Hagberg, R. E.

English

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Volume 40 Issue 2 Article 15 February 1934 Usury--Insurance--Requiring Borrower to Take Life Insurance Policy to be Used as Collateral R. E. Hagberg West Virginia University College of Law Follow this and additional works at: https://researchrepository.wvu.edu/wvlr  Part of the Banking and Finance Law Commons, and the Insurance Law Commons Recommended Citation R. E. Hagberg, Usury--Insurance--Requiring Borrower to Take Life Insurance Policy to be Used as Collateral, 40 W. Va. L. Rev. (1934). Available at: https://researchrepository.wvu.edu/wvlr/vol40/iss2/15 This Recent Case Comment is brought to you for free and open access by the WVU College of Law at The Research Repository @ WVU. It has been accepted for inclusion in West Virginia Law Review by an authorized editor of The Research Repository @ WVU. For more information, please contact ian.harmon@mail.wvu.edu. WEST VIRGINIA LAW QUARTERLYThus the Georgia court requires that the value of the landand the value and extent of the services be alleged in the bill toenable the chancellor to determine the question of adequacy.8 Thatnotion is hardly persuasive. If the burden is imposed on the de-fendant he can allege the facts relative to adequacy of considera-tion. The very language of the Georgia Code, that "mere inade-quacy .. . . may justify a court in refusing to decree a specificperformance", seems to assume that adequacy is not a part ofplaintiff's case since the court "may" rely on inadequacy to denyrelief. The only sound basis for relying on inadequacy of con-sideration in resisting specific performance is a combination ofunfairness and hardship,' and it depends upon the particulartransaction whether inadequacy even suggests such a combination.If the plaintiff has a binding contract supported by a considera-tion and the legal remedy is inadequate it seems both logical andjust to impose the burden of establishing special objections tospecific relief upon the defendant.n-EDWARD S. BOCK, JR.USURY - INSURANCE - REQUIRING BORROWER TO TAKE LIFEINSURANCE POLICY TO BE USED AS COLLATERAL. - Proceedingswere begun to enjoin a sale under a deed of trust and to purgemere inadequacy of price, independent of other circumstances, is not of itselfsufficient to set aside a transaction, yet it may ..... stay the exercise of its(equity's) power to enforce the specific performance of a contract." How-ever, the court did not depend upon mere inadequacy of consideration alone.'In addition to the principal case see Shropshire v. Rainey, 150 Ga. 566,104 S. E. 414 (1920); Potts v. Mathis, 147 Ga. 495, 100 S. E. 110 (1919)."In the absence of allegations.., as to the value of the lands, or of the valueand extent of the services alleged as the consideration of the contract, it isimpossible for a court to determine whether the services performed constitutedan adequate or grossly inadequate price for the estate of the person with whomthe alleged contract was made; nor could it be determined, in the absence ofsuch essentials, whether the contract was unfair, or unjust, or against good con-science." Flood v. Templeton, 148 Cal. 374, 83 Pac. 148 (1905) (The complaintor petition must show the adequacy of the consideration). Contra: Finlen v.Heinze, supra n. 6 (The burden of proof is on the party resisting specificperformance, and though inadequacy of consideration alone is a defense,complete in itself, adequacy of the price or consideration need not bealleged); Saint v. Beal, supra n. 3.0See Harrison v. Town, 17 Mo. 237 (1852), quoted in WALSH, Equity(1930) 482, n. 34."There is no sound reason why equity should refuse to enforce a contractunder seal enforceable at law but that is the case. See Pound, Considerationin ,quity (1919) 13 ILL. L. REv. 667. Cf. Fletcher v. Pletcher, 4 Hare 67(1844).Bauermeister v. Sullivan, 87 Ind. App. 628, 160 N. E. 105 (1928).1Hagberg: Usury--Insurance--Requiring Borrower to Take Life Insurance PolicDisseminated by The Research Repository @ WVU, 1934RECENT CASE COMMENTSthe loan secured thereby of usury. Lending insurance companyhad required the borrower to take out an insurance policy andassign the same to the lender, in addition to the security providedby a deed of trust. The loan was made at a legal rate of interest,and the premiums were those regularly charged against non-bor-rowing customers. Held: The loan was not usurious. Heaberlinv. Jefferson Standard Life Ins. Go.Mhere the lender