In re Welling

• Decision Date: 21 January 1902
• Docket Number: 809.
• Citation: 113 F. 189
• Parties: In re WELLING.
• Court: U.S. Court of Appeals — Seventh Circuit

113 F. 189

In re WELLING.

No. 809.

United States Court of Appeals, Seventh Circuit.

January 21, 1902

[Copyrighted Material Omitted]

George Sawin, for appellant.

Philip S. Brown, for appellee.

Before JENKINS and GROSSCUP, Circuit Judges, and BUNN, District Judge.

JENKINS Circuit Judge, after stating the facts, .

In the case with which we have to deal, the law of the state of the domicile of the bankrupt does not exempt policies of insurance from judicial pursuit by creditors. The questions therefore, are sharply presented, whether the insurance in question is property which, under the bankruptcy act, passes to the trustee, and whether the case comes within the proviso of section 70a of the act (30 Stat.c. 541). The solution of these questions requires us to ascertain the real nature of this contract. The policy is a semitontine policy; upon its face, an ordinary life policy, the premiums payable in 20 years, and the amount stated to be paid upon the death of the bankrupt to his wife, Anna B. Welling, if she be living otherwise to his surviving children, if any; otherwise to his legal representatives or assigns. It also provides for the right after payment of premiums for three years, and upon default thereafter in the payment of a subsequent premium, to a paid-up policy, without participation in profits, in favor of the wife, if living; if not living, to the surviving children; and, if none such, to the personal representatives or assigns of David Welling,-- for as many twentieth parts of the original amount assured as there have been complete annual premiums received. If these provisions constituted in full the contract, we could not doubt that the bankrupt has no pecuniary interest in the policy which would pass to his trustee, because in no case would there be payable to him in his lifetime any sum of money whatever upon the contract. There are, however, superimposed upon this contract certain conditions which qualify its effect and restrict the rights of the wife. These conditions declare that upon the completion of the tontine dividend period, November 27, 1906, the policy not having then been terminated by lapse or death, the bankrupt, not his wife, should have one of the four specified options, one of which is to receive in cash the policy's accumulated reserve, stated to be $6,814.50, and also the surplus apportioned by the society to the policy. It is clear that the entire interest of the wife in this policy, and her right to receive any sum of money thereon, is contingent upon the death of her husband before the completion of the tontine period, subject, perhaps, to her right before that time to receive in lieu of the policy a paid-up policy upon her husband's life, payable to herself, for as many twentieth parts of the sum assured as there have been annual dividends paid. It is likewise clear that this is also a contract between the assurance society and the bankrupt that on the 27th day of November, 1906, if he then survive, the society will pay him, if he so elect, a certain sum of money, or, should he so elect, will issue certain insurance to him, as stated in the condition. We cannot doubt that the bankrupt, from the moment the policy was issued, had a pecuniary interest in it, and a right to receive money upon it at the stated time, contingent only upon his surviving the tontine period; that the wife's interest is contingent upon her husband's death within the tontine period; and that her interest lapses at the completion of the tontine period, unless there had been substituted for the policy a new paid-up policy in the event and upon the terms stated. The proviso of section 70a declares 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.'

We are of opinion (and therein we concur with the court below and with the referee) that this policy does not fall within the proviso. The term 'cash surrender value,' therein employed, has a defined and legal meaning, namely, the cash value-- ascertainable by known rules-- of a contract of insurance abandoned and given up for cancellation to the insurer by the owner, having contract right to do so. The 'surrender' of the proviso is not the subject of negotiation or agreement, but of right. The proviso does not include those policies where the right to surrender is not given by the contract. In the present case, failing provision in the policy to that end, surrender could only be legally accomplished through agreement with the company by the joint action of Welling and his wife. There exists no right in the wife or in the bankrupt, or in both jointly, to surrender. It could only be done by the joint action of the two by agreement with the assurance society. If provision for surrender were incorporated in the contract, it would not be within the power of the bankrupt to surrender the policy, and thereby cut off the interest of his wife therein. Bank v. Hume, 128 U.S. 195, 9 Sup.Ct. 41, 32 L.Ed. 370. She has a distinct interest in the policy, which does not pass to the trustee in bankruptcy. Atkins v. Society, 132 Mass. 395, 402. We cannot concur in the suggestion to the contrary in Re Steele (D.C.) 98 F. 78, 80. Nor could the bankruptcy court rightfully compel such surrender and cancellation of the policy by the bankrupt, he agreeing thereto in concurrence with the company; for that might be to deprive the wife of her interest. And likewise it would not be within the power of the wife to surrender the policy, and thereby deprive the husband of his right at the end of the tontine period to receive the stipulated amount. Surrender can only be accomplished through agreement with the company by the joint action of husband and wife. Besides, if we concede that this policy has a 'cash surrender value,' within the meaning of the proviso, that value was not 'payable to himself,' for both the bankrupt and his wife had an interest therein. We are not advised by the record, nor are we otherwise informed, that there is any known rule by which surrender value-- assuming such to exist-- could be equitably apportioned between the bankrupt and his wife, or by which it could be ascertained what proportion thereof was 'payable to himself,' within the meaning of the proviso. From the report in Re Diack (D.C.) 100 F. 770, the referee would seem to have reached an apportionment in such case, but the basis of his calculation is not apparent. We are therefore clearly of opinion that the policy in question does not fall within the provisions of the proviso.

But it does not follows, as was assumed by the court below and by the referee, that, because the policy does not all within the terms of the proviso, the bankrupt has not property therein which passes to his trustee. By the terms of the policy he was entitled to receive at the end of the tontine period the cash payment stipulated in the contract. That is a vested contract right, contingent only upon his surviving the tontine period. The right is valuable, increasing in value with each successive payment of premium. The policy technically, had not a 'surrender value,' within the meaning of the proviso; but it had an actual value, and that valuable right was right of property existing in the bankrupt. It is the plain provision of the bankruptcy law that all the estate of the bankrupt shall, by operation of law, be vested in the trustee save such as is specifically excepted by the provisions of the bankruptcy law or by the law of the domicile of the bankrupt. The language of the provision is comprehensive. Subdivision 5 of section 70a declares that there shall be thus vested in the trustee '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. ' Then follows the proviso which...