Court Opinion

ID: 9418357
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:22:36.741683+00
Date Added: 2024-06-11T17:22:01.616599
License: Public Domain

Mr. Justice Brandeis,
dissenting.
A statute of Missouri, Rev. Stats., 1899, § 7897, prohibited fife insurance companies authorized to do business within the State from forfeiting a policy for default in the payment of premiums, if three full years’ premiums had been paid thereon. The act provided further that in case of such default the policy should be automatically extended and commuted into paid-up term insurance. And it determined mathematically the length of the term, as that for which insurance could, at a rate prescribed, be purchased with a single premium equal in amount to three-fourths of the reserve or net value less any indebtedness to the company “on account of past premium payments.” The obligation imposed upon the company by this statute, as construed by the highest court of the State, could not be modified by contract with the insured whether entered into at the time the policy was written or subsequently. Equitable Life Assurance Society v. Clements, 140 U. S. 226; Smith v. Mutual Benefit Life Insurance Co., 173 Missouri, 329. Such nonforfeiture laws are an exercise *378of the police power; and, as insurance is not interstate commerce, the State’s power in this respect is as great over foreign as. over domestic corporations. Orient Insurance Co. v. Daggs, 172 U. S. 557, 566; New York Life Insurance Co. v. Cravens, 178 U. S. 389, 401; Northwestern Life Insurance Co. v. Riggs, 203 U. S. 243.
In 1900 Dodge, a citizen and resident of Missouri, applied in that State to the New York Life Insurance Company, a New York corporation, for a policy on his life in favor of his wife. The policy was deliyered to the assured in Missouri where the company had an office and was authorized by the Missouri statute to do business; and there the first and later premiums were paid and, until his death, Dodge and the beneficiary lived and the company continued so to do business.
In 1906 Dodge entered into a supplemental agreement with the company by which he nominally borrowed 81,350, pledged his policy as collateral, and agreed that, in case of default in repaying the loan, the company might discharge it by applying thereto the reserve of the policy. In 1907 Dodge made default in payment, both of the premium and of the loan. The reserve of the policy was then less than the amount due on the whole loan; but three-fourths of the reserve exceeded that part of the loan which had béen applied to the payment of past premiums by 8275.79. This excess, if applied in commutation for term insurance, would have extended the policy to December 23, 1912. The company claimed the right to use the whole of the reserve to satisfy the whole of the loan, so applied it, and notified the. assured, on December 17, 1907, that its obligation on the policy ceased. Dodge died February 12, 1912. The beneficiary, insisting that by reason of the Missouri statute the policy was still in force when her husband died, brought suit thereon in a state court of Missouri and recovered judgment, which was affirmed by the Springfield Court of Appeals (189 *379S. W. Rep. 609); and the Supreme Court of the State refused a review. The case comes here on writ of error under § 237 of the Judicial Code. The company asserts that the loan agreement was made in New York; and, relying upon New York Life Insurance Co. v. Head, 234 U. S. 149, contends that the state court, in denying full effect to that contract, deprived it of liberty, property, and equal protection of the laws in violation of the Fourteenth Amendment.
First: Was the loan agreement in fact made in New York?
The policy was confessedly a Missouri contract. Dodge, so far as appears, was never out of Missouri. Physically every act done by Dodge and the beneficiary in connection with the loan agreement, as with the policy, was done in Missouri: (a) They signed there the application for the loan; (b) they signed there the loan agreement; (c) they signed there the request upon the company to pay itself, out of the $1,350 nominally borrowed, the amount of an earlier loan with interest to October,' 1907, and of the premium; (d) he delivered there (at the Missouri Clearing House Branch Office) the policy given as collateral and these three papers, which were forwarded by that office November 9, 1906, and received in New York three days later; (e) he paid there the balance of the premium, $116.40 in cash; for the sum of $1,350, nominally advanced then, was insufficient, to pay off the then existing loan with interest and the accrued premium. Throughout these transactions the company was authorized to do business in Missouri. and was, in these transactions, actually doing business' there. International Harvester Co. v. Kentucky, 234 U. S. 579.
