Love v. First Nat. Bank

• Decision Date: 11 January 1934
• Docket Number: 6 Div. 447.
• Citation: 228 Ala. 258,153 So. 189
• Parties: LOVE et al. v. FIRST NAT. BANK OF BIRMINGHAM et al.
• Court: Alabama Supreme Court

153 So. 189

228 Ala. 258

LOVE et al. v. FIRST NAT. BANK OF BIRMINGHAM et al.

6 Div. 447.

Supreme Court of Alabama

January 11, 1934

Rehearing Denied March 15, 1934.

Appeal from Circuit Court, Jefferson County; J. Russell McElroy Judge.

Creditor's bill by John T. Love and the Penn Mutual Life Insurance Company against the First National Bank of Birmingham individually and as trustee under a trust agreement of W. C Gewin, deceased, and as administrator of the estate of said Gewin, Lessie M. Gewin, and others. From a decree sustaining a demurrer to the bill, complainants appeal.

Reversed and remanded.

Howze & Brown, of Birmingham, for appellants.

Cabaniss & Johnston, Stokely, Scrivner, Dominick & Smith, and K. E. Cooper, all of Birmingham, for appellees.

BOULDIN Justice.

The bill is in the nature of a creditor's bill to subject the proceeds of certain life insurance policies to the payment of the debts of the insured.

The appeal is from a decree sustaining demurrers going to the equity of the bill.

The substance of the bill, so far as essential to a consideration of questions involved, may be stated as follows:

On and prior to March 25, 1929, W. C. Gewin, now deceased, was indebted to complainant, Penn Mutual Life Insurance Company, on which there still remains an unpaid balance of $23,437.60; and was also indebted to complainant, John T. Love, in the sum of $3,500, which is still unpaid.

On said March 25, 1929, the debtor, W. C. Gewin, held, in various companies, policies of insurance on his life, aggregating $274,000.

The designated beneficiaries therein were as follows:

The estate of the insured, policies aggregating $136,000; American-Traders' National Bank, policies aggregating $100,000; Lessie M. Gewin, wife of the insured, policies aggregating $23,000; beneficiary unknown, policies aggregating $15,000.

We gather from briefs that the beneficiaries in these last-named policies were the children of the insured, making an aggregate of $38,000 payable to wife and children.

On said date, March 25, 1929, the insured executed to American-Traders' National Bank an instrument in writing, made exhibit to the bill, styled a "Life Insurance Trust," reciting that said W. C. Gewin is the insured in the several policies listed therein; that insured has reserved the right in each policy to change the beneficiary therein; that the insured desires that the proceeds of such policies shall be held by the trustee, American-Traders' National Bank, or its successor, upon the trusts hereinafter set forth, and accordingly the insured has instructed, or is about to instruct, the several companies to substitute said trustee or its successors for the beneficiaries named in the policies.

It is then stipulated that all sums paid to the trustee under the policies shall be received and administered by the trustee as a trust estate. Then follows:

"(a) The Trustee shall pay all bank loans which I may owe at the time of my death.

"(b) The trustee shall hold the balance of the Trust Property in trust for the use and benefit of Lessie M. Gewin, wife of the insured, and his children, share and share alike."

Numerous details touching the management of the trust in favor of the wife and children are unimportant here.

Section 16 of the trust deed reads: "The Insured reserves the right at any time and from time to time, without the consent of any person and without notice to any person other than the Trustee, to revoke the Trusts hereby created, to change the terms or the beneficiaries hereof and/or to withdraw the whole or any part of the Trust Fund by filing written notice of such revocation, change and/or withdrawal with the Trustee. The Insured further reserves the right to surrender any policy mentioned herein for cash, receive payment of dividends, obtain loans thereof and receive any and all benefits under the policies mentioned therein."

The bill avers that in accordance with the trust agreement the insured had the beneficiary in each of the policies changed to American-Traders' National Bank of Birmingham, as trustee; that the insured died July 15, 1929, and shortly thereafter the American-Traders' National Bank, as such trustee, collected from the several insurance companies sums aggregating $253,677.99, of which the sum of $167,250.89 was applied to the payment of the indebtedness of the insured to said bank at the time of his death, leaving a balance of $86,427.10, which is still held and being administered by the trustee under the trust agreement.

It is averred that American-Traders' National Bank was, after the death of the insured, merged with the First National Bank of Birmingham; that on July 26, 1932, the estate of W. C. Gewin was declared insolvent in the chancery court of Jefferson county, and First National Bank of Birmingham was appointed administrator of the insolvent estate, and is still acting as such; that said bank denies that the proceeds of such life insurance policies are assets of the estate, and, as administrator, refuses to institute proceedings to recover same for the estate. The First National Bank, individually, as trustee, and as administrator, together with the widow and children of the insured, are made parties respondent.

