Carr v. Hamilton

• Decision Date: 28 January 1889
• Citation: 32 L.Ed. 669,9 S.Ct. 295,129 U.S. 252
• Parties: CARR, Superintendent of Insurance of Missouri, v. HAMILTON
• Court: U.S. Supreme Court

9 S.Ct. 295

129 U.S. 252

32 L.Ed. 669

CARR, Superintendent of Insurance of Missouri, v. HAMILTON.

January 28, 1889.

Alfred Goldthwaite, for appellant.

N. C. Blanchard and T. Alexander, for appellee.

BRADLEY, J.

This case arises out of a granted by the Life Association of America, a corporation of the state of Missouri, to William E. Hamilton, the appellee, of Shreveport, La., upon the life of said Hamilton; and also out of a mortgage given by said Hamilton to the said association for a loan of money; and the main question is whether the amount due on the policy ought to be set off by way of compensation or reconvention against the amount due on the mortgage. The policy was not an ordinary one, payable only at the termination of the life insured, but was what is sometimes called an 'endowment policy,' payable at a certain time at all events, or sooner if the party should die sooner; and the premiums were all to be paid within a certain limited time, to-wit, 10 years. By the terms of the policy, in consideration of $877.80, paid by Hamilton, trustee, and of the annual payment of a like amount on the 14th of July, every year, for nine years thereafter, the association assured his life in the amount of $10,000, payable to him or his assigns on the 14th of July, 1884, or, if he should die previously, payable to his children, naming them. By the rules of the association, the insured was only required to pay two-thirds of the annual premium in cash, and had the option of a credit or loan for the other third, paying the interest thereon at 8 per cent. per annum. Hamilton availed himself of this privilege of credit, and made all the cash payments required for the whole 10 years. His premium loan amounted in 1879, when the association failed, to $2,372.90, and the equitable value of his policy at that time was $7,779.95; leaving in his favor the sum of $5,407.05. This is the amount which he contends should be allowed to him by way of compensation or reconvention against his mortgage debt due to the association. The mortgage debt referred to arose as follows: In March, 1870, Hamilton borrowed of the association the sum of $3,850; being, as he contends, entitled to such loan as a policy-holder, and which he would not have made but for his being such policy-holder. To secure the payment of this loan he gave his promissory note for $3,850, dated 11th of March, 1870, and payable 12 months after date, with 8 per cent. interest after maturity; and to secure the note he gave a mortgage of same date on certain lots and buildings in Shreveport, La. The mortgage contained the usual pact de non alienando, and was recorded 11th March, 1870, and reinscribed 28th May, 1881. By an amended charter of the association, approved October 2, 1869, it was authorized by its directors to form separate departments and branches in the different states, with separate organizations of directors and officers, but having a general connection with the parent company; and it was provided that each department should have the management and investment of the funds received therein. Under this charter a separate department was made of Louisiana and Texas, and Shreveport was one of the districts of this department. The loan made by Hamilton, who resided in Shreveport, was made, as he testifies, from the funds raised from the business of the association in that district. The Insurance Association became insolvent in 1879, and on the 13th of October, in that year, proceedings were instituted against it by the superintendent of the insurance department of Missouri, under the laws of that state, for the liquidation of its affairs; and such proceedings were had that on the 10th day of November, 1879, a decree was made by the circuit court of the city of St. Louis, (having jurisdiction of the matter,) declaring that the association was insolvent, and that its condition was such as to render its further proceedings hazardous to the public, and to its policy-holders, and that the association be dissolved, and its officers and agents enjoined from exercising any control over its property or affairs, and from the further continuance of its business of life insurance. The decree further proceeded to vest the title to all the property and assets of the association in the superintendent of the insurance department of the state, to hold and dispose of the same for the use and benefit of the creditors and policy-holders of the institution; and its officers were directed to convey, assign, and transfer all its property and assets to the said superintendent. In short, the association was put into a condition of absolute bankruptcy and liquidation. In June, 1883, the insurance superintendent of Missouri for the time being, finding Hamilton's note and mortgage among the assets of the Life Association, filed a petition for executory process in the circuit court of the United States for the Western district of Louisiana for the seizure and sale of the property covered by the defendant's mortgage before referred to, and afterwards filed a bill of foreclosure against Hamilton, the appellee. The latter, besides an answer, filed a cross-bill, setting up the amount due on the policy of insurance by way of compensation and reconvention. It is conceded that the interest was paid on the mortgage debt up to March, 1879; and there is no question that the equitable value of the policy in November, 1879, was, as before stated, $5,407.05, after deducting all deferred premiums. This was more than enough, by over $1,300, to pay and satisfy the mortgage. The question is whether the appellee is entititled to such compensation or reconvention.

