his death to his personal representatives. The annual premium of each policy was $757.40, and assured paid the premiums until 1906, when he made default.
A new arrangement was subsequently made between the defendant and the assured. The defendant issued to him, in the place of the five lapsed policies, five separate paid-up policies for the sum of $4,120 each, aggregating $20,600, payable upon his death to his representatives. The policies were precisely alike, except as to numbers identifying them.
On May 16, 1914, the assured applied to the' defendant for a loan upon the five reissued policies. In accordance with its practice the defendant on said date loaned to the assured upon each policy the sum of $1,837, the loan value thereof as determined by it, aggregating $9,185. The assured executed and delivered to the defendant five notes and five written assignments of said policies as collateral security to the payment of the notes, all identical in form, except as to the numbers of the policies to which they referred. These documents were the usual printed forms, drafted and furnished by the defendant.
By the terms of the notes the assured promised to pay to the defendant at its office, New York city, on January 24, 1915, without grace, the sum of $1,837, with interest thereon at the rate of six per cent per annum. The executed assignment of the policies provided and recited that the insured had deposited with and assigned to the • defendant the policies referred to, designated by its respective number, as collateral security for the payment of said " note."
The assignment agreement further provided that the assured might repay said note with accumulated interest prior to its maturity, whereupon it would be automatically canceled and the policy returned.
It also provided that the payment of said loan upon the request of either party (to the note) and without notice to any other party thereto might be extended for " six months or one year " upon payment of certain premiums and accrued interest, not necessary here to consider.
The default or defeasance clause of each assignment read as follows:
" In the event of failure to repay said note on the date when due as herein provided or in the event of the non-payment of the interest accrued thereon, the Company, without further notice and without further demand for payment, may cancel said policy as of the date of default, and apply to the payment of said note (with accrued interest), the sum of $1,920 (being the customary cash surrender consideration allowed by the Company as the surrender value of policies issued upon like terms and conditions) and pay the remainder of said sum (if any), on demand, to the parties entitled thereto.
" In case of any extension or renewal or extensions or renewals of this note, the foregoing provision for cancellation and surrender of the said policy shall be applicable, but in such case, in lieu of the above stipulated cash surrender consideration, the Company will pay, as a cash surrender value at the maturity of any such extension or renewal, subject to the deduction of the existing loan with accrued interest, the customary cash surrender consideration then allowed by the Company, on other policies issued and terminated upon like terms and conditions as this policy, which amount shall not be less than the above stipulated cash' value."
It was then provided that in the event of the death of the assured before the maturity or payment of the note, and while the policy was in force, the defendant would pay the face of the same, less the amount loaned and accrued interest.
On January 24, 1915, the date when said notes became due by their terms, the assured paid the interest thereon to said date. He made no other payments, either principal or interest.
On February 12, 1916, the defendant mailed five identical printed and signed notices to the assured, one relating to each note and the accompanying pledged policy, notifying him that the interest would become due January 24, 1916, and requested him to remit the interest only which was specified therein to be $110.68.
For greater accuracy we give the notice, hcec verba minus caption: ,
" Washington, D. C., Feb. 12, 1916.
" We beg to remind you that the interest on loan from Jan. 24, 1915, under your policy No. 1,022,243 in this Company will expire Jan. 24, 1916. We trust that before that time you mil remit the amount as stated in the following table, that the insurance may not lapse.
" Int. on interest............................. $0 46
" Interest on loan............................ 110 22
$110 68
❖ ❖ ❖
" (Signed) THOS. P. MORGAN.
L.
" Manager "
On February 25, 1916, the defendant again mailed to the assured five notices or letters relating to these several policies by accurate numbers- and referring to them as " paid up " and " due " January 24, 1916. " Int. on loan $110.22." These notices were likewise signed by Morgan, manager.
Again, it appears that there was another series of notices, having no date, mailed by the defendant to the assured, calling his attention to the fact " that the loan of $1837 obtained under this policy together with the interest of $110.22 will be payable at the company's home office on the date premium is due. . If you wish to renew
and continue this loan, please remit the amount of premium stated in the attached notice, together with the interest on the loan, $110.22. Loan No. 7626D. due Jan. 24-16." It further gave notice as follows: " Policy loans may be repaid by insured in full or in part payments of $10.00, or multiples thereof at any time with interest if any Pol. #1022247."
On March 9, 1916, the defendant, without notice or demand of payment, attempted to cancel as of January 24, 1916, each of the policies pledged as collateral. This was sought to be accomplished by placing a printed slip upon each policy declaring the same forfeited and canceled. It thereupon applied the cash surrender value of each policy to the amount due upon the notes on January 24, 1916, leaving a surplus balance of $143.66. This sum was sufficient to have carried this insurance loan for a further period of upwards of three months.
