LAWYERS' REPORTS ANNOTATED. GEORGIA SUPREME COURT. Mrs. V. A. MORRIS et al., Plffs. in Err., C. Harry DODD, Trustee, etc., of John F. Morris, Bankrupt. (........ Ga. .... *A policy of insurance on the life of a bankrupt, though payable to his legal representatives, dees not, if it have no cashsurrender value, vest in the trustee as assets of the bankrupt's estate. (a) Accordingly, where a husband, within four months prior to the filing of his petition in bankruptcy, transferred to his wife an insurance policy on his life, which before such transfer was payable to his legal representatives, it was erroneous on the petition of the trustee, filed Headnote by FISH, J. NOTE.-Life insurance as assets of bankrupt or insolvent. 1. Scope of note. II. Bankruptcy or insolvency of insured or assignor of policy. a. Policy payable at death of insured. 2. Policy payable to wife of insured. (a) In general. This note covers only the rights of the trus 1. Policy payable to insured or his estate or personal representatives. Under the bankruptcy act of 1898, § 70 (5), it is expressly provided that the trustee in bankruptcy shall be vested by operation of law with the title of the bankrupt, except so far as it is exempt, in all property which, prior to the filing of the petition, could have been transferred by him, or levied on and sold, provided that when the bankrupt has an insurance policy which has a cash-surrender value payable to himself, his estate or legal representatives, he may, within thirty days after such surrender value has been ascertained, pay the same to the trustee, and continue the policy free from the claims of all participating creditors: and that, if he does not do so, it shall pass to the trustee as assets. Where, however, the policy has no cash-surrender value, the trustee in bankruptcy takes no interest therein. Thus, the main case of MORRIS v. DODD holds that a life-insurance policy, payable to the legal representatives of the insured, which has no cash-surrender value at the time of filing the petition in bankruptcy, does not pass to the trustee as assets; and the fact that the in Messrs. J. A. Anderson, King & Anderson, Dorsey, Brewster, & Howell, and Arthur Heyman, for plaintiffs in er ror: It cannot prefer a creditor in a legal sense, to give to that creditor an executory contract, which at the time of transfer has no value, and which depends on many contingencies, if it ever becomes valid. Stout v. Yaeger Mill. Co. 4 McCrary, 486, 13 Fed. Rep. 804; Re Pearson, 95 Fed. Rep. 426; Re Little River Lumber Co. 92 Fed. Rep. 589; Loveland, Bankruptcy, p. 297. Under the common law and the law of our state, the transfer of property to delay, hinder, defraud, or prefer creditors must be property having a value. ney, 15 Fed. Rep. 535; Holt v. Everall, 34 L. The trustee acquires title as of the date of the adjudication, and this carries with it the undisputed proposition that, after the date of this adjudication, the bankrupt works for himself, earns for himself, and any property acquired thereafter by him belongs to him free from any claim on the part of the bankrupt estate. Loveland, Bankruptcy, § 175; Re Rennie, 2 Am. Bankr. Rep. 182; Re Harris, 2 Am. Bankr. Rep. 359; Traer v. Clews, 115 U. S. 528, 29 L. ed. 467, 6 Sup. Ct. Rep. 155. There can be in his bankrupt estate no insurable interest on his life. Hubbard v. Turner, 93 Ga. 754, 30 L. R. A. 593, 20 S. E. 640; Re Lange, 91 Fed. Rep. If there is no insurable interest then the 361; Re Steele, 98 Fed. Rep. 79; Re McKin· 'policy must fall as a wagering policy. sured had assigned the policy to his wife with- | separate property. Within two years after the in four months before the filing of the petition change he presented a petition for liquidation makes no difference. in the bankruptcy court, and soon after died. The court held that, as the old policies. had no surrender value, and as, under the married women's act, § 10, which was held to apply, the creditors had no interest in a policy taken out for the wife's benefit, except to the amount paid by the husband for premiums with intent to defraud creditors, the trustee in bankruptcy had no interest in the policies. And Re Buelow, 98 Fed. Rep. 86, holds that life policies having no cash-surrender value, and no value for any purpose except as they may become valuable on the death of the insured if the premiums are kept paid, are not assets of the bankrupt's estate. The referee in this case held (2 Nat. Bankr. News, 26) that where the policy is payable to the insured, his estate or personal representative, and has a cash-surrender value, it should be converted into cash unless the bankrupt pays the