Whiting v. Squires

• Decision Date: 15 June 1925
• Docket Number: No. 2346.,2346.
• Parties: WHITING v. SQUIRES.
• Court: U.S. Court of Appeals — Fourth Circuit

6 F.2d 100 (1925)

WHITING v. SQUIRES.

No. 2346.

Circuit Court of Appeals, Fourth Circuit.

June 15, 1925.

F. J. Heazel and Alfred S. Barnard, both of Asheville, N. C. (Duff Merrick and Merrick, Barnard & Heazel, all of Asheville, N. C., on the brief), for petitioner.

Mark Squires, of Lenoir, N. C. (J. W. Whisnant and Squires & Whisnant, all of Lenoir, N. C., on the brief), for respondent.

Before WOODS, WADDILL, and ROSE, Circuit Judges.

WOODS, Circuit Judge.

The petitioner, W S. Whiting, was adjudicated a bankrupt April 9, 1924. At that time he had $72,000 life insurance in ten policies. His wife, Caroline L. Whiting, was named beneficiary in five of the policies when issued. Whiting's estate was first named as beneficiary in the other five. More than four months before bankruptcy Caroline L. Whiting was substituted beneficiary. In all the policies it was provided that Whiting should have the right to change the beneficiary at his will. The cash surrender value of the policies at the date of the bankruptcy was $18,415.78.

In his schedule the bankrupt listed the policies and claimed them as exempt from his debts in right of his wife under the Constitution and statutes of the state of North Carolina. At the first meeting of creditors the bankrupt amended his schedule by claiming exemption of $500 personal property allowed to him by the Constitution of the state. The District Court adjudged the trustee entitled to have the policies for the purpose of realizing the cash surrender value for the benefit of the creditors of the bankrupt.

The rule laid down by the Supreme Court is that under section 70a of the bankruptcy statute (Comp. St. § 9654) the cash surrender value of a policy of insurance is an asset of a bankrupt's estate, even when the policy is payable to a beneficiary other than the bankrupt, his estate, or his personal representative, if the bankrupt has reserved absolute power to change the beneficiary. Cohen v. Samuels, 245 U. S. 50, 38 S. Ct. 36, 62 L. Ed. 143; Cohn v. Malone, 248 U. S. 450, 39 S. Ct. 141, 63 L. Ed. 352. The court has further held that insurance policies embraced within the exemption laws of the state do not become assets in the hands of the trustee for the benefit of creditors. Holden v. Stratton, 198 U. S. 202, 25 S. Ct. 656, 49 L. Ed. 1018. The question, therefore, is whether the cash surrender value of the policies, which was the property of the husband at the time of the bankruptcy, was an exemption for the wife under the Constitution and laws of North Carolina. By article 10 of the Constitution of North Carolina it is provided:

"Exemption of Personal Property. — The personal property of any resident of this state, to the value of five hundred dollars, to be selected by such resident, shall be, and is hereby exempted from sale under execution or other final process of any court, issued for the collection of any debt." Section 1.

"The husband may insure his own life for the sole use and benefit of his wife and children, and in case of the death of the husband the amount thus insured shall be paid over to the wife and children, or to the guardian, if under age, for her or their own use, free from all the claims of the representatives of her husband, or any of his creditors." Section 7.

By the statute it was enacted:

"When a policy of insurance is effected by any person on his own life, or on another life in favor of some person other than himself having an insurable interest therein, the lawful beneficiary thereof, other than himself or his legal representatives, are entitled to its proceeds against the creditors and representatives of the person effecting the insurance. The person to whom a policy of life insurance is made payable may maintain an action thereon in his own name. Every policy of life insurance made payable to or for the benefit of a married woman, or after its issue assigned, transferred, or in any way made payable to a married woman, or to any person in trust for her or for her benefit, whether procured by herself, her husband, or by any other person, and whether the assignment or transfer is made by her husband or by any other person, inures to her separate use and benefit and to that of her children, if she dies in his lifetime." Consolidated Statutes, § 6464.

There are no words either in the Constitution or the statute which even intimate an intention to take away or impair the liberty of a married man to make any contract of insurance he sees fit. He is not prohibited from making a contract for the benefit of his wife or children on any condition he may see fit, including the reservation of the right to himself to change the beneficiary. Such a right is of value to him, and it seems perfectly clear that neither the Constitution nor the statute expresses or intimates an intention to take it away from him or to confer it on his wife and children. Nor does either the Constitution or the statute attempt to confer upon the husband an exemption of more than $500 in personal property. In this case the husband, having already received his $500 exemption, of course, has no claim to exemption out of the surrender value of the policy.

In the light of these observations we consider first the meaning of the constitutional provision relating to insurance for the benefit of the wife and children. It is found under the title "Homestead and Exemptions." Section 6 under that heading provides for the sole and separate ownership of her property by a married...