Natural justice and equity would seem to dictate that the demands of parties mutually indebted should be set off against each other, and that the balance only should be considered as due. But the common law, for simplicity of procedure, determined otherwise, and held that each claim must be prosecuted separately. 'The natural sense of mankind,' says Lord MANSFIELD, 'was first shocked at this in the case of bankrupts; and it was provided for by 4 Anne, c. 17, § 11, and 5 Geo. II. c. 30, § 28.' Green v. Farmer, 4 Burrows, 2220, cited in 2 Story, Eq. Jur. § 1433. In pursuance of these old statutes, and of the dictates of equity, the principle of set-off between mutual debts and credits has for nearly two centuries past been adopted in the English bankrupt laws, and has always prevailed in our own whenever we have had such a law in force on our statute book; and it mattered not whether the debt was due at the time of bankruptcy or not. See Bab. Set-Off, 118; Ex parte Prescot, 1 Atk. 231; Bac. Abr. tit. 'Bankrupt,' K; Acts Cong. 1800, c. 19, § 42; 1841, c. 9, § 5; 1867, c. 176, § 20; Bump, Bankr. (10th Ed.) 91. It is difficult to see why this principle of justice should not apply to persons holding policies of life insurance in a company which becomes bankrupt and goes into liquidation. By that act the company becomes civiliter mortuus, its business is brought to an absolute end, and the policy-holders become creditors to an amount equal to the equitable value of their respective policies, and entitled to participate pro rata in its assets. If any one is indebted to the company, especially if his debt was contracted with reference to, and because of, his holding a policy, there would seem to be strong reason for allowing him a set-off, and no good reason to the contrary.

One objection raised against the allowance of set-off, or compensation, in the present case, is that when the Life Association became insolvent, and when the present suit was commenced, the insurance had not become absolute in Hamilton, and did not become so until July 14, 1884, previous to which time his children had a contingent interest therein, they being the beneficiaries in case he should die before that date. But this reason cannot be sound; for a settlement of the company's affairs cannot be postponed to await the determination of every contingency on which its policy engagements are suspended. This would postpone a settlement for at least half a century. Every person's interest in life insurance is capable of instant and present valuation, almost as certain and determinate as the discount of a note or bill payable in the future. Tables of mortality, and of all values dependent thereon, are adopted by every company, and furnish an assured basis of computation for this purpose. The table used by the Life Association of America is set out in the record, and other tables based upon it are used to facilitate the calculations desired.

Another reason urged against allowing a set-off in this case is that the defendant, Hamilton, holds the policy as trustee, and cannot set off his claim as trustee against a debt due in his own right. This argument has no better foundation than the other. Hamilton was only trustee so far as his children were interested; he could not be trustee for himself, and his interest was separate from theirs. The value of each was easy of calculation by any competent actuary. The policy had less than five years to run, and the interest of his children was contingent upon his dying within that time, he being then 51 years of age. Calculated according to the American table of mortality annexed to the charter of the association, and contained in the record, at 5 per cent. compound interest, (the usual rate assumed,) the value of the children's interest was less than 7 per cent. of the total insurance, or less than $700, while the value of Hamilton's interest was more than 70 per cent. of the insurance, or more than $7,000;¹ or, first deducting from the whole present value of the policy (which at 5 per cent. per annum for 5 years deferred is $7,836.26) the amount due for deferred premiums, ($2,372.90,) the value of the children's interest was less than $500, and that of Hamilton's nearly $5,000,—a sum sufficient to cancel all his indebtedness to the company,...