requires the borrower to take out insuranceand assign the policy to the lender as additional security for aloan, provided the policy be obtained from a third party andpremiums paid to that third party, the loan is not usurious?Where, however, the insurance is underwritten by the lender,there are two conflicting lines of decisions. One holds that sucha requirement does not constitute usury, at least when the policyis actually issued at the same rate and on the same terms aspolicies issued to non-borrowers? The reasoning in these caseshas its basis in the belief that the subject matter of the contractis divisible, since if the insured bad died immediately after thepolicy were issued, the insurance company would have been liableon the policy.' M reover, tlre insurance is held to -be for the bene-fit of the insured, rather than simply a bonus to the insurancecompany lender, which actually bears a risk in proportion to theamount of the policy? This tends somewhat to slur over the real-ity that life insurance, while possessing no doubt an element ofindemnity, may nevertheless be primarily a contract of invest-ment? Still, the courts say the borrower receives ample considera-tion for his premiums." Apparently, the addition by the insurerof a thirty per cent. "loading charge", over and above the net'171 S. E. 419 (W. Va. 1933).2 Niles v. Kavanagh, 179 Cal. 98, 175 Pac. 462 (1918). See Union CentralLife Ins. Co. v. Hillard, 63 Ohio St. 478, 492, 59 N. E. 230, 232, 53 L. R.A. 462 (1900) reversing 16 Ohio C. C. 434 (1898).'Washington Life Ins. Co. v. Patterson Silk Mfg. Co., 25 N. J. Eq. 160(1874); Homeopathic Mut. Life Ins. Co. v. Crane, 25 N. J. Eq. 418 (1874);Lane v. Washington Life Ins. Co., 46 N. J. Eq. 318, 19 Atl. 618 (1889),aff'g 46 N. J. Eq. 316, 19 Atl. 617 (1889); Utica Ins. Co. v. Caldwell, 3Wend. 296 (N. Y. 1829); John Hancock Mut. Life Ins. Co. v. Nichols, 55How. Prac. 393 (N. Y. 1878); Union Central Life Ins. Co. v. Morrow, 16Ohio C. C. 351, 8 Ohio C. D. 419 (1898), aff'd without opinion in 61 OhioSt. 661, 57 N. E. 1133 (1900); Union Central Life Ins. Co. v. Hilliard,supra n. 2; Edinburgh Life Assur. Co. v. Graham, 19 N. C. Q. B. 581 (1860);Downes v. Green, 12 M. & W. 481, 152 Eng. Rep. 1287 (1844).'Union Central Life Ins. Co. v. Morrow, supra n. 3.5 Downes v. Green, supra n. 3.OVANCE ON INSURANCE (2d ed. 1930) 123.'John Hancock Mut. Life Ins. Co. v. Nichols, supra n. 3.2West Virginia Law Review, Vol. 40, Iss. 2 [1934], Art. 15https://researchrepository.wvu.edu/wvlr/vol40/iss2/15WEST VIRGINIA LAW QUARTERLYpremium as fixed by conservative actuarial estimate,' is not worthyof judicial notice. But if the insurance be used obviously as ashift or device to exact usury, the transaction will then be declaredusurious.' As regards such decisions the analogy may fairly bedrawn of a loan transaction requiring the borrower to purchaseproperty at an excessive price; courts uniformly rebuke the ill-concealed usury.'The other line of decisions is to the effect that the insurancestipulation renders the arrangement usurious.' The loan andpolicy blend into one transaction; and the company makes a profitthereby.' It is not even necessary to show that the premiumscharged were unreasonable; it will be presumed that the companybenefits materially through its insurance activity. If such profitbe in excess of the legal rate allowed for the loan there is usury.The instant case is peculiarly of interest in that Woods, J.,in formulating the common law result for West Virginia seemedto reason by analogy from a North Carolina statute declaratoryof the social policy in this regard.1' The court thus determined8 See, for the basis of the estimate of net premiums, KXGHT, ADVANCEDLnPE INSURANCE (1926), and HUEBNER, LiFr INSURANCE (1925) cc. 12-15.OHomeopathic Mut. Life Ins. Co. v. Crane, supra n. 3 (while the bona fidesof the transaction was questioned, there was not enough evidence to convincethe court of the exiatence of an agreement to discontinue the policy, afterpayment of the first premium. Semble, the court would otherwise have heldthe load usurious); John Hancock Mut. Life Ins. Co. v. Nichols, supra n. 3(The court adverted to cases in which the issuing of the policy was resortedto as a disguise to cloak over the attempted usury, yet distinguished thepending litigation on its facts.)"Gibson v. Fristoe, 1 Call. 62, 1 Am. Dec. 502 (Va. 1797); Watkins v.Taylor, 2 Munf. 424, 5 Am. Dec. 486 (Va. 1811); Stribling v. Bank, 5 Rand.132, 19 L. R. A. 223 