Irving Bank, New York, v. Alexander

• Decision Date: 28 April 1924
• Docket Number: 289
• Citation: Irving Bank, New York, v. Alexander, 280 Pa. 466, 124 A. 634 (Pa. 1924)
• Parties: Irving Bank, Appellant, v. Alexander et al
• Court: Pennsylvania Supreme Court

124 A. 634

280 Pa. 466

Irving Bank, Appellant, v. Alexander et al

No. 289

Supreme Court of Pennsylvania

April 28, 1924

Argued March 25, 1924

Appeal, No. 289, Jan. T., 1924, by plaintiff, from decree of C.P. No. 2, Phila. Co., Dec. T., 1922, No. 8409, dismissing bill in equity, in case of Irving Bank, New York, v Henrietta P. Alexander; the said Henrietta P. Alexander Julian Alexander, Maurice Bower Saul and the Pennsylvania Company for Insurances on Lives and Granting Annuities, Executors of will of Charles O. Alexander, deceased, and the said Pennsylvania Company for Insurances on Lives and Granting Annuities, Trustee. Affirmed.

Bill to recover proceeds of policy of insurance. Before GORDON, J.

The opinion of the Supreme Court states the facts.

Bill dismissed on demurrer. Plaintiff appealed.

Error assigned was, inter alia, decree, quoting it.

Judgment affirmed, at cost of appellant.

Percival H. Granger, of Reber, Granger & Montgomery, for appellant. -- The facts averred in the bill show that the proceeds of life insurance policies in large amounts carried by an insolvent insured with a nominal beneficiary and right to change the beneficiary reserved by the insured, constituted practically the only asset of his estate at death, to which all of his creditors were entitled to look for payment: Cohen v. Samuels, 245 U.S. 49; Holden v. Stratton, 198 U.S. 202.

The rule adopted in bankruptcy should apply here: Blum Bros. v. Bank, 248 Pa. 148; Chester Co. Trust Co. v. Pugh, 241 Pa. 124; Swartz v. Bachman, 267 Pa. 185.

The facts averred in the bill show a constructive if not an actual fraud on all of the insolvent insured's creditors, when, during his lifetime, with the consent of his wife, the nominal beneficiary, and the insurance companies, he deposited with a depositary certain papers agreeing to surrender said policies for cash for the benefit of certain creditors and thus putting practically his only asset beyond the reach of his remaining creditors: Elliott's App., 50 Pa. 75; McCutcheon's App., 99 Pa. 133; McKown's Est., 198 Pa. 96; Weil v. Marquis, 256 Pa. 608.

The facts averred in the bill show that the wife of the insolvent insured had no vested interest in the proceeds of his insurance policies as against the claims of his creditors, partly because she was not a bona fide beneficiary and partly because of her renunciation of any claim thereto during his lifetime: Supreme Lodge Knights and Ladies of Honor v. Ulanowsky, 246 Pa. 591; Grant v. Faires, 253 Pa. 232.

M. B. Saul, of Saul, Ewing, Remick & Saul, for appellee.

Before FRAZER, WALLING, SIMPSON, KEPHART, SADLER and SCHAFFER, JJ.

OPINION

MR. JUSTICE KEPHART:

Charles Alexander took out at different times insurance in the sum of approximately $500,000, payable to his wife, Henrietta B. Alexander; the insured died January 29, 1921, insolvent. Three corporations in which the deceased was a stockholder objected for various reasons to the insurance company's paying the proceeds from the policies to the widow. The amounts named in the policies were by agreement deposited with the Pennsylvania Company for Insurances on Lives and Granting Annuities to await the outcome of equity cases brought in Common Pleas Courts of Philadelphia County to determine title to the funds. This appellant, a lender of money to the insured, unsuccessfully attempted to intervene in one of the proceedings in Common Pleas No. 3, whereupon this bill, naming various parties as defendants, was filed.

It is described as a creditor's bill to set aside an attempted fraudulent conveyance of property by an insolvent who later dies. In substance it avers the insurance was carried in the name of the widow as a device to defraud creditors, while the insured was the owner with actual control of the policies; that during his life it was agreed, with the assent of the wife, the insurance company and the insured, that the cash surrender value was to be paid to certain creditors unduly preferred; that, the cash surrender value not being paid, on Alexander's death the estate became the beneficiary, entitled to the proceeds from the policies to liquidate debts. A demurrer was filed to the bill, which the court below sustained, dismissing the bill.

We shall not discuss the many questions urged in abatement of the proceedings, but will consider the case on its merits. Appellant's position that the insured, in carrying a large amount of insurance, paid for by funds rightfully the creditors', wherein his wife is the nominal beneficiary, with the right to change the beneficiary, constitutes such a fraud on creditors that at the death of the insured the proceeds became an asset of his estate for the payment of debts, overlooks the fact that the law does not prevent an insolvent from carrying insurance for the benefit of his wife, children or other dependent relatives: McCutcheon's App., 99 Pa. 133; Schaefer's Est., 194 Pa. 420, 422; Central Bank of Washington v. Hume, 128 U.S. 195. She is not regarded under such circumstances as merely the nominal beneficiary, but as the real one, though the right is reserved to change the person to receive it. Having been so named in the policy, that status could be changed only as provided by law, or in the contract of insurance.

We need not decide whether the cash surrender value of the policies was an asset of the insured prior to death, to be subjected to the payment of debts. Attention is called, however, to the acts of assembly hereinafter mentioned. After death, it is merged into the funds that arise at death by virtue of the insurance contract. A contest over that fund is a proceeding against the beneficiary. Under the contract of insurance, what was an inchoate right in the widow became a fixed vested one concerning a property just brought into existence: Weil v. Marquis, 256 Pa. 608. We do not here consider the possible question of fraud, as it is not sufficiently averred in the bill so as to affect the widow; and the payment of insurance premiums by an insolvent from funds of his own, that in all conscience should go to creditors, is not such fraud per se as will defeat the widow's or children's right to realize from insurance in their names. It is difficult to understand how the husband can place the proceeds of policies, as distinguished from the premiums paid in or amount of paid up insurance, beyond the reach of creditors by making his wife a nominal beneficiary. It might be done as to the sums paid, if not provided otherwise by acts of assembly, but the proceeds are the funds that exist only at and after death, created through the happening of the insurance hazard. At no time do creditors have any moral right to the surplus or sum over paid premiums, where the policy is in the wife's name. This disposes of the suggested analogy to bankrupt's property, -- where, if an insurance policy is made payable to a wife or a dependent relative, with the right to change the beneficiary reserved, the insured's control will enable his trustee in bankruptcy to collect its cash surrender value during the lifetime of the insured: Cohen v. Samuels, 245 U.S. 50; Dolan's Case, 182 F. 949. But even the Bankruptcy Act gives effect to the exemption laws of the state: Holden v. Stratton, 198 U.S. 202.

The cash surrender value was not...