228 U.S. 459 (1913), 184, Burlingham v. Crouse

Docket NºNo. 184
Citation228 U.S. 459, 33 S.Ct. 564, 57 L.Ed. 920
Party NameBurlingham v. Crouse
Case DateApril 28, 1913
CourtUnited States Supreme Court

Page 459

228 U.S. 459 (1913)

33 S.Ct. 564, 57 L.Ed. 920

Burlingham

v.

Crouse

No. 184

United States Supreme Court

April 28, 1913

Argued March 12, 13, 1913

APPEAL FROM THE CIRCUIT COURT OF APPEALS

FOR THE SECOND CIRCUIT

Syllabus

In construing a general reference to property in the Bankruptcy Act, weight must be given to a proviso dealing with a special class of property.

A proviso may sometimes mean additional legislation, and not be intended to have the usual and primary office of a proviso, which is to limit generalities and exclude from the scope of the statute that which otherwise would be within its terms.

Life insurance is property, but it is peculiar property, and Congress,

Page 460

by the proviso in 70a of the Bankruptcy Act, intended that the bankrupt should have the benefit of all policies except to the extent of the actual cash value which could be realized by the trustee for the creditors.

Under the proviso in § 70a of the Bankruptcy Act, the assignee of a policy of insurance on the life of the bankrupt has the right to retain the policy on the same terms that the bankrupt might have retained it.

Under § 70a, life insurance policies which have no cash surrender value, or on which the company has loaned the full surrender value, so that the policy has no cash surrender value remaining, do not pass to the trustee as general property, but remain the property of the bankrupt, who is not limited in dealing with them.

181 F. 479 affirmed.

The facts, which involve the construction of § 70a of the Bankruptcy Act and the ownership of policies of insurance on the life of a bankrupt, are stated in the opinion.

Page 465

DAY, J., lead opinion

MR. JUSTICE DAY delivered the opinion of the Court.

The action was brought in the United States District Court for the Southern District of New York by the trustees of the firm of T. A. McIntyre & Company, and of the individual members of that firm, bankrupts, against Charles M. Crouse and the Equitable Life Assurance Society of the United States, to recover the sum of $90,698.32, the net proceeds of certain policies of insurance issued by the Equitable Life Assurance Society upon the life of Thomas A. McIntyre, one of the bankrupts, deceased. The proceeds of the policies were paid into court by the Society. The judgment of the district court in favor of Crouse was affirmed by the circuit court of appeals (181 F. 479), and the case has been appealed to this Court.

It appears that, on the 10th of April, 1902, Thomas A. McIntyre obtained two policies of life insurance in the Equitable Society. They were known as "guaranteed cash value, limited payment, life policies," each providing that, upon the death of the insured, the company would pay to his executors, administrators, or assigns the sum of

Page 466

$100,000 in fifty annual installments, or the sum of $53,000 in cash, a total of $106,000 for the two policies. On April 14, 1906, the policies were assigned absolutely to the firm of T. A. McIntyre & Company, and on April 24, 1907, they were by that firm assigned to the Equitable Society as collateral security for a loan of $15,370. On February 25, 1908, two months prior to the filing of the petition in bankruptcy, the policies were assigned by McIntyre & Company to the defendant, Charles M. Crouse, subject, however, to the prior assignment to the Equitable Society. A petition in involuntary bankruptcy was filed against McIntyre & Company and its individual members on April 25, 1908, and on May 9, 1908, the defendant Crouse paid the premiums on the policies, in the sum of $6,078.38. McIntyre & Company and the individual members thereof were adjudged involuntary bankrupts on May 21, 1908, and the trustees were elected on the 24th of July, 1908. On the 29th of July, 1908, Thomas A. McIntyre died, and the policies became payable.

It appears that the policies had a cash surrender value, which at the time when the trustees qualified, was $15,370, or the amount of the loan of the Equitable Society upon the policies. It is therefore apparent that, on the day when the petition was filed, as well as the day of the adjudication in bankruptcy, the cash surrender value would not have exceeded the loan and lien of the Society upon the policies. The Circuit Court of Appeals for the Second Circuit held that, under the circumstances, the policies did not pass to the trustees as assets, and therefore the action which had been begun to set aside the transfer to Crouse, as a preference within the bankruptcy act, could not be maintained.

The correctness of this decision depends primarily upon the construction of § 70a of the Bankruptcy Act, which reads:

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The trustee of the estate of a bankrupt, upon his appointment and qualification, and his successor or successors if he shall have one or more, upon his or their appointment and qualification, shall in turn be vested by operation of law with the title of the bankrupt, as of the date he was adjudged a bankrupt, except insofar as it is to property which is exempt, to all (1) documents relating to his property; (2) interests in patents, patent rights, copyrights, and trademarks; (3) powers which he might have exercised for his own benefit, but not those which he might have exercised for some other person; (4) property transferred by him in fraud of his creditors; (5) property which, prior to the filing of the petition, he could by any means have transferred, or which might have been levied upon and sold under judicial process against him: Provided, that, when any bankrupt shall have any insurance policy, which has a cash surrender value payable to himself, his estate, or personal representatives, he may, within thirty days after the cash surrender value has been ascertained and stated to the trustee by the company issuing the same, pay or secure to the trustee the sum so ascertained and stated, [33 S.Ct. 566] and continue to hold, own, and carry such policy free from the claims of the creditors participating in the distribution of his estate under the bankruptcy proceedings; otherwise the policy shall pass to the trustee as assets, and (6) rights of action arising upon contracts or from the unlawful taking or detention of, or injury to, his property.

The part of the section particularly to be considered is subdivision 5 and its proviso. Subdivision 5 undertakes to vest in the trustee property which, prior to the filing of the petition, the bankrupt could by any means have transferred, or which might have been levied upon or sold under judicial process against him. Then follows the proviso with reference to insurance policies which have a cash surrender value, permitting a bankrupt, when the cash

Page 468

surrender value has been ascertained and stated, to pay or secure such sum to the trustee, and to continue to hold, own, and carry the policies free from the claims of creditors; otherwise the policies to pass to the trustee as assets.

Two constructions have been given this section, and the question, as...

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