On the evening of March 14, 1916, the defendant mailed from its Washington office, addressed to the assured at Áttica, N. Y., its checks payable to him, dated March 13, 1916, for such balance, and five notices likewise dated March 13, 1916, notifying him that each of the policies had been forfeited and canceled for non-payment of the respective loans and interest, as of January 24, 1916. The assured died on March 14, 1916, and about the time of the deposit of this letter addressed to him in the Washington post office. It was conceded on the trial that these checks and notices thus made never reached the assured. The plaintiffs have had a verdict directed by the trial court at the close of the evidence for the face value of the policies, less the amount due upon the notes.
The correctness of this ruling is here for review.
There is no contradiction in the evidence. There is dispute only respecting the value of the proof furnished by the evidence. The pledging of the policies constituted, in law, a bailment. Under these circumstances1, a trust relation arose by implication of law. The'defendant as pledgee took a qualified title as indemnity to the loan. Until this was lawfully foreclosed, an equity of redemption continued in the pledgor. Unincumbered by contractual limitations or conditions, the law permitted the lender (upon default by the borrower) to foreclose the pledge, or, in this instance, to forfeit and cancel the subject of the pledge. To accomplish this it was indispensable to binding results that there be a demand of payment of the loan and reasonable notice to the borrower of the time and place of sale or forfeiture. These were the duties imposed upon the pledgee to validate the enforcement of the bailment contract by it. (Bailey v. American D. & L. Co., 52 App. Div. 402; affd., 165 N. Y. 672; Toplitz v. Bauer, 161 id. 325; Wyckoff, Church & Partridge v. Riverside Bank, 135 App. Div. 400-404.)
It has been held by numerous cases that the borrower, as an inducement to the loan, may stipulate a waiver of demand of payment and notice of sale or forfeiture. A waiver thus stipulated does not violate public policy. (Clare v. Mutual Life Ins. Co., 201 N. Y. 492,498.)
The right and privilege of waiving rests in the competency of the parties to fix the terms, upon which, in the event of non-payment of the debt, the collateral security may be summarily utilized to pay the obligation.
The permissive power of contract is the basis of the claim of the defendant here. It asserts that, by the terms of the assignment contract, the pledgee waived demand of payment and notice of time and place of forfeiture of the policies in question.
The contract fixed the time of forfeiture as the day that the debt became due by the terms of the writings between the parties. It fixed the place as the office of the defendant. On that due date, undoubtedly, the defendant had the right to forfeit and cancel these policies without demand or notice to the borrower. It was so stipulated in the contract of assignment. It elected to waive its right to forfeit on or as of that date. It so concedes, but claims that a definite, future due date was fixed (as permitted by the terms of the assignment contract) by an extension or renewal of the notes for one .year. To my mind that is the pivotal question in the case.
In support of its contention it is alleged in the answer that, at the request of intestate, the notes in question were renewed or extended for the period of one year. There is not, within the covers of the record, any evidence that any request or suggestion of extension for a year was made. Acting, how ever, upon the assumption of a postponed due date to January 24, 1916, the defendant, because of default in payment of the debt by intestate, as of that day, forfeited and canceled the policies in question and applied the surrender value thereof to the payment of the notes. This concededly it could not do unless these debt obligations had been extended pursuant to agreement of the parties. The assignment contract permitted extensions but it fixed the conditions upon which they could be made. In construing this contract it should be borne in mind that a definite due date is indispensable to the right of foreclosure and forfeiture without notice. The purpose of fixing the due date, in contracts of this kind,. in that the intestate or borrower should have notice of the time of foreclosure and forfeiture. If foreclosure and forfeiture occurred under the rules of law applicable, notice would be given him of time and place. The time and place of forfeiture was fixed by the contract and all parties stipulated to waive notice of that day so fixed. I take it, under those circumstances, this contract cannot be construed to give to defendant the right to arbitrarily fix a due date of this loan without request and without knowledge of or notice to a debtor and then justify a foreclosure and forfeiture of these policies on such date without notice and demand.
The terms of the contract did not extend the due date of these obligations. It provided terms and conditions upon which they could be extended. Such were not observed. They were ignored. It took the same formalities of mutual benefits and promises to make an effective extension as was required in the original transaction of the loan. To- hold that the defendant might fix the time without the consent of or even notice to the insured would be to deprive insured of any knowledge or information of the time and place when his property would be forfeited and absorbed by defendant. A definite due date, as before stated, was the essential of defendant's right to forfeit and cancel these policies without notice. It arbitrarily fixed that date as the due date of these loans without request or notice. It is not contended that intestate knew or had been notified that defendant claimed that these debts had been extended to that date until the notices given by defendant in February, 1916.
The extension of time, without fixing a new due date, constituted a waiver of the right of pledgee to foreclose or forfeit, without notice and demand, under contract authority.