Nothing was done in New York then except this: The papers received from the Missouri Clearing House Branch Office were examined and filed in the Home Office; and *380certain calculations and appropriate entries in the books and on the papers were made there. No money was paid then to Dodge. The nominal advance was less than the amount, including accrued premium, then due by him to the company; and Dodge balanced the account by paying in Missouri $116.40. In 1903, when a similar loan. agreement was made, the nominal amount of the loan exceeded the sum due for premiums by $486.91 ; and a check for that sum was drawn by the company in New York and sent by mail from there to Dodge in Missouri. In 1904 a further check for $92.10 was sent from New York by the company to Dodge under a similar loan agreement. Under the 1903 agreement the policy was delivered to the company and it had remained in the company’s possession at the Home. Office. But when the loan agreement here, in question was made, nothing was done in New York except to examine and file the papers and to make the calculations and entries. No discretion was exercised there by the company’s official. By the 'terms of the policy the company had already assented to the amount nominally advanced as a. loan and to the rate of interest to be charged. The functions exercised by the officials at New York were limited to determining whether the calculations were correct and whether papers were properly executed and filed.
These acts so done by the company at its Home Office in connection with the loan agreement were similar in character to those performed when the policy was written. The application for the policy addressed to the company at its Home Office was likewise'delivered at the Missouri Clearing House, and forwarded to the Home Office. The application was ‘.considered and accepted in New York. The policy was executed there. It provided that the premiums and the insurance should be payable there. But such acts did not prevent the policy being held to be a. Missouri contract. Equitable Life Assurance Society *381v. Clements, supra; Northwestern Life Insurance Co. v. McCue, 223 U. S. 234. Even if the loan agreement be treated as an independent contract, it should, if facts are allowed to control, be held to have been made in Missouri. But the loan agreement was not. an independent contract; nor is it to be treated as a modification of the original contract. It was an act contemplated by the policy and was subsidiary to it, as an incident thereof. What was done by the officials at the Home Office was not making a New York contract, but performing acts under a Missouri contract.
Second: What is the effect of the provision in the loan agreement that it shall be deemed to have been made in New York?
The provision “That the application for said loan was made to said company at its Home Office in the City of New York, was accepted, the money paid by it, and this agreement made and delivered there; that said principal and interest are payable at said Home Office, and that this contract is made under and pursuant to the laws of the State of New York, the place of said contract being said Home Office of said company” is^ inoperative. For acts essential to the making of any agreement involv-. ing a pledge of the policy were done by Dodge, by the beneficiary, and by the company’s agent in Missouri and were subject to the prohibition of a statute of that State which prevented the operation there of inconsistent New York laws. If the laws of Missouri and of. New York had left the parties free to contract insurance on such terms as they pleased, they might with effect have elected to be bound by the law of the State of their preference', whatever the place of the contract; in doing so, • they would in effect have specified terms of the contract. • But provisions in contracts for incorporating the laws of a particular State, are inoperative, so far as the law agreed upon is inconsistent with the law of the *382State in which the contract , is actually made. Mutual Life Insurance Co. v. Hill, 193 U. S. 551, 554; Knights of Pythias v. Meyer, 198 U. S. 508. Where the validity of a provision is dependent upon the place in which the contract is made, the actual facts alone are significant. Persons resident in Missouri, who enter there into a contract which is specifically controlled by the laws of that State, cannot, by. agreeing that a modification inconsistent with the requirements of the Missouri law shall be deemed to have been made elsewhere, escape the prohibition of the Missouri statute. The fact that one ,of the parties to the contract is a corporation and hence capable of having a residence also in another State, and that some acts in connection with the contract were done by it there, does not affect the result. The company, although ¿ foreign corporation, was, for this purpose, a resident of Missouri, or at least, was present in Missouri. Barrow Steamship Co. v. Kane, 170 U. S. 100; Dunlop Pneumatic Tyre Company v. Actien-Gesellschaft, etc., 1 K. B. (1902) 342.
