Maloney v. John Hancock Mutual Life Insurance Co.

• Citation: 271 F.2d 609
• Decision Date: 23 October 1959
• Docket Number: Docket 25333.,No. 301,301
• Parties: Donald W. MALONEY as Trustee in Bankruptcy of Eastern Footwear Corporation, Plaintiff-Appellant, v. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

271 F.2d 609 (1959)

Donald W. MALONEY as Trustee in Bankruptcy of Eastern Footwear Corporation, Plaintiff-Appellant, v. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, Defendant-Appellee.

No. 301, Docket 25333.

United States Court of Appeals Second Circuit.

Argued May 13, 1959.

Decided October 23, 1959.

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Charles H. Cohen, New York City (Kaye, Scholer, Fierman & Hays, and Alexander H. Rockmore, New York City on the brief), for plaintiff-appellant.

George W. Riley, New York City (Merritt E. Vaughan, Utica, N. Y., on the brief), for defendant-appellee.

Before SWAN, HINCKS and MOORE, Circuit Judges.

HINCKS, Circuit Judge.

The trustee in bankruptcy of Eastern Footwear Corporation brought this action to recover upon an insurance policy issued to Eastern, prior to its bankruptcy, upon the life of one of its officers, James J. Calderazzo. The undisputed facts present this single issue, viz., whether the defendant insurance company, by failure to comply with the notice provisions of § 151 of the New York Insurance Law with respect to premiums due and defaulted in November of 1953, prevented the policy from lapsing during the year following the default, the insured having died within that period. This question is best answered after a brief account of the relevant circumstances leading up to this litigation.

In June of 1953 Eastern was in serious financial difficulties causing some of its creditors to form an unofficial creditors' committee to assist the corporation with its faltering affairs. This committee immediately designated a firm of accountants, Leon I. Radin & Company (which we shall hereinafter refer to as an individual, "Radin"), to make a complete audit of Eastern's books. Radin was aware of the fact that Eastern was in a none too firm financial condition and in an effort to secure payments for his future services he insisted upon and received a document which purportedly assigned to him Eastern's interests in certain merchandise and twenty-three insurance policies. These policies, one of which is the subject of this action, had a face amount of $585,000, although their net cash value was practically zero because of extensive loans thereon.

The crucial terms of the so-called "assignment," signed by the president of Eastern on June 11, 1953, are:

"* * * The undersigned hereby assigns to Leon I. Radin & Co., * * * all our right, title and interest in and to the property enumerated on Schedule `A\' * * * and the insurance companies therein enumerated and sic are hereby authorized and directed out of the first monies available to pay to said Leon I. Radin & Co. all sums demanded by said firm upon presentation of bills rendered and approved by the Creditors Committee, of which Irving Fife is chairman."

A copy of this instrument was sent to the defendant which acknowledged receipt of the assignment referring to it as such and requested its certification and a copy of minutes of the directors' meeting authorizing the assignment. Radin furnished the defendant with a certification but the directors' minutes were never supplied by Radin or by the plaintiff at trial. The defendant mailed notices of the November 1953 premiums to both Eastern and the insured but failed to mail any notice to Radin, and neither he nor anyone else ever paid any further premiums.

Several weeks subsequent to the execution of the instrument involved herein Eastern filed a petition for arrangement under Chapter XI of the Bankruptcy Act, and in February, 1955, by authority of the referee in bankruptcy, Radin was paid $3,500 from the assets of Eastern for the services he had rendered for the few weeks prior to the arrangement petition. According to Radin's testimony this payment was conditioned on the reassignment to Eastern of all of his rights in the policy.

The court below, as reported in 164 F.Supp. 93, 96, granted summary judgment for the defendant, reasoning that the instrument, in the light of the circumstances surrounding its execution, was not a valid absolute assignment but only a "legal gimmick to satisfy * * * payment of services." Consequently, it concluded that the notice provisions of § 151 New York Insurance Law were inapplicable to Radin and that the defendant's failure to notify him did not prevent a lapse of the policy upon the premium default. For the reasons hereinafter stated this judgment must be reversed.

