Albert Hiscock v. Jacob Mertens

• Decision Date: 25 March 1907
• Docket Number: No. 209,209
• Citation: 27 S.Ct. 488,205 U.S. 202,51 L.Ed. 771
• Parties: ALBERT K. HISCOCK, Trustee in Bankruptcy of Jacob M. Mertens, Charles R. Mertens, Ernest T. Mertens, and Edmund A. Mertens, Individually and as Composing the Copartnership Firm of 'J. M. Mertens & Co.,' Bankrupts, Petitioner. v. JACOB M. MERTENS
• Court: U.S. Supreme Court

205 U.S. 202

27 S.Ct. 488

51 L.Ed. 771

ALBERT K. HISCOCK, Trustee in Bankruptcy of Jacob M. Mertens, Charles R. Mertens, Ernest T. Mertens, and Edmund A. Mertens, Individually and as Composing the Copartnership Firm of 'J. M. Mertens & Co.,' Bankrupts, Petitioner.

v JACOB M. MERTENS.

No. 209.

Argued February 27, 1907.

Decided March 25, 1907.

Mr. Will B. Crowley for petitioner.

[Argument of Counsel from pages 202-204 intentionally omitted] Mr. Dorr Raymond Cobb for respondent.

Mr. Justice McKenna delivered the opinion of the court:

The question in this case is whether the cash surrender value of a policy of insurance under § 70-2-5 of the bankruptcy act must be provided for in the policy, or whether it be sufficient if the policy have such value by the concession or practice of the company. Section 70 provides that 'the trustee of the estate of a bankrupt, upon his 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 in so far as it is to property which is exempt, to all (1) documents relating to his property . . . (3) powers which he might have exercised for his own benefit, but not those which he might have exercised for some other person . . . (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, 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.' [30 Stat. at L. 565, chap. 541, U. S. Comp. Stat. 1901, p. 3451.]

The respondent and his sons, individually and as composing the copartnership of J. M. Mertens & Company, were declared bankrupts, and petitioner was elected the trustee of their estate October 14, 1903.

At the time the petition in bankruptcy was filed Mertens held four life insurance policies issued by the Equitable Life Assurance Society of the United States. One of the policies, payable to his wife if she should survive him, has been dropped from this controversy. The other three policies were payable to Mertens at his death, his executors, administrators, or assignees. They were subject to certain claims arising from their having been assigned as security for certain loans. With these we are not concerned.

A dispute arose as to the ownership of the policies, and the trustee filed a petition in the district court for the determination of the ownership of them, and that Mertens be required to make an assignment of them to the trustee. Mertens answered, alleging that the policies had, by law and the regular practice of the Equitable Life Assurance Society, a cash surrender value which he had sought to pay to the trustee, and was ready and willing to pay; that it was the uniform practice of the society to pay, upon the surrender of such policies and on policies issued on any of the blank forms shown by the policies, the cash value thereof 'determined in accordance with a fixed and definite method of computation, and stated on demand by any policy holder or person in interest;' that the society, pursuant to law and in accordance with its practice, had stated to him and declared the cash surrender value of each of the policies and its readiness and willingness to pay such value upon the surrender of the policies. The values were stated.

The matter was referred to a special master to take the proofs and report the same, with findings of fact and conclusions of law. Proofs were taken and a report made in accordance with the order of the court. The master, in his report, describing the policies, said:

'None of these express any agreement or provision whereby, upon default, the company shall pay a 'cash surrender value' to any person. By their terms the assured is excluded from any participation in dividends until the completion of the tontine period, at which time all surplus and profits derived from such policies are to be divided among the persistent policies of that class then in force. At the expiration of the tontine period the persistent policy holder is given certain options, among them to withdraw in cash the policy's entire share of the assets, that is, that accumulated reserve, the amount of which is stated in each policy, and, in addition, the share of the assets, that is, the accumulated Each of these policies also provides that, upon default in payment of a premium and the surrender of the policy within six months thereafter, the assured shall be entitled to a new paid-up policy, based upon the reserve accumulated under the old policy, but 'without participation in profits.' Both funds secured by the agreement, namely, the insurance proper and the endowment fund representing the accumulated profits, are payable to the assured or to his executors, administrators, or assigns. No other person is mentioned in either of the policies as having any beneficial interest therein.'

It appeared from the testimony that, as a matter of fact, policies of the character of those in controversy had, under the practice of the company, cash surrender values, if offered for surrender within six months from the date of the nonpayment of any premium. Explaining this, a witness said: 'To make clear the replies of previous questions I will state that the Equitable Life Assurance Society would decline to purchase for cash a policy during the period for which premiums had been paid, entitling the policy holder to protection for the face value, for the reason that, in the event of the death of the holder of that policy before the expiration of the period for which premiums had been paid, the question would be raised as to the liability of the company, so that the payment of an amount of cash for the surrender of a policy is only made by the company after that policy has lapsed by reason of the nonpayment upon its due date.' And it was testified that the cash surrender values of policies was determined by a fixed and definite method of computation, uniform in all cases, and had, without exception, been paid to persons insured by the company. It further appeared that the surrender values of the policies in controversy were as follows: Policy No. 274,445, $5,905.65; policy No. 417,678, $2,272.56; policy No. 417,171, $6,574.00.

It was further testified that the surrender value of each policy was equivalent to the amount of a paid-up policy, which the company was willing to give. Or, as expressed by a witness, 'it is equivalent to the percentage reserved under that policy (referring to policy No. 274,445), which the company is willing to pay in consideration of the surrender.'

The district court held that the policies had no cash surrender value within the meaning of § 70 of the bankrupt act. The court said:

'In the policies in question not only is there a failure to provide for a cash surrender value, but the provisions are inconsistent with the existence of such a value. This, however, is not at war with the fact that the assurance association may be willing to pay money for the surrender of such policies. There is no pretense that this custom of the insurer formed a part of the contract between the parties, or that the insured could enforce the payment of a surrender value, or the payment of anything, on surrendering the policy. In short, the insurer might be willing to pay a surrender value and might not. Such payment would be optional with it.'

And again:

'The association might be willing to pay one day, entirely unwilling the next. . . . Is this the 'cash surrender value' spoken of in the bankruptcy law? This court thinks not. It would seem that had Congress intended that every bankrupt holding a policy of insurance of the nature of these should retain the same as his own on paying to the trustee in bankruptcy the value thereof that the insurer might fix by its custom or otherwise, it would have used language appropriate to that end, and not an expression implying a value the insured has a legal right to demand, and the insurer may be compelled to pay,—a value generally understood to be provided for in the policy itself.'

The court cited, to sustain its siews, Re Welling, 51 C. C. A. 151, 113 Fed. 189, and Re Slingluff, 106 Fed. 154.

An order was entered requiring Mertens to assign the policies to the trustees. It was reversed by the circuit...