Eggleston v. Dudley

• Decision Date: 30 June 1958
• Docket Number: No. 12297.,12297.
• Parties: Edward J. EGGLESTON and Sadye J. De Roy Silverman, Executors Under the Last Will and Testament of Emanuel I. DeRoy, Deceased, Appellants, v. A. J. DUDLEY, District Director of Internal Revenue, Philadelphia Region.
• Court: U.S. Court of Appeals — Third Circuit

257 F.2d 398 (1958)

Edward J. EGGLESTON and Sadye J. De Roy Silverman, Executors Under the Last Will and Testament of Emanuel I. DeRoy, Deceased, Appellants, v. A. J. DUDLEY, District Director of Internal Revenue, Philadelphia Region.

No. 12297.

United States Court of Appeals Third Circuit.

Argued January 24, 1958.

Decided June 30, 1958.

Gilbert E. Morcroft, Pittsburgh, Pa., for appellants.

Kenneth E. Levin, Washington, D. C. (Charles K. Rice, Asst. Atty. Gen., Lee A. Jackson, A. F. Prescott, Attys., Dept. of Justice, Washington, D. C., D. Malcolm Anderson, U. S. Atty. Thomas J. Shannon, Asst. U. S. Atty., Pittsburgh, Pa., on the brief), for appellee.

Before BIGGS, Chief Judge, KALODNER, Circuit Judge, and WRIGHT, District Judge.

BIGGS, Chief Judge.

Emanuel I. DeRoy, the decedent, endeavored to secure changes in the beneficiary clauses of twenty insurance policies on his life to secure the benefits of the marital deduction in estate taxes on his death in accordance with the Revenue Code of 1939, as amended, 26 U.S.C.A. § 811 et seq. His then wife, Sadye J. DeRoy, was the beneficiary. DeRoy died on October 13, 1950, domiciled in Pennsylvania. His widow married again and she, now Mrs. Silverman, and Eggleston, the appellants here, are the executors of the last will and testament of DeRoy. We are concerned on the instant appeal with only two of the policies, those written by New York Life Insurance Company. The question presented is whether the language employed to effect changes in the beneficiary clauses of the two policies in issue is such as will authorize the marital deduction. The court below held that the language was insufficient to achieve the end sought.¹ The appeal followed.

The pertinent provisions of the policies, which include settlement agreements, are as follows: "I hereby direct that upon receipt of due proof of my death, settlement of the proceeds of the above numbered Policies shall be made with the following designated beneficiaries in the following manner, hereby revoking any prior designation of beneficiary under or direction as to the manner of payment of said Policies.

"Said proceeds shall be paid in monthly installments under Option (3) — Twenty Years Certain of the Optional Methods of Settlement, to Sadye J. DeRoy, my wife, herein called the Beneficiary, if living. * * *²

"If said Beneficiary be not living when said Company receives due proof of my death, or if said Beneficiary shall die after receipt of such proof and before all of the instalments within the certain period shall have been paid, the proceeds or the commuted value of such unpaid instalments shall be paid in one sum to the Executors or Administrators of said Beneficiary, if she dies after receipt by said Company of due proof of my death, or to my Executors, Administrators or Assigns, if said beneficiary be not living when said Company receives due proof of my death."³

The first paragraph of the policy quoted states that upon receipt of due proof of DeRoy's death by the Insurance Company "settlement" should be made to DeRoy's widow. These provisions certainly do not mean and cannot be construed to mean that the widow did not become entitled to the proceeds of the policies upon the death of her husband but only that she could not receive the proceeds by way of settlement until due proof had been received by the company.

If next are read the provisions of paragraph 2 and that portion of paragraph 3 down to the word "Beneficiary", third occurrence, no ambiguity appears and in our opinion one would be compelled to the conclusion, if there was nothing more, that it would be clear that the grantor intended his widow to have a vested interest in the proceeds of the policies at his death.

Boiling down the clauses of the last paragraph quoted, they provide, first, that if the widow dies before proof of death the proceeds of the policies go to her executors, but, second, if she dies before due proof of death the proceeds must go to her husband's executors. The contradiction in provisions is obvious. If the first proposition be true then the proceeds of the policies would qualify for the marital deduction of Section 812 of the Revenue Code of 1939, as amended, and if the second proposition were applied the proceeds of the policies would go to her husband's estate and the marital deduction would not be available.

It is well settled federal law that the time of the death of the insured is critical, Shedd's Estate v. C. I. R., 9 Cir., 1956, 237 F.2d 345, 350, and that the kind and nature of estates and interests in property are to be determined by the law of the State in which the deceased was domiciled at the time of his death. Helvering v. Stuart, 1942, 317 U.S. 154, 161, 63 S.Ct. 140, 87 L.Ed. 154. Here, this is the law of the Commonwealth of Pennsylvania.

It is the law of Pennsylvania that one must interpret an instrument such as an insurance policy by first looking to the language of the contract. However, where the terms of the contract are contradictory the...