Third: Even if the rules ordinarily applied in determining the place of a contract required this court to hold, as a matter of general law, that the loan agreement was made in New York, it would not necessarily follow that the Missouri statute was ‘ unconstitutional because it prohibited giving effect in part to the. loan agreement. There is no constitutional limitation by virtue of which a statute enacted by a State in the exercise of the police power is necessarily void, if, in its operation, contracts made in another State may be affected. Emery v. Burbank, 163 Massachusetts, 326; Hervey v. Rhode Island Locomotive Works, 93 U. S. 664. The test of constitutionality to be applied here is that commonly applied when the validity of a statute limiting the right of con-trábt is questioned, namely: Is the subject-matter within the reasonable scope of regulation? Is the end *383legitimate? Are the means appropriate to the end sought to be obtained? If so, the act must be sustained, unless the court is satisfied that "it is clearly an. arbitrary and unnecessary interference with the right of the individual to his personal liberty. Here the subject is insurance; a, subject long recognized as being within the sphere, of regulation of contracts! The specific end to be attained was the protection of the net value of insurance policies by prohibiting provisions for forfeiture; an incident of the insurance contract long recognized as requiring regulation. The means adopted was to prescribe the limits within which the- parties might agree to dispose of the net value of the policy otherwise than by commutation into extended insurance; a means commonly adopted in nonforfeiture laws, only the specific limitation in question being unusual. The insurance' policy sought to be protected was a contract made within the State between a citizen of the State and a foreign corporation also resident or present there. The protection was to be afforded while the parties so remained subject to the'jurisdiction of the State. The protection was accomplished by refusing to permit the courts of the State to give to acts done within it by such residents (Dodge did no act elsewhere), the effect of nullifying in part that nonforfeiture provision, which the legislature deemed necessary for the welfare of the citizens of the State and for their protection against acts of insuring corporations. The statute does not invalidate any part of the loan; it leaves intact the ordinary remedies for collecting debts. The statute merely prohibits satisfying a part of the debt out of the reserve in a manner deemed by the legislature destructive of the protection devised against forfeiture. The provision may be likened to homestead and exemption laws by which creditors are limited in respect to the property out of which their claims may be enforced. When the New York Life Insurance Company sought and ob*384tained permission to do business within the State, and when the policy in question and the loan agreement were entered into, this statute was in existence and was of course known to the company. It has no legal ground of complaint, when the Missouri courts refuse to give to the loan agreement effect in a manner and to an extent inconsistent with the express prohibition of the statute. The significance of the fact that this suit was brought in a Missouri court must not be overlooked. See Bond v. Hume, 243 U. S. 15; Union Trust Co. v. Grosman, 245 U. S. 412.
New York Life Insurance Co. v. Head, supra, furnishes no support for the contention made by the company here. The facts differ widely in the two cases. . There the insured was not a citizen or resident of Missouri and does not appear ever to have been within the State except at the time when the application was made and the policy delivered. Here the insured was at all times a citizen and resident of the State. There the insured had assigned the policy to his daughter, who was a citizen of New Mexico and, so far as appears, had never been within the State of Missouri. Here the insured remained the owner of the policy. There the loan agreement was made by the assignee, a stranger to the policy; and the assignment being accepted and acted upon by the company resulted' in a novation of the contract. Here the loan agreement was made by the insured. There every act in any way connected with the loan agreement, whether performed by the company or by the assignee (the insured performed none) was performed in some State or Territory other than Missouri. Here every act Vas performed in Missouri except as above stated. If this court had held constitutional the statute of Missouri as' construed by its Supreme Court in that case, it wóuld have sanctioned, not regulation by the State of the insurance of its citizens, but an arbitrary interference by one State with the rights *385of citizens of other States. On the other hand, to sustain the contention made by the company in this case would deny to a State the full power to protect its citizens in respect to insurance, a power which has been long and beneficently exercised. For the power to protect will be seriously abridged, if it is held that the State of Missouri cannot constitutionally prohibit those who are its citizens and corporations within its jurisdiction from contracting themselves out of the limitations imposed by its legislature,.in the exercise of the police power, upon the contracts actually made within the State. And unless it is so abridged, the Missouri nonforfeiture law, as applied to the facts of this case, cannot be held invalid.