cash-surrender value of the policy, as provided in the bankrupt act, § 70 (5). Re Steele, 98 Fed. Rep. 78, following Re Lange, 91 Fed. Rep. 361, holds that the surrender value of a policy payable to the insured, his executors, administrators, or assigns is a part of his estate in bankruptcy, under § 70 (5) of the bankrupt act, and passes to his trustee unless he avails himself of its provisions for payment of its cash-surrender value, although § 6 provides that such act shall not affect the allowance to bankrupts of the exemptions prescribed by the laws of the state of their residence, and the laws of the state of the bankrupt's residence make such a policy exempt. And Re McKinney, 15 Fed. Rep. 535, holds that the assignee in bankruptcy of one who has a life policy payable to his executors, administrators, or assigns, with an equal annual premium during the bankrupt's life, takes only the surrender value of the policy, as he has no insurable interest in the bankrupt's life, at least after his discharge, and would not be entitled. to keep the estate unsettled for an indefinite period until the bankrupt's death. And where the assignee did nothing to keep the policy alive, and the bankrupt's wife, under the belief that the policy was for her benefit, paid six annual premiums thereafter before her busband's death, the court held that the assignee might transfer the policy to her on receipt of its value at the time the bankruptcy occurred. The policy also provided that a transfer should. not be valid without the consent of the com ject to proof of interest, and the court held that this would further limit the assignee's recovery to the surrender value. Irrespective of the provisions of the bank-pany, and that any assignment should be subrupt act of 1898, the courts which hold that creditors have any rights in the policy seem inclined to confine such interest to the cash-surrender value of the policy. Thus, Barbour v. Larue, 21 Ky. L. Rep. 94, 51 S. W. 5, holds that an insurance policy on which only one premium has been paid, and which has no withdrawal or pecuniary value, does not pass under a voluntary assignment for creditors, especially where the assignee, when applied to for payment of an amount due on the note for part of the first premium, declines to pay it, and refers to a creditor to whom the insured has assigned the policy subsequent to the assignment for creditors, and such creditor pays the subsequent premiums until the death of the insured. And in Holt v. Everall, 34 L. T. N. S. 599, L. R. 2 Ch. Div. 266, 45 L. J. Ch. N. S. 433, 24 Week. Rep. 471, a husband, after the passage of the married woman's act of 1870, surrendered policies on his own life on which he had paid only one premium, and which had no surrender value, taking out new policies payable to his wife if she survived him, the premiums on the new policies being the same as on the old policies, and being paid from the wife's And in Barbour v. Connecticut Mut. L. Ins. Co. 61 Conn. 240, 23 Atl. 154, in which it was claimed by a subsequent creditor that the surrender of policies by an insolvent payable to his legal representatives, receiving in place thereof policies payable to his wife, was fraudulent as to creditors, the transfer having been made after an assignment for creditors and a short time before his discharge, the court stated that the facts that only two premiums had been paid, and that the assignee could only have obtained paid-up policies for a very small amount, and that the policies had no cash surrender value, and the assignee could not possibly have increased the cash in his hands thereby, should be considered on the question of fraud. One of the policies considered in this case was an ordinary life policy, the other payable on the death of the insured, but on which only ten payments were to be made. Some cases hold that where the bankrupt or insolvent fails to deliver up a policy, and continues to pay the premiums, the assignee in bankruptcy or insolvency is entitled to the pol Exchange Bank v. Loh, 104 Ga. 446, 44 I. R. A. 372, 31 S. E. 459; Connecticut Mut. L. Ins. Co. v. Fisher, 30 Fed. Rep. 662. The creditors could not have levied upon these policies, and sold them under judicial process. Stout v. Yaeger Mill. Co. 4 McCrary, 486, 13 Fed. Rep. 804; McKown v. Manhattan L. Ins. Co. 91 Fed. Rep. 354; Re Little River Lumber Co. 92 Fed. Rep. 585; Re Pearson, 95 Fed. Rep. 425. Every case bearing upon a life insurance policy under bankruptcy acts clearly demonstrates that it is only the cash surrender value of a life insurance policy that enters into and becomes a part of the estate in bankruptcy. Re Buelow, 98 Fed. Rep. 87; Re Steele, 98 Fed. Rep. 79; Re McKinney, 15 Fed. Rep. 535; Re Newland, 7 Ben. 63, Fed. Cas. No. icy subject to the bankrupt's right to recover the amount of the premiums paid after his bankruptcy occurred. Thus, Re Smith, 12 Week. Rep. 534, holds that where an insolvent debtor omitted from the schedule filed in the insolvent debtor's court all reference to a policy effected on his life eighteen months before, and continued to pay the premiums thereon until his death, his personal representatives would be entitled to receive the amounts paid for premiums, the balance going to the assignee for division among the creditors. And Schondler v. Wace, 1 Campb. 