Court Opinion

ID: 6875131
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:06:40.653052+00
Date Added: 2024-06-11T16:05:28.956524
License: Public Domain

HOLMES, Circuit Judge.
This case was tried without a jury, upon an agreed statement of facts. It is an action upon a policy of life insurance, in the sum of $5000, issued by appellant on March 20, 1920. Premiums were duly paid, except the semi-annual premium due September 30, 1935. The insured died more than three months thereafter without having elected any of the options provided in the policy. Thereupon, option 3 automatically provided that insurance for the face of the policy, plus any outstanding dividend additions and less any indebtedness thereon due the company, should continue in force from date of default for such term as was provided in the policy.
Upon date of default, the cash value of the policy was $1817.50. Against this amount was a loan of $1629.83, six months’ interest thereon amounting to $48.89, a premium note of $65 plus $1.95 interest, aggregating $1745.67 which, when deducted from the cash value of $1817.50, left $71.83 which was admittedly sufficient to provide term insurance for 203 days or until after the death of the insured.
The company contends that, properly, only the following items have been deducted from the cash-surrender or loan value:

Under this calculation, there was a net cash value of $68.89, which was .sufficient to provide term insurance for only 199 days which expired three days before the death of insured. At the time of the loan, the parties agreed as follows:
“First: That the said advance sum shall bear interest at, the rate of six per centum per annum, payable in advance, and that the interest payable at the time the said advance is made shall be for a period up to the next anniversary of the said policy, beginning with which anniversary the interest shall be payable annually in ad*659vanee, and that the said interest unless paid when due shall be added to the above advance sum and bear interest at the same rate and on the same conditions.
“Third: That in any repayment of the advance sum or in any settlement of said policy the Company guarantees to refund any advance interest at the time of said repayment or settlement.”
This controversy depends upon a proper construction of the quoted paragraphs. The only point of disagreement is an item of $1.47 charged by the company as compound interest upon unearned interest. That it was proper to charge interest upon interest is clear; but the loan agreement provided that, upon repayment of the sum borrowed or in any settlement of the policy, the company would “refund any advance interest at the time of said repayment or settlement.” In this case, as the “advance sum” or money borrowed was repaid at the date of the settlement, the company was obligated to debit itself with the unearned compound interest for which it had taken credit, as well as with the unearned interest.
We agree with appellant that, under the loan agreement, the interest was payable in advance for one year from March 30, 1935, and, since it was not so paid, that the same was properly added to the principal and treated as such, subject to the provision that appellant would refund unearned interest upon a settlement of the policy; but we do not agree that both the interest on principal and interest upon unpaid unearned interest for the ensuing year were payable in advance.
Appellant recognizes the propriety of not charging interest on the ¡principal sum after September 30, 1935, because unearned ; but it insists that the interest upon this unearned interest should be treated in a different manner. . There is no warrant for this in the policy or loan agreement. On the contrary, the agreement is that the unpaid unearned interest shall bear interest at the same rate as the principal, “and on the same conditions.” This means upon the same terms and conditions as to refund of advance interest at the time of repayment or settlement. In other words, interest on interest will be refunded whenever interest on principal is required to be refunded.
From this, we conclude that the company guaranteed to refund the interest on unearned interest whenever it was obligated to refund unearned interest. As in this case it admits the guarantee to refund the latter, we think it obligated to refund the former also. Interest is the premium paid, or agreed to be paid, for the use of money. The interest admittedly to be refunded or credited here is that which was to accrue after September 30, 1935 (i. e., after the loan was paid). The item in controversy is the interest on said interest which never accrued but which existed merely as a debit under the loan agreement and was subject to a proper credit in the event the loan was repaid within less than a year. The consideration for the unearned interest failed when the loan was paid, and the consideration for the interest-on-interest failed with it, just as a promise to pay interest fails when there is no consideration for the principal amount. There can be no interest where there is no principal due. The one stems from the other.
Principal and interest are correlative terms, and our construction of the policy is not in accord with the anomaly of collecting interest on unearned interest, in the absence of an agreement; that is, of compounding interest for a period in which even simple interest is not owing. The loan agreement is susceptible of no such construction, but, if it were, the doubt, if any, should be resolved against the company. Mutual Life Insurance Company v. Hurni Packing Company, 263 U.S. 167, 44 S.Ct. 90, 68 L.Ed. 235, 31 A.L.R. 102; Royal Insurance Company v. Martin, 192 U.S. 149, 24 S.Ct. 247, 48 L.Ed. 385; Stroehmann v. Mutual Life Insurance Company, 300 U. S. 435, 57 S.Ct. 607, 81 L.Ed. 732; Travelers Protective Association v. Jones, 5 Cir., 91 F.2d 377.
Since the insured was entitled to a remission of all unearned interest, and all interest compounded thereon, as of September 30, 1935, there was sufficient cash upon the settlement of the policy to extend the insurance, as held by the lower court, until after his death. Consequently, it was properly held that plaintiff below was entitled to recover the amount of term insurance in effect, as aforesaid, together with interest thereon.
The judgment appealed from is affirmed.