in a clause of the deed of settlement, or in the bye-law of a general meet ing.() 2. Life policies, morcover, form a very important part of a mortgage security made upon an estate for life or other limited period, or which is subject to any of those contingencies which, as we have seen, are usually insured against. Such securities are much in favour with insurance companies, since in them is, at the same time, found a profitable investment for their capital, and an extension of their business. They produce a higher rate of interest than fee simple securities, and justly so, for they are more difficult to realise, and some risk at least is run of the infringement of the conditions of the policies, particularly when some of the policies are effected with other companies than that making the advance; added to which may be taken, quantum valeat, the risk of the insolvency of the assurers. (c) The policies thus effected, unless covering a mere contingency, are rarely commensurate in existence only with a loan; but, after its satisfaction, are more often treated as an investment, and retained by the borrower to their termination *with the life of [*218] the assured. On the common case, where the mortgage is upon a life estate, and the remainder, either in fee simple or fee tail, is in the eldest son of the mortgagor, it is very usual, upon his majority, to charge the debt upon the fee, to obtain the benefit of a reduction in the rate of interest: but in such an event the policies are rarely surrendered; they become a family property, and ought, in justice to the remainderman, to be kept up. 3. When policies are effected for the occasion it is usual to do so in the names of the mortgagees, in order that, the legal interest being vested in them, they may the more readily compel payment of the insurance moneys when due. The mortgage-deed should, nevertheless, contain the usual receipt clause, rebutting any equitable liability to see to the application of the money attaching by reason of any notice of the mortgage security given to the office. When the policies are already in existence they should be assigned by a separate deed, to obviate the necessity of the production of the mortgage-deed, which is often of great length, and may become one of the title-deeds of the estate, or of separate covenants with the respective companies for its production. The separate deed, comprising the policies alone, will then, on the death of the assured, be deposited with one of the companies, while the others will usually be satisfied with such a deposit and the delivery of attested copies to themselves. 4. The company making the advance will not, as regards the policy effected with it, be in a different position to the other insurers, but will be entitled to the full benefit of the conditions; and if the premium is not paid the policy will lapse in like manner as if effected by a stranger to the mortgage contract; neither will a subsequent demand of the premium revive the forfeited policy, unless followed by payment. In one case a court of equity declined to deprive the office of the benefit of the for (b) See Appendix for form of such a resolution. feiture, although at the time of the death of the assured actions had been brought to recover the premium unpaid, *holding that, if there had been a revival, it was neutralised by the refusal to pay. The [*219] death of the assured was, then, no bar to an action for the principal and interest due.(d) 5. It may be observed that, formerly, advances of money upon the security of life interests were generally made by way of annuity, the annual payment being calculated at an agreed rate of interest, with the addition of the amount of the annual premiums necessary for insuring the life of the grantor of the sum advanced. It was then left to the option of the purchaser or grantee to insure or not. Sometimes it was expressly stipulated that an insurance should be effected, and a right to repurchase was given to the vendor; but the great distinction between such transactions and mortgages upon life interests coupled with policies is, that in the former there is no personal liability attaching upon the person raising the money, except for the payment of the instalments of the annuity, while in the latter he is personally responsible for the payment of the principal advanced. The cases in which annuities are now usually resorted to are those in which it is desired to evade the usury laws, and to obtain a higher rate of interest than that allowed by law upon real securities; for the money not being a loan, and the principal being put at risk, the statutes of usury do not apply.(e) The Court will not in annuity transactions investigate the terms on which the annuity is granted, for the purpose of ascertaining that no more than the legal rate of interest is obtained, although if the terms are so extremely inadequate as to satisfy the conscience of the Court, by the amount of the inadequacy, that there must have been imposition or pressure amounting to oppression, it will set aside the securities.(f) *In such a case this rule is not affected by the assignment of old policies to the purchaser, the object being to save in the [220] amount of the premiums ;(g) nor by a covenant on the part of the grantor of the annuity to effect the policy and pay the premiums. (h) In these cases the policies were held to be the property of the purchaser on the death of the grantor without redeeming. 