In re Orear

• Decision Date: 23 February 1910
• Docket Number: 97.
• Parties: In re OREAR. [1]
• Court: U.S. Court of Appeals — Eighth Circuit

178 F. 632

In re OREAR. ^[1]

No. 97.

United States Court of Appeals, Eighth Circuit.

February 23, 1910

Joseph A. Wright (Warren D. Harris, on the brief), for petitioner.

David Goldsmith, for respondent.

Before VAN DEVANTER, Circuit Judge, and CARLAND and POLLOCK District judges.

CARLAND District Judge.

This is an original proceeding to review in matter of law an order of the United States District Court for the Eastern District of Missouri, made January 25, 1909, reversing an order of the referee in bankruptcy made May 27, 1908. The facts upon which the questions of law arise are as follows: On January 28 1908, Derr Bros., a partnership composed of Jacob W. Derr and Charles C. Derr, were adjudged bankrupts, individually and as a firm. The petitioner, Celsus Orear, was duly appointed trustee of the estate. At the time of the filing of the petition in bankruptcy and the adjudication thereon, Jacob W Derr had eight policies of life insurance upon his life for $2,500 each, issued by the Northwestern Mutual Life Insurance Company of Milwaukee, Wis. Four of said policies were issued January 27, 1906. Prior to the filing of the petition in bankruptcy Derr had paid the annual premiums on each of the last-mentioned policies for 2 1/2 years. The next annual premium on each of said policies became due July 27, 1908. The remaining four policies were executed and delivered by the insurance company to Derr May 5, 1906. Prior to the filing of the petition in bankruptcy Derr had paid on these last-mentioned policies the annual premium for two years, and the third annual premium became due on June 5, 1908. All the policies were limited payment life policies. They each provided that after payment of premium thereon for three years or more, and upon a full and valid surrender of the policy, the insurance company would pay cash surrender values of specified amounts. On June 5, 1908, the third annual premium on four policies amounting to $198.50 on each policy became due, and these policies provided for a cash surrender value of $385 on each policy. By the terms of the four other policies the third annual premium amounting to $193.85 on each policy became due July 27, 1908, and these last-mentioned policies provided for a cash surrender value of $377 on each policy. These surrender values were payable to Derr, the insured, irrespective of the beneficiary named in the policy. The aggregate amount required to pay the third annual premium on the eight policies was $1,569.40. The aggregate amount of cash surrender values after the third premiums were paid was $3,048. The foregoing facts appearing to the referee by the petition of the trustee, the following order was made by the referee:

'That said bankrupt, Jacob W. Derr, forthwith execute and deliver to the trustee of this estate a good and sufficient written assignment conveying, assigning and transferring to said trustee all his right, title and interest in and to, and all rights, benefits, privileges and advantages accruing to him under, eight certain policies of life insurance issued by the Northwestern Mutual Life Insurance Company upon the life of said bankrupt, for the sum of $2,500 each, being policies numbered 656496, 656497, 656498, 656499, and 660328, 660329 660330, 660331; and it is further ordered that said trustee pay or tender to the said the Northwestern Mutual Life Insurance Company, the annual premiums next accruing on said policies respectively, at and upon the dates when said premiums shall become due and payable upon said policies respectively; and it is further ordered that if, within 30 days after the date of the payment of said premiums upon said policies respectively, said bankrupt, Jacob W. Derr, or any beneficiary named in any of said policies, shall pay or cause to be paid to the trustee of this estate the sum of money which under the terms of such policy can be realized by said trustee upon a surrender of such policy, then said trustee shall reassign and release such policy, or any policies in respect of which payments are so made, to said bankrupt, and deliver the same to him fully discharged from any and all claims of said trustee; and it is further ordered that in the event said bankrupt or said beneficiaries shall fail or neglect to avail themselves of the right to secure a reassignment of said policies, or any of them, in the manner hereinbefore specified, then said trustee shall thereupon surrender such policy, or policies, to the Northwestern Mutual Life Insurance Company, and collect from said company the cash surrender value thereof, as provided in said policies respectively.'

The above order on petition of the bankrupt, Jacob W. Derr, was certified by the referee to the District Court for review. The District Court set aside said order, and its action in so doing is now before us for review. It is conceded that at the time of the filing of the petition in bankruptcy, January 7, 1908, the insurance policies, neither by their terms nor by any concession or practice of the insurance company, had any cash surrender value. The question of law arising upon the record is this: Did the insurance policies pass to the trustee by the adjudication in bankruptcy? If they did, then the trustee held the contracts in the same manner as a receiver, and if the referee, representing the United States District Court, should be of the opinion that it would be for the best interests of the bankrupt estate that the contracts be performed in whole or in part, he could very properly authorize the trustee to do so. It is to be presumed that if any question should arise in regard to the payment of individual and firm creditors the assets of the bankrupt estate would be marshaled as provided by law.

Section 70 of the bankruptcy act provides that:

'The trustee of the estate of a bankrupt upon his appointment and qualification * * * shall 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; * * * (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. ' Act July 1, 1898, c. 541, 30 Stat. 565 (U.S. Comp. St. 1901, p. 3451).

We think the District Court fell into error in holding that the policies of insurance did not pass to the trustee. Its judgment that they did not pass was based upon the erroneous proposition that the proviso in section 70, above quoted, defined and limited what insurance policies should pass. Whereas, the true construction to be given to said proviso requires us to hold that it simply excepts from the property of the bankrupt, which would otherwise pass to the trustee under the other provisions of section 70, policies of insurance which have a cash surrender value, either by the terms of the policy or by the concession of the insurance company. This construction was placed upon the proviso in the following cases: In re Slingluff (D.C.) 106 F. 154; In re Welling, 113 F. 189, 51 C.C.A. 151; In re Coleman, 136 F. 818, 69 C.C.A. 496; In re Mertens (D.C.) 131 F. 972. The Supreme Court of the United States in Hiscock v. Mertens, 205 U.S. 202, 27 Sup.Ct. 488, 51 L.Ed. 771, decided nothing contrary to the position here taken. The Supreme Court in the case mentioned decided that in order that the bankrupt should have the benefit of the proviso in section 70, it was not necessary that the insurance policy should in terms provide for a cash surrender value, but that it was sufficient to bring the policy within the proviso if, by the concession or practice of the company issuing the same, it had a cash surrender value. Neither is there anything in Holden v. Stratton, 198 U.S. 202, 25 Sup.Ct. 656, 49 L.Ed. 1018, which in any way conflicts with our views. In that case the Supreme Court held that the proviso in section 70 did not in any way modify or control section 6 of the same act relating to exemptions. Subdivision 5 of section 70 specifies as property the title to which will vest in the trustee:

'Property which prior to the filing of the petition he (bankrupt) could by any means have transferred or which might have been levied upon and sold under judicial process against him.'

Subdivision 25, Sec. 1, of the Bankruptcy Act, provides that the word 'transfer' 'shall include the sale and every other and different mode of disposing of, or parting with property, absolutely or conditionally as a payment, pledge, mortgage, gift or security. ' All of the policies of insurance in controversy contained the following provision:

'The insured may nominate a beneficiary or beneficiaries hereunder, and may also change any beneficiary or beneficiaries nominated by him or named in the policy.'

Under this provision the insured was unequivocally given the right and power to change the beneficiary in each policy without the concurrence of the beneficiary named in the policy and even against the will of such...