Nor does Allgeyer v. Louisiana, 165 U. S. 578, furnish support to the company’s contention. , Allgeyer, a citizen and resident of Louisiana, had made in New York, with a corporation organized and doing business there, an open contract for marine insurance to cover cotton to be purchased and .shipped. Shipments to be covered were required to be reported by letter addressed to the company at New York. Allgeyer mailed in Louisiana such a letter addressed to New York City. A Louisiana statute made it a crime for any one to do any act to effect insurance in any marine insurance company which had not established a place of business within the State, and appointed an authorized agent upon whom process might be served. The insurance company there referred to had not been authorized to do business in Louisiana and actually did no business there. Allgeyer was sentenced for mailing the letter. This court held that the statute was unconstitutional as construed by the state court, because it denied to a citizen of the United States rights guaranteed by the Fourteenth Amendment.
But the case did not require the court to decide whether a State could prohibit its citizens from making contracts with corporations organized under the laws of and doing *386business in another State; nor whether the contract there involved had been made in New York; nor whether it was valid. And it did not in fact decide any of those questions; for they were not in issue. It was admitted (a) that the contract there involved — the open insurance policy — had been made in New York and (b) that it was valid. The only question presented to this court was whether the State, in order more effectually to enforce its foreign corporations act, could prohibit its citizens from doing, within the State, certain acts which were essential to the enjoyment of rights secured by such a valid contract made without the State. In the paragraph near the close of the opinion (p. 593) this is pointedly expressed:
“In such a case as the facts here present the policy of the State in forbidding insurance companies which had not complied with the laws of the State from cloing business within its limits cannot be so carried out as to prevent the citizen from writing such a letter of notification as was written by the plaintiffs in error in the State of Louisiana, when it is written pursuant to a valid contract made outside the State and with reference to a company which is not doing business within its limits.”
The more elaborate discussion which preceded this paragraph makes clear the ground of the decision.
“In the case before us the contract was made beyond the territory of the State of Louisiana, and the only thing that the facts show,was done within that State was the mailing of a letter of notification, as above mentioned, which was done after the principal contract had been made.” (P. 587.)
“In this case the only act which it is claimed was a violation of the statute in question consisted in sending the letter through the mail notifying the company of the property to be covered by the policy already delivered. We have then a contract which it is conceded was made *387outside and beyond the limits of the jurisdiction of the State of Louisiana, being made and to be performed within the State of New York, where the premiums were to be paid and losses, if any, adjusted. The letter of notification did not constitute a contract made or entered into within the State of Louisiana. It was but the performance of an act rendered necessary by the provisions of the contract already made between the parties outside of the State. It was a mere notification that the contract already in existence would attach to that particular property. In any event, the contract was made in New York, outside of the jurisdiction of Louisiana, even though the policy was not to attach to the particular property until the notification was sent.” (P. 588.)
“It was a valid contract, made outside of the State, to be performed outside of the State, although the subject was property temporarily within the State. As the contract was valid in the place where made and where it was to be performed, the party to the contract upon whom is devolved the right or duty to send the notification in order that the insurance provided for by the contract may attach to the property specified in the shipment mentioned in the notice, must have the liberty' to do that act and to give that notification within the limits of the State, any prohibition of the state statute to the contrary notwithstanding. The giving of the notice is a mere collateral matter; it is not the contract itself, but is an act performed pursuant to a valid contract which the State had no right or jurisdiction to prevent its citizens from making outside the limits of the State.” (P. 592.)
Fourth: Furthermore, the right of citizens of the United States which the Allgeyer Case sustained “is the liberty of natural, not artificial persons.” Northwestern Life Insurance Co. v. Riggs, supra, p. 255. While a State may not (except in the reasonable exercise of the police *388power) impair, the freedom of contract of a citizen of the United States, “it can prevent the foreign insurers from sheltering themselves under his freedom.” Nutting v. Massachusetts, 183 U. S. 553, 558; Phœnix Insurance Co. v. McMaster, 237 U. S. 63. The insurance company cannot be heard to object that the Missouri statute is invalid, because it deprived Dodge of rights guaranteed to natural persons, citizens of the United States. Erie R. R. Co. v. Williams, 233 U. S. 685, 705; Jeffrey Mfg. Co. v. Blagg, 235 U. S. 571, 576.
In my opinion the decision of the Springfield Court of Appeals should be affirmed.
Mr. Justice Day, Mr. Justice Pitney and Mr. Justice Clarke concur in this dissent.