6. Reversionary interests are often proposed to insurance companies as securities, with an arrangement that the contingency, if any, should be covered by an insurance; but are objectionable, as providing no income by which the interest and premiums may be paid during the life of the tenant for life, an objection poorly compensated by the power of sale which always forms part of such a mortgage-deed. A mortgage, indeed, in the usual terms is in such cases generally rejected, and the transaction takes the form of the sale of a reversionary charge, or of a post obit, or, where the borrower is the tenant for life only, of the sale of a reversionary annuity subject to repurchase at any time after it falls into possession, upon the payment of a gross sum specified as the redemption-money. Such transactions, as will be noticed in the next chapter, are liable to all (d) Edge v. Duke, 18 Law J. Chan. 183. Morris v. Jones, 2 B. & C. 232. (f) Underhill v. Horwood, 10 Ves. 217. (g) Morris v. Jones, 2 B. & C. 232. Holland v. Pelham, 1 C. & J. 575; In re Naish, 7 Bing. 150. the hazards attendant upon the purchase of reversionary interests. When companies, however, make it a part of their business to grant annuities, it will very often be easy for them to carry out a mortgage transaction upon the security of a reversionary interest, whether vested or contingent, by granting a policy to cover the contingency, and an annuity sufficient to pay the intermediate interest both on the purchase-money of the annuity and the sum advanced and the premium of the policy, and taking a mortgage upon the policy annuity and reversion for a sum equal to the aggregate of the sum advanced and the purchase-money of the annuity. Such a transaction would recommend itself to the insurers, as enabling them to fix *their own terms without being subject to the rule of [*221] equity requiring the purchaser of a reversion or reversionary sum to show that he has given the market price for it, and to the borrower, in that he would not only avoid the apparent sacrifice of a sale, but in comparing it with the sale of a reversionary charge he might find himself the gainer by the right of claiming the policies as his property subject to the loan. It will, moreover, occasionally enable a company to secure the policy, its presumed object in such a transaction, notwithstanding that it may possess no power to invest in the purchase of reversions. 7. A practice has of late years sprung up among some companies of making advances upon the security of the bond of the borrower and two or three sureties, upon condition that he shall effect an insurance upon his life for at least double the amount advanced, depositing such policy as a collateral security. In some cases there is the further stipulation that the sureties shall also effect insurances upon their lives in the office of the lenders. Where the assured have occasion for life policies this may be one of the most economical ways of raising money upon personal security; but where the intention is to abandon the policies at the expiration of the short term for which alone the advance is generally stipulated to be made, such a transaction becomes simply the machinery for obtaining a higher rate of interest than 5 per cent. upon the loan. It is, however, altogether a question of intention; and the excess is not very easily calculated. The insurance itself has, as we shall see, been considered in a court of law as equivalent to the premium paid, and most offices repurchase their policies, so that the entire premium is not forfeited; but the sum thus given for the surrender is rarely the true or mathematical value of the policy, and the risk for the short term of the loan, being that of the failure of a select life which has been tested by a medical examination, is much less than the average risk deduced from the tables, and therefore, even assuming the mathematical value allowed, the risk actually incurred, including the *right of continuing the [*222] insurance, which might be rendered valuable by the deterioration of the life, is not equivalent to the ultimate cost of the policy. To the individual raising the money such nice calculations scarcely apply, for it is as onerous to him to purchase an insurance that he does not want as to waste his funds in any other unnecessary expenditure. This is the objection to the scheme. Losses must occasionally occur upon loans for which the security is solely personal, and these must be met by increased profits or a higher rate of interest. This is, of course, true in all transactions in which a higher rate of interest is paid than 5 per cent. The rate will always vary with the validity of the security, and hence political economists object in principle to the usury laws, which it will be remembered are now in force as to real securities only. The office does not differ from other lenders in this respect; but as the article sold by it, namely, the risk actually run, is of some value to it, if not to the assured, it might be thought that upon such a transaction a higher rate of interest, and a smaller insurance, might be more beneficial to both parties. 