n. (Va. 1827); Selby v. Morgan, 3 Leigh 577 (1832);Bank of Valley v. Stribling, 7 Leigh 26, 43 L. R. A. (n. s.) 230 (Va. 1836).n Clague v. Creditors, 2 La. 114, 29 Am. Dec. 300 (1830), (The courtattempted to follow what was really non-edstent New York case law. Asto New York authorities, see n. 3, supra; Moore v. Union Mut. Lifo Ins.Co., Fed. Cas. No. 9,777 (C. C. D. Neb. 1876), (Borrower was required toprocure insurance for himself and others, pay a three per cent. commissionupon the loan, plus an additional sum alleged to be for services rendered);Missouri Valley Life Ins. Co. v. Kittle, 2 Fed. 113 (C. C. Neb. 1880);National Life Ins. Co. v. Harvey, 7 Fed. 805 (C. C. Iowa 1881); Miller v.Life Ins. Co., 118 N. C. 612, 24 S. E. 484, 51 Am. St. Rep. 741 (1896) (Thecourt here assumed the Kittle case, supzra, to represent the weight ofauthority) ; Roberts v. Ins. Co., 118 N. C. 429, 24 S. E. 780 (1896); (N. C.Pub. Laws, 1915, c. 8, N. C. Code Ann. (Michie, 1927) § 6291, abrogatedthe decisions regarding such transactions, by enacting that if the premiumswere no greater than those charged non-borrowers, there was no usury);Brower v. Life Ins. Co. of Va., 86 Fed. 748 (C. 0. W. D. N. C. 1898)."Missouri Valley Life Ins. Co. v. Kittle, supra n. 9; National Life Ins.Co. v. Harvey, supra n. 9.INational Life Ins. Co. v. Harvey, supra n. 9.u See Pound, Common Law and Legislation (1908) 21 HARv. L. BEv. 383,395; "(Courts) .... might receive it, (legislation), fully into the body of3Hagberg: Usury--Insurance--Requiring Borrower to Take Life Insurance PolicDisseminated by The Research Repository @ WVU, 1934REGENT CASE COMMENTSthat the sounder principles lay in those authorities which holdthat the transaction is not usurious. After all, the borrower isobliged merely to furnish additional security; it is scarcely likelythat local usury laws have been intended to forbid such a relative-ly harmless practice.' It is true that a requirement to take outinsurance with the lender may be a clever scheme for selling in-surance, still that consideration should bear no weight as an argu-ment based on usury. Perhaps there is another factor in thisline of cases, namely, a judicial belief that fair collateral advan-tages should be upheld. Clearly, one now discerns a growingtendency to approve and enforce collateral stipulations" that wereonce held to be "clogs on the equity of redemption" in mortgages."'Though the insurance policy may properly be held to typify acontract of adhesion,' and, therefore, one to be construed mostnarrowly against the insurance company lender, there is no suchstrong social interest in usury as to invalidate the present secur-ity transaction.-R. E. HAGBERG.VERDICT - JUROR'S ASSENT - WHAT CONSTITUTES. - In thetrial of a recent criminal case, juror no. 12 told the court thathe feared -for his health and life if he had to continue in juryservice. Medical examination disclosed that he was suffering onlyphysical discomfort which would not affect his capacity as a juror.He continued in jury service, and a verdict of guilty was ren-dered. On the poll, all of the jurors agreed to the verdict. Inanswer to further questions asked him by the court concerninghis physical condition, juror no. 12 said that he agreed in orderto escape further confinement and suffering, although he did notbelieve that the defendants were guilty. The verdict was thenrecorded over the defendants' objection, and a new trial was re-the law to be reasoned from analogy the same as any other rule oflaw .... )"1 0 The excess profit to the lender is hardly an evil of such magnitude as tooutweigh advantages of free capital investment in West Virginia.John Hancock Mut. Life Ins. Co. v. Nichols, supra n. 3 (The theory ofthe court is that the business of the company is to insure lives. Since itssurplus funds must be invested it is not unreasonable to confine its loansto policy-holders; in other words, the company may validly insist upon fairreciprocity).17 See Williams, Clogging the Equity of Bedemption (1933) 40 W. VA. L.Q. 31, 50."0 See Vance, supra n. 6, pp. 201, 215.4West Virginia Law Review, Vol. 40, Iss. 2 [1934], Art. 15https://researchrepository.wvu.edu/wvlr/vol40/iss2/15

Usury--Insurance--Requiring Borrower to Take Life Insurance Policy to be Used as Collateral

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Usury--Insurance--Requiring Borrower to Take Life Insurance Policy to be Used as Collateral

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