Forfeitures are not favored in law and hence there has arisen the technical doctrine of a waiver which has been applied by the courts for the apparent purpose of defeating forfeitures. That doctrine is, that if a party has a right of forfeiture created by contract and limited to a particular time for enforcement thereof, if he extends that time and the other party in reliance upon such extension has permitted the contract time to pass without performance, the holder of the right of forfeiture cannot subsequently recall such consent to extension and treat the non-performance within the original time as a breach of contract. (Thomson v. Poor, 147 N. Y. 402.)
It is said that such ah extension is a waiver of the right to enforce the forfeiture, which needs no new consideration to support it. Consideration is found in the reliance upon the waiver, resulting in non-performance within the contract time. When such a condition arises, the holder of the right of forfeiture does not possess the power to arbitrarily recall the waiver at his volition and suddenly enforce the forfeiture. His right of forfeiture is not taken away. But under general doctrines, before he asserts that right he must make formal demand for performance of the contract and give to the other party reasonable notice of the time and place of the enforcement of the forfeiture.
These doctrines have been many times judicially repeated. (Franklin National Bank v. Newcombe, 1 App, Div. 295; affd., 157 N. Y. 699; Bailey v. American D. & L. Co., 52 App. Div. 402; affd., 165 N. Y. 672; Gillet v. Bank of America, 160 id. 560; Wyckoff, Church & Partridge v. Riverside Bank, 135 App. Div. 400; Toplitz v. Bauer, 161 N. Y. 325; Lindenthal v. Germania Life Ins. Co., 174 id. 76; Arnot v. Union Salt Co., 186 id. 501, 511; Small v. Housman, 208 id. 124; Morris v. Windsor Trust Co., 213 id. 27; Schoenberg v. Mutual Profit Realty Co., 94 Misc. Rep. 203.)
In the facts are to be found other circumstances leading to the same conclusion of waiver by the defendant of its contractual right. The notices sent by the company contained explicit demand for payment of interest only. In them is to be found, the statement that the loan might be repaid in partial payments of ten dollars or multiples thereof at any time, with interest.
And upon the back of such notices is indorsed the statement that if the premium of the policy be paid in cash and the interest upon the loan be not paid, then that such interest will be addpd to the principal; that such new amount shall bear interest and the loan be extended automatically for the period for which the premium has been paid.
When these notices were sent all this insurance was in the form of paid-up policies. That is, all premiums to mature during the life of the insured had been paid.
In the first of these mentioned provisions is to be found ample justification for belief by the insured that the company was extending the time of payment and offering to-him new terms of payment for his convenience..
In the latter of such provisions is to be found explicit notification that his loan will be carried during the lifetime of the policy, even if he does not pay the interest.
Upon the trial full responsibility for the sending of these notices was accepted by the defendant. Such notifications require, as a matter of law, that we should hold that there was indefinite extension of the maturity date of these loans. (Bailey v. American D. & L. Co., 52 App. Div. 402; affd., 165 N. Y. 672.)
The defendant places its greatest reliance upon Clare v. Mutual Life Ins. Co. (201 N. Y. 492). It seeks to justify, upon that authority, summary forfeiture of this collateral as above recited. That case permits of no such construction. There the forfeiture took place on the due date fixed by the contract. The pledgor had specifically waived notice and demand as to that date, and the- court only held that such waiver was effectual to make legal the foreclosure at that time. The power of the surrogate to authorize the guardian to so waive in connection with a pledge of a life policy was the principal question decided by that case.
The doctrine announced in Toplitz v. Bauer (supra) and the other similar holdings is again approved in the most recent cases of the Court of Appeals. (Small v. Housman, 208 N. Y. 115; Morris v. Windsor Trust Co., 213 id. 27.)
It is urged that the plaintiffs cannot predicate a right of recovery upon an unpleaded waiver of defendant. This contention is without merit. The facts are fully alleged. The complaint specifically sets forth extensions of time of payment and the maturity of the policies prior to the expiration of such extensions. This is a sufficient allegation of waiver. To specifically designate these facts as constituting a waiver would be but pleading a conclusion. The essential facts are alleged. The action is founded upon the policy and not upon a waiver.
If we assume, however, that a question of fact was, upon the evidence, raised upon the question of defendant's waiver, then defendant is bound by the direction of a verdict. At the close of the evidence both parties asked for a direction of a verdict. The defendant's counsel in connection with his motion for a direction stated that he reserved his right to go to the jury upon any question of fact. This was not a request to go to the jury on any question. The law reserved to him all the rights that he sought to reserve. The case concluded with a long discussion between court and counsel. The court eventually announced: "I am satisfied on this evidence that it would not be permissible to find a verdict against the plaintiffs and in favor of the defendant, so I am going to assume the responsibility of passing upon the law and passing upon the facts, both parties having moved me for a verdict in their favor," etc. The defendant at that time made no request or at any other time that any fact be submitted to the jury. It consented' that the facts be passed upon by the court if any question of fact was presented by the record.
The judgment should be affirmed.
All concurred, except Foote and Merrell, JJ., who dissented and voted for reversal and dismissal of the complaint in an opinion by Merrell, J.