487, holds that where a bankrupt fails to deliver up a policy on his life, or discover it to the commissioners or his assignees, and afterwards assigns it to one who pays up arrears on the premiums, nonpayment of which would soon have caused it to be forfeited, and thereafter assigns it for a valuable consideration, after which the bankrupt dies, the assignees in bankruptcy are entitied to recover the amount due on the policy after deducting the amount paid out for premiums by the assignee of the policy. For the extent of the interest of creditors where the wife is the beneficiary, see infra, II. a, 2. For the extent of such interest where the policy is assigned or made payable to a creditor, see infra, II. a. 3 (e). For the extent of their interest in an endowment or tontine policy, see infra, II. b. For the extent of their interest in case of the bankruptcy or insolvency of the beneficiary, see infra, III. The courts, however, were not agreed prior to the passage of the bankrupt act of 1898, as to whether policies of this kind constitute assets which the creditors can reach, or which pass to the assignee or trustee in bankruptcy or insolvency. Thus, Shenk v. Franke, 10 Lanc. Bar, 146 (Brightly (Pa.) Digest), holds that a policy of life insurance payable to the heirs, executors, administrators, or assigns passes as a chose in action to his assignee for creditors. 10,171; Holt v. Everall, 34 L. T. N. S. 599; Etna Nat. Bank v. United States L. Ins. Co. 24 Fed. Rep. 770; Re Dews, 96 Fed. Rep. 181; Re Lange, 91 Fed. Rep. 361. The mutual reserve policy under the laws of New York is exempt from any claim on the part of the creditors. Ins. Laws of N. Y. §§ 211, 212; Sulz v. Mutual Reserve Fund Life Asso. 145 N. Y. 563, 28 L. R. A. 379, 40 N. E. 242. Messrs. Mayson & Hill, O. E. Horton, and M. C. Horton, for defendant in error: A policy of life insurance is a chose in action, governed by the same principle applicable to other agreements involving pecuniary obligations. Hutson v. Merrifield, 51 Ind. 24, 19 Am. Rep. 722; United States L. Ins. Co. v. Ludwig, 103 Ill. 305; Central Nat. Bank v. Hume, 128 U. S. 204, 32 L. ed. 375, 9 Sup. therein the same is transferred to the assignee, where it appears that the assignor intended it to pass. This case afterwards came up on a second appeal as Barbour v. Larue, 21 Ky. L. Rep. 94, 51 S. W. 5, where it was held that the policy did not pass because it had no withdrawal or pecuniary value. And in Burton v. Farinholt, 86 N. C. 260, the court stated that a policy for the benefit of the insured, his executors, administrators, or assigns might, notwithstanding its intangible form, be reached and made subject to the debts of the insured. This statement was obiter, however, as the action was brought after the death of the insured to subject the proceeds of the policy to the payment of his debts, notwithstanding a voluntary assignment of the policy to his children. And Anthracite Ins. Co. v. Sears, 109 Mass. 383, holds that a bill in equity may be maintained, under Mass. Gen. Stat. chap. 113, § 2, relating to any property, right, title, or interest, legal or equitable, of a debtor within the state which cannot be attached or taken on execution to reach and apply a policy capable of assignment on the life of the debtor, and the fact that the insurance company is a foreign one makes no difference. On the other hand, Day v. New England L. Ins. Co. 111 l'a. 507, 56 Am. Rep. 297, 4 Atl. 748, holds that a policy payable on his death to the insured, his executors, or administrators, for the benefit of his widow, if any, cannot during his lifetime and while he is a widower, be attached for his debts. And Hurlbut v. Hurlbut, 49 Hun, 189, 1 N. Y. Supp. 854, holds that an assignment for creditors by one whose life is insured, the policy being payable to him, his executors, administrators, or assigns, does not prevent him where he continues to pay the premiums, as against his personal representative, from assigning the policy to his daughter, where it does not appear that the policy was ever turned over to, or claimed by, the assignee, and he does not make any objection to such assignment. And Pace v. Pace, 19 Fla. 438, holds that the assignee in bankruptcy of one having a policy on his life for the benefit of his estate has no interest in the policy, as the insured was not the beneficiary. And Larue v. Larue, 96 Ky. 326, 28 S. W. 790, holds that whether policies are intended to pass under an assignment for creditors is a question of fact to be determined from the language of the assignment and the intention of the assignor in procuring the assignment, and And Re Learmouth. 