The New York courts have on numerous occasions interpreted the provision of the New York Insurance Law before us, and it is to the spirit and temper of such decisions, rather than the conflicting claims of unjust enrichment made by both parties in the instant case, that we must primarily look for proper guidance. These decisions make several things amply clear. The burden was upon the defendant to show full compliance with the notice provisions of § 151. Salzman v. Prudential Ins. Co. of America, 296 N.Y. 273, 72 N.E.2d 891, 9 A.L.R. 2d 1432; Imbrey v. Prudential Ins. Co. of America, 286 N.Y. 434, 36 N.E.2d 651. Moreover, the provisions of § 151¹ relating to premium notices to assignees are intended to protect assignees who take their assignments as security for debts as well as absolute assignees. Strauss v. Union Cent. Life Ins. Co., 170 N.Y. 349, 63 N.E. 347. Consequently, insurance companies are under no duty to determine whether an assignment is absolute or conditional, Strauss v. Union Cent. Life Ins. Co., 33 Misc. 333, 67 N.Y. S. 509, affirmed, supra;² notice must be given to holders of either type of assignment. With such principles for our guide we think that the defendant, in order to cause a lapse in the policy prior to a year after premium default, was under a duty to give statutory notice to Radin, an assignee of whom it had notice, unless such assignment was, for some reason, invalid.

It is true that the New York courts have often stated that an effective assignment necessitates such a present transfer of title or dominion that the debtor can safely pay the fund to the assignee notwithstanding any protests or orders to the contrary by the assignor. Spencer v. Standard Chemicals & Metals Corporation, 237 N.Y. 479, 143 N.E. 651; East Side Packing Co. v. Fahy Market, 2 Cir., 24 F.2d 644. But we fail to see how this principle assists the defendant. Eastern by words of present agreement and present transfer assigned all of its "right, title and interest" in the policy. Cf. Donovan v. Middlebrook, 95 App. Div. 365, 88 N.Y.S. 607. It is true that the sum of money which Radin might ultimately realize under the assignment was not fixed by the instrument. But this incident is not decisive. In re New York, N. H. & H. R. Co., D.C.Conn., 25 F.Supp. 874; Malone v. Bolstein, D.C. N.D.N.Y., 151 F.Supp. 544. Neither is the fact that the assignee's right to the proceeds was conditioned upon approval by the creditors' committee of his bills. Mere power in the assignor to control the amount of eventual payment under a transfer does not necessarily prevent an effective assignment. Fairbanks v. Sargent, 104 N.Y. 108, 9 N.E. 870, 6 L.R.A. 475; 117 N.Y. 320, 22 N.E. 1039. Here we need not go so far. For it is clear that a certificate by the creditors' committee, a party independent in interest and not controlled by the assignor, would have enabled the debtor to pay the fund to the assignee with safety to itself, notwithstanding the protests of Eastern, the assignor, who gave up all of its rights and interests. Cf. Hitchings v. Central Electrical Supply Co., 182 App. Div. 28, 169 N.Y.S. 611.

In any event numerous decisions of this circuit recognize the validity of conditional assignments under New York law. Such opinions recognize as an effective present assignment, a transfer by way of security for a loan of claims to become payable in the future, when the transfer is conditioned upon the assignor's default in repayment of the loan, In re New York, N. H. & H. R. Co., supra, Corbin on Contracts, §§ 875, 876, Restatement of Contracts, § 150; or even upon his default in performance of an independent contract, Malone v. Bolstein, supra, In re McCrory Stores Corporation, 2 Cir., 73 F.2d 270. See also, In re Allied Products Co., 6 Cir., 134 F. 2d 725. This case clearly falls within the rule of these cases. The parties to the transfer in this case plainly intended to make a present transfer of all Eastern's interest in the policy subject to a double condition, viz., (1) that Eastern should make default of payment for Radin's services and (2) that the bill therefor should be approved by the creditors' committee.

The insurer-defendant contends that in no event did Eastern agree to give up dominion over the surrender value and loan value rights. But we find no evidence to support this contention. In any event, nothing in the instrument appears to betoken a retention of dominion and the natural import of its terms are to the contrary. Normally an assignment of life insurance as collateral security would vest these rights in the assignee, at least on the occurrence of the condition. Conlew, Inc. v. Kaufmann, 269 N. Y. 481, 199 N.E. 767; Senese v. Senese, Sup., 121 N.Y.S.2d 498; Greenberg v. Equitable Life Assurance Society, D.C. D.Minn., 167 F.Supp. 112. Our conclusion seems consonant with Radin's testimony that he never intended to pay the premiums but planned, if necessary, to surrender the policies and realize upon their surrender value. The insurer's argument that this instrument was merely a pledge with the legal title remaining in Eastern not only distorts the plain language of the instrument but ignores those New York decisions which hold that less artful language is sufficient to pass legal title when life insurance is purportedly assigned as collateral security. Palmer v. Mutual Life Ins. Co. of New York, 38 Misc. 318, 77 N.Y.S. 869; Shackelford v. Mitchell, 16 Daly 268, 10 N.Y.S. 122.

The circumstances surrounding the drafting of the instrument and the practical...