8. In mortgages of real estate the question assumes another aspect; here, however insufficient the security, no higher rate than 5 per cent. can of course be required, and in such cases, as well as when the security is personal alone, it has been considered that it is not usurious for an insurance company to require that, as a collateral security, insurances should be effected to a greater amount than is necessary to secure the repayment of the loan. In a case in which this was decided it was said that, if the plea had alleged that the amount of the premium, after allowing for the risk, had, together with the interest on the money borrowed, exceeded 5 per cent., that would have raised a question fit to be left to a jury to determine; but that the insurance, being on the life of the borrower, was for his benefit rather than that of the insurance company, who had a risk in proportion to its amount, and must pay the sum insured on his death however soon it might happen. If the agreement had been for an excessive amount of premium that would have been [*223] colourable, and would have raised the question whether it was corruptly made in order to evade the statute.(i) 9. This description of advance upon personal security is, it is believed, confined to a few companies; it is a species of trading in money not usually contemplated by the deeds of settlement of insurance offices, and, without express powers authorising the directors to transact it, could not be carried on with safety by them: such transactions would be breaches of trust on their part, in respect of which they would be personally liable to make good all losses, and would not be entitled to set off against them the profits made upon the more successful portion of the business. 10. It is to be observed that, where a policy has been issued to a surety upon his own life, the company will not have any lien upon it in the absence of an agreement to that effect, although it may be entitled to set off against any claim upon such policy, while in the hands of the representatives of the assured, any moneys actually recovered against them upon the bond or other securities. A guarantee being a contract of indemnity, and not an absolute debt, a claim thereupon until the amount is ascertained, being in the nature of a claim for unliquidated damages, is not the subject of a set-off.(k) 11. It is also the practice of most insurance offices, and should be so, it may be thought, of all, to make advances to their insurers upon the deposit of their policies to the amount of their official value. Assuming (i) Downes v. Green, 12 M. & W. 491. the solvency of the office, such a security is the best that it can possess, since it always retains in its possession funds of greater value than it advances. In such a case it is conceived that the insurers are not justified in putting the borrower to the expense of a mortgage-deed, but that a simple deposit, coupled with a memorandum of agreement expressing *its object, is sufficient. This is more especially the case where [*224] such advances are made on the understanding that the policy is to be the only security, and that no personal liability is to be incurred by the borrower, who is to have the option of relieving himself of the obligation at any time by the abandonment of the policy. This, it is believed, is the course adopted in practice by many companies, although, of course, where the advance is made without an express stipulation to that effect, it remains a debt due by the assured, and may be recovered from him, notwithstanding the lapse of the policy. The principal advantage of a deed would be the covenant for the payment of the money; but it would seem somewhat hard that, in a case in which the official value of the policy is the measure of the advance, the perhaps unintentional discontinuance of the insurance should convert the claim which the estate of the assured might otherwise possess against the company into a liability to an action of covenant by it. The only danger against which it appears important for the insurers to guard, is the neglect of the borrower to pay the interest on the loan, while at the same time he pays the renewal premiums, thus exposing the company to the loss of compound interest on its investment. This may, however, be easily guarded against by an appropriate provision, or even by the simple remedy of reserving the interest at a high rate, on the understanding that, if paid within a given time, a lower rate shall be accepted. To such a security the statutes of usury will not apply, notwithstanding that the assets of the company may consist in part of real securities; and it may be noted that this is not altered by the addition of a security upon any other personal property, not even of railway shares which are made personal estate by act of parliament. It is not moreover to be doubted that, when the policy is participating, an express clause providing for the accumulation of the interest would at compound interest be good: for, although such a stipulation is in most cases void, yet there are exceptions to the general rule, when the transaction is between *partners,(?) [*225] or there are mutual transactions; (m) and it is obvious that in this case the policy holder is a partner, and that there is an implied agreement by the directors of the company with him to accumulate all moneys paid into its coffers at compound interest, since, if this were not done, the company itself must eventually become insolvent. (1) Burbidge v. Cotton, 15 Jur. 1070. (V. C. P.); Silver v. Barnes, 1 Bing. N. C. 180. (m) Ferguson v. Fyffe, 8 Cl. & F. 121; Bruce v. Hunter, 3 Camp. 469. |