14 Week. Rep. 628, that a policy payable to the insured, his order holds that where the assignees in bankruptcy or creditors, passes under an assignment which, refuse to pay the premiums, and keep up polafter giving a schedule of his real and personal | icies, on the life of the bankrupt, and property, provides that if he has omitted any claims property, accounts, or the latter, not mentioned pays such his after obtaining discharge, premiums, his personal repre Ct. Rep. 41; Cason v. Owens, 100 Ga. 142, 28 The policies in the present case were originally taken out for the benefit of the estate of the bankrupt, and, but for the fraudulent transfer to his wife, would necessarily have passed to the trustee. Rawson v. Jones, 52 Ga. 458; Biddle, Ins. $$ 70, 274, 277. Under the act of bankruptcy, §§ 60, 67, 70, the entire assets of the bankrupt pass to the trustee. Re Grahs, 1 Nat. Bankr. News, 164; Re Buelow, 2 Nat. Bankr. News, 26. These policies, payable to his estate, belong to the creditors holding claims at the time of his death, under the laws of the state of Georgia. Rawson v. Jones, 52 Ga. 458. These policies having been transferred to his wife, apparently a few days prior to his voluntary bankruptcy, such transfers are void, and the policies stand as if not transferred. Bankrupt Act, § 67; Bean v. Brookmire, 1 Dill. 25, Fed. Cas. No. 1,168. Irrespective of bankruptcy, Mrs. Morris should not be allowed to collect these policies, because transferred to her by her husband All insurance policies pass to the trustee, while insolvent and in fraud of his creditors. but in the case of policies having a cash-sur- Elliott's Appeal, 50 Pa. 81, 88 Am. Dec. render value the bankrupt "may" redeem 525; Catchings v. Manlove, 39 Miss. 655; such policies by paying the cash-surrender | Central Nat. Bank v. Hume, 128 U. S. 204, value. 32 L. ed. 375, 9 Sup. Ct. Rep. 41. sentatives after his death, instead of the assignees, are entitled to the balance of the proceeds of the policy after paying the amount of a mortgage thereon. 2. Policy payable to wife of insured. Under the bankrupt act of 1898, § 70 (5), supra, such a policy forms no part of the assets of the insured on his becoming bankrupt. Thus, Re Steele, 98 Fed. Rep. 78, holds that a policy on one's life, payable to his wife, is her property, and does not pass to the trustee in bankruptcy of the husband. The same case holds that a policy on one's life, assigned in good faith, before the adoption of such act, to his intended wife, who afterwards became such, does not form part of his assets on becoming bankrupt, and that the trustee has no interest in, or right to, such policy. | bankruptcy, and that it would be giving a new interpretation to the bankrupt law to hold that it reached back so long a time and seized on a policy which the bankrupt had, for six years before, kept in force for his wife's benefit; but that it was sufficient to say that, as the policy was by its terms in favor of the wife, she was prima facie the beneficial owner, and if the assignee had any interest he could enforce it in the paid-up policy after it was obtained. Many of the states have provided by statute that a policy payable to the wife of the insured shall be exempt from the claim of the husband's creditors, except as to the excess of the annual premiums over a specified amount; and in cases of this kind it has been held that the creditors might, during the lifetime of the insured. obtain relief where excessive premiums have been paid. Thus, in Stokes v. Amerman, 121 N. Y. 337, 24 N. E. 819, a wife took out a policy on her And in Re Dews, 96 Fed. Rep. 181, the court husband's life, payable at his death to her if held that the bankrupt was not necessarily living, if not to their children, if any, otherguilty of fraudulent concealment of property wise to the husband's executors, administrators, preventing his discharge, because he did not or assigns, the amount of the annual premiums disclose sums arising from the surrender of exceeding $500. N. Y. Laws 1840, chap. 