Sections 13 and 14 of the bill read:

"13. Complainants aver that the transfer of said policies to said Bank as Trustee is void as to complainants' debts as above set forth in its entirety, in that there was no consideration for the transfer of said policies in excess of the amount which might have been due the Bank at the time said trust agreement was made, and was void as to the amount of said bank loans, for the reason that the said W. C. Gewin reserved in said trust the absolute power of revocation; but if complainants are mistaken in this aspect of the bill, they allege that the transfer of said policies to the Bank as Trustee is void as to complainants' debts to the extent of the excess of the amount collected on said policies above the amount collected on said policies which were payable to the wife of the said W. C. Gewin at the time said transfer was made, for the reasons above set forth.

"14. Complainants aver that prior to the adjudication of insolvency, their claims were valid and not barred by the Statute of Nonclaims, and that since said adjudication their claims were duly presented and filed as required by law against the insolvent estate of W. C. Gewin, deceased."

The bill prays for "a decree declaring void and cancelling said trust agreement and subjecting the proceeds thereof to the payment of the claims of complainants, as well as to the payment of the claims of such other creditors of the said W. C. Gewin who may be entitled to and who do become parties complainant to this proceeding," and for general relief.

The primary question is: Does the bill contain equity? Is the insurance fund, in whole or in part, subject to the payment of complainants' demands?

In Alabama all property, legal or equitable, not exempt by law, is subject to the payment of debts. This is so fundamental as to have the sanction of a fixed public policy.

As a corollary, no gift or voluntary conveyance of his property can defeat his existing creditors. It is constructively fraudulent, regardless of intent. This on the broad ground that one must be just before he is generous. No matter what form the transaction may take, some form of remedy is provided to reach the case and protect creditors. Taylor v. Harwell, 65 Ala. 1, 13; Smith v. Moore, 37 Ala. 327; Rugely & Harrison v. Robinson, 10 Ala. 702.

Life insurance is deemed a species of property, the subject of fraudulent conveyance. A policy taken out and premiums paid for by a debtor for the benefit of a named beneficiary as a gift is property subject to the law of voluntary conveyances, constructively fraudulent as against his existing creditors.

In many states, probably the majority rule is to reach and subject the proceeds of the policy to the extent of the money paid in premiums, with interest. See notes, 31 A. L. R. 51, and 34 A. L. R. 838.

But in Alabama the rule has been firmly settled, since Fearn, Ex'r, v. Ward, Adm'r, 80 Ala. 555, 2 So. 114, that money put into life insurance is an investment; that the insurance is property purchased by such investment, and, although subject to policy conditions as to lapse and forfeiture, the death benefit, when it becomes a fixed demand on the death of the insured, is, in its entirety, subject to the claims of existing creditors of the insured.

This rule is said to be the logical sequence of our statutes of long standing, whereby one may through life insurance accumulate an estate, limited in amount, for the benefit of the wife and children of the insured. This is declared to be exempt from the payment of the debts of the insured, implying that all not so exempt, to whomsoever payable as a mere gift, may be subjected, in equity, to the payment of the debts of the insured. Stone v. Knickerbocker Life Insurance Company, 52 Ala. 589; Friedman Bros. v. Fennell, 94 Ala. 570, 10 So. 649; Tompkins v. Levy, 87 Ala. 263, 6 So. 346, 13 Am. St. Rep. 31; Hall & Farley v. Ala. Ter. Imp. Co., 143 Ala. 464, 39 So. 285, 2 L. R. A. (N. S.) 130, 5 Ann. Cas. 363; Lehman v. Gunn, 124 Ala. 213, 27 So. 475, 51 L. R. A. 112, 82 Am. St. Rep. 159; McCrory v. Donald, 192 Ala. 312, 68 So. 306; Beall & Coston v. Lehman Durr Co., 110 Ala. 446, 18 So. 230; Martin v. McDaniel & Son, 170 Ala. 270, 53 So. 790; Fearn, Ex'r, v. Ward, Adm'r, supra; Kimball v. Cunningham Hardware Company, 192 Ala. 223, 68 So. 309; Id., 197 Ala. 631, 73 So. 323; Pope v. Carter, 210 Ala. 533, 98 So. 726; Cook v. Clark, Davis & Co., 212 Ala. 257, 102 So. 213; Ex parte Wilkinson, 220 Ala. 529, 126 So. 102.

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