80, as policies on his life in which his wife was the amended by Laws 1870, chap. 277, authorizes beneficiary, where it did not appear that the a married woman with her husband's consent premiums paid on the policies were out of rea- to cause his life to be insured for her benefit, sonable proportion to his financial condition at and entitles her to the insurance money if livthe time they were paid, or that the withdrawal ing at the maturity of the policy free from the of their amount was such as to justify an in-claims of his creditors, provided that when the ference of fraud. The court in this case, how ever, stated that the question before it was not whether the creditors had an equitable right to any portion of the fund. Under the bankrupt act of 1867, which excepted from the operations of the bankruptcy proceedings property exempted from levy and sale under the laws of the state, and the laws of Pennsylvania, in which state the bankrupt resided, an insurance policy in favor of the wife of the insured, payable on his death, taken out while he was solvent, the premiums on which he continued to pay after his insolvency, was held in Bennett's Case, 6 Phila. 472, Fed. Cas. No. 1.315, to be exempt, and not to pass to his assignee in bankruptcy. In Belt v. Brooklyn L. Ins. Co. 12 Mo. App. 100, which was an action by the beneficiary in a policy on her husband's life to compel the insurance company to issue to her a paid-up policy, in which the claim was made that the assignee in bankruptcy of the husband was the proper party to bring the suit, the court said there was no evidence of his insolvency when the premium was paid, the last of which was more than two years before the assignment in annual premiums paid from his funds exceed $500 such exemption shall not apply to the excess, but that such excess shall inure to the benefit of his creditors. The court held that the creditors of the husband might maintain an action before the husband's death to have his interest as a judgment creditor in the policy ascertained and declared, and to enjoin the husband and wife and their children from transferring the policy except in subordination to his rights, no decision being made as to his right to realize anything on the policy before the husband's death. Masten v. Amerman. 51 Hun, 244, 4 N. Y. Supp. 681, Reversing 20 Abb. N. C. 443, holds, however, that a receiver in supplementary proceedings cannot maintain such an action, as he is vested only with such rights as the judg ment debtor himself had at the commencement of the supplementary proceedings. This case also seems to hold that the interest secured by the policy was at best so contingent that no relief could have been had if the judgment creditor himself had brought the action. And Baron v. Brummer, 100 N. Y. 372, 3 N. E. 474, holds that an insurance policy in favor There is nothing in the contention that one of the policies was surrendered, and another issued in lieu thereof, payable direct to Mrs. Morris, because this was the form adopted by their company in case of transfers. Cason v. Owens, 100 Ga. 142, 28 S. E. 75. It is a fraud on creditors for a person while insolvent to divert his money into policies payable to anybody other than creditors. Hubbard v. Turner, 93 Ga. 752, 30 L. R. A. 593, 20 S. E. 640. Our Georgia law disposes of this fund, and gives it to the creditors and heirs at law. Rawson v. Jones, 52 Ga. 458. The New York statute attempts to dispose of the same fund, conflicting exactly with our Georgia law, in which event, of course, Georgia law will prevail. Birdseye v. Underhill, 82 Ga, 143, sub nom. Birdseye v. Baker, 2 L. R. A. 99, 7 S. E. 863; of the wife of the insured cannot during his lifetime be reached by the creditors of both husband and wife by means of a creditors' bill and receivership, where it does not appear that the husband paid the premiums, and it does appear that no premiums exceeding $500 were paid by anyone after contracting the debt on which the creditors' bill was based. Re Bear, 11 Nat. Bankr. Reg. 46, Fed. Cas. No. 1.178, holds that a policy taken out on one's life in favor of his wife while he is insolvent, if reasonable in amount when considered in connection with his estate and labilities, belongs to the wife, and is not subject to be surrendered to the husband's assignee in bankruptcy, but that the latter is entitled to recover from the wife, when the policy is paid, the amount paid by the husband while insolvent, and that such claim, when ascertained, may be sold by the assignee, and will pass the contingent right to the purchaser. Holt v. Everall, 34 L. T. N. S. 599, L. R. 2 Ch. Div. 266, 45 L. J. Ch. N. S. 433, 24 Week. Rep. 471, holds that the trustee in bankruptcy of one who had surrendered policies on his own life which had no surrender value, taking in lieu thereof policies payable to his wife, had no interest in such policies, as, under the mar ried women's act, § 10, the creditors of the husband have no interest in a policy taken out for the wife's benefit except to the amount paid out for premiums paid with intent to defraud creditors. In Ex parte Merrett, 7 Morrell, 65, digested in Mews English Digest, vol. II. col. 404, a policy was taken out on the husband's life with his consent, in the name of his wife, he paying the premiums as remuneration for his wife's assistance in business. He became bankrupt, and at that time the policy had been deposited with other property as collateral security for an advance to bim. The trustee in bankruptcy claimed the right to dispose of the policy for the benefit of the creditors, subject to the wife's right of survivorship. The court held that the policy might be allowed to remain in the trustee's possession on an undertaking by him to keep up the premiums until the death of the bankrupt or his wife, and in case the bankrupt died first the wife was not to be called on to repay the premiums paid by the trustee. Miller v. Kernaghan, 56 Ga. 157; Mason v. Stricker, 37 Ga. 262; Story, Confl. L. § 23. Fish, J., delivered the opinion of the court: This was a petition filed by Harry Dodd, trustee of the estate of John F. Morris, bankrupt, against his widow, Mrs. V. A. Morris, the Mutual Reserve Fund Life Association of New York, and the Northwestern Mutual Life Insurance Company, in which it was sought to enjoin Mrs. Morris from collecting, and the two insurance companies from paying to her, the amounts of insurance policies issued by the defendant insurance com panies upon the life of the bankrupt. The Northwestern Company paid the money due upon the policy issued by it into the registry of the court, to await the final decree of the court. Mrs. Morris and the other insurance Thus, Wyman v. Gay, 90 Me. 36, 37 Atl. 325, holds that, although, under Me. Rev. Stat. chap. 49, § 94, a life insurance policy is exempt where the annual premium is less than $150, such policy may be recovered by the assignee in insolvency of the insured after its transfer to a creditor in payment of an antecedent debt, as the exemption is personal to the insured, and is waived by the transfer. Ex parte Hallifax, 2 Mont. D. & De G. 544, holds that a policy on the life of another, deposited with the bankrupt as collateral security. passes to the assignee of the bankrupt, notwithstanding a prior deposit by him as collateral security of several instruments, the policy being included in the memorandum of the deposit, where the policy itself is not deposited, but a mere promise made to deposit it, and it afterwards comes into the hands of the assignee. In Bozon v. Bolland, Mont. & Bligh, 74, as explained and corrected in Duncan v. Chamberlayne, 11 Sim. 123, a certain person wished to have an insurance on the life of another in which he had an insurable interest, and by mistake his agent took the policy in his own name instead of the principal's. On discovering the mistake a new policy was granted, as a substitute, to the person whose life was insured, and who assigned it in trust to the agent, for the insured, under a specified contingency, which never happened, otherwise for the persons entitled to receive it under the principal, the agent to keep up the policy, The which never came into the hands of the insured, who subsequently became bankrupt. court held that, as the insured never had any interest in the policy, and it never came into his possession, it was not in his order and disposition within the English bankrupt law. (b) Necessity of notice of assignment. The practice of assigning life Insurance policies to secure a loan from the assignee has prevailed to quite an extent in England, and in most of the cases decided there the question has been as to the necessity or sufficiency of the notice of assignment to take the policy out of the order and disposition of the assignor on his becoming bankrupt. The cases hold, prac 3. Policy assigned or made payable to creditor. tically without exception, that unless notice of (a) In general. The assignment of a policy has been held to take away the benefit of a statutory exemption from liability for debts of the insured. some kind has been given the policy will pass to the assignee in bankruptcy, and therefore, of course, that if it had not been assigned it would have constituted part of the assets of the bankrupt. Ex parte Tennyson, Mont. & Bligh, 67, di |