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and definite method of computation, and had been paid, the question would be raised stated on demand by any policy holder or as to the liability of the company, so that person in interest;" that the society, pur- the payment of an amount of cash for the suant to law and in accordance with its surrender of a policy is only made by the practice, had stated to him and declared the company after that policy has lapsed by cash surrender value of each of the policies reason of the nonpayment upon its due and its readiness and willingness to pay date." And it was testified that the cash such value upon the surrender of the surrender values of policies was determined policies. The values were stated.
by a fixed and definite method of compuThe matter was referred to a special tation, uniform in all cases, and had, withmaster to take the proofs and report the out exception, been paid to persons insured same, with findings of fact and conclusions by the company. It further appeared that of law. Proofs were taken and a report the surrender values of the policies in made in accordance with the order of the controversy were as follows: Policy No. court. The master, in his report, describing 274,445, $5,905.65; policy No. 417,678, $2,the policies, said:
272.56; policy No. 417,171, $6,574.00. "None of these express any agreement or It was further testified that the surrender provision whereby, upon default, the com- value of each policy was equivalent to the pany shall pay a 'cash surrender value to amount of a paid-up policy, which the comany person. By their terms the assured is pany was willing to give. Or, as expressed excluded from any participation in divi- by a witness, “it is equivalent to the perdends until the completion of the tontine centage reserved under that policy (referperiod, at which time all surplus and profits ring to policy No. 274,445), which the comderived from such policies are to be divided pany is willing to pay in consideration of among the persistent policies of that class the surrender.” then in force. At the expiration of the ton- The district court held that the policies tine period the persistent policy holder is had no cash surrender value within the given certain options, among them to meaning of $ 70 of the bankrupt act. The withdraw in cash the policy's
the policy's entire court said: share of the assets, that is, the ac- “In the policies in question not only is cumulated reserve, the amount of which is there a failure to provide for a cash surstated in each policy, and, in addition, the render value, but the provisions are inconaccumulated surplus apportioned to the pol. sistent with the existence of such a value. icy. Each of these policies also provides This, however, is not at war with the fact that, upon default in payment of a premium that the assurance association may be willand the surrender of the policy within six ing to pay money for the surrender of such months thereafter, the assured shall be eno policies. There is no pretense that this titled to a new paid-up policy, based upon custom of the insurer formed a part of the the reserve accumulated under the old contract between the parties, or that the inpolicy, but 'without participation in profits.' sured could enforce the payment of a surBoth funds secured by the agreement, render value, or the payment of anything, namely, the insurance proper and the en- on surrendering the policy. In short, the dowment fund representing the accumulated insurer might be willing to pay a surrender profits, are payable to the assured or to his value and might not. Such payment would executors, administrators, or assigns. No be optional with it.” other person is mentioned in either of the
And again: policies as having any beneficial interest “The association might be willing to pay therein.”
one day, entirely unwilling the next. It appeared from the testimony that, as a Is this the 'cash surrender value' spoken of matter of fact, policies of the character of in the bankruptcy law? This court thinks those in controversy had, under the practice not. It would seem that had Congress inof the company, cash surrender values, if tended that every bankrupt holding a policy offered for surrender within six months from of insurance of the nature of these should the date of the nonpayment of any retain the same as his own on paying to the premium. Explaining this, a witness said: trustee in bankruptcy the value thereof that “To make clear the replies of previous ques- the insurer might fix by its custom or other. tions I will state that the Equitable Life wise, it would have used language appropriAssurance Society would decline to purchase ate to that end, and not an expression imfor cash a policy during the period for which plying a value the insured has a legal right premiums had been paid, entitling the policy to demand, and the insurer may be com. holder to protection for the face value, for pelled to pay,-a value generally underthe reason that, in the event of the death stood to be provided for in the policy itself.” of the holder of that policy before the ex. [131 Fed. 974, 975.] piration of the period for which premiums The court cited, to sustain its views, Re
Welling, 51 C: C. A. 151, 113 Fed. 189, and made and their proper effect and relation Re Slingluff, 106 Fed. 154.
determined. As elements in that consideraAn order was entered requiring Mertens tion the meaning and scope of $ 70 were to assign the policies to the trustees. It involved and the purpose of Congress in its was reversed by the circuit court of appeals. enactment. Section 6 provides for exempThe latter court, however, said that it tions "prescribed by the state laws." Sec“should be inclined to concur with these tion 70 vests the title of all the property of views [expressed in Re Welling] and to the bankrupt in the trustee, "except in so sustain the conclusion of the district judge far as it is to property which is exempt.” in the cause at bar, that ‘no policy is under- Then, after a designation of the property stood to have a cash surrender value un- the title to which is transferred, follows the less provided for in the policy so as to be proviso in regard to insurance policies. It enforceable by the insured,' were it not for was argued that the proviso would be a subsequent expression of opinion by the meaningless unless considered as wholly disSupreme Court. This is found in Holden v. connected from the clause as to exempt Stratton, 198 U. S. 214, 49 L. ed. 1022, 25 property, and this court replied: Sup. Ct. Rep. 660, as follows:
“As $ 70a deals only with property which, “There has been some contrariety of not being exempt, passes to the trustee, the opinion expressed by the lower Federal mission of the proviso was in the interest of courts as to the exact meaning of the the perpetuation of policies of life insurwords "cash surrender value” as employed ance, to provide a rule by which, where in the proviso, some courts holding that it such policies passed to the trustee because means a surrender value expressly stipu. they were not exempt, if they had a surlated by the contract of insurance to be render value their future operations could paid, and other courts holding that the be preserved by vesting the bankrupt with words embrace policies, even though a the privilege of paying such surrender value, stipulation in respect to surrender value is whereby the policy would be withdrawn out not contained therein, where the policy pos. of the category of an asset of the estate. sesses a cash value which would be recog. That is to say, the purpose of the proviso nized and paid by the insurer on the surren: was to confer a benefit upon the insured der of the policy. It is to be observed that bankrupt by limiting the character of the this latter construction harmonizes with the interest in a nonexempt life insurance policy practice under the bankrupt act of 1867 which should pass to the trustee, and not to (Re Newland, 6 Ben. 342, Fed. Cas. No. cause such a policy when exempt to become 10,170; Re McKinney, 15 Fed. 535) and an asset of the estate. When the purpose tends to elucidate and carry out the pur- of the proviso is thus ascertained it becomes pose contemplated by the proviso as we apparent that to maintain the construction have construed it. However, whatever in which the argument seeks to affix to the fluence that construction may have, as the proviso would cause it to produce a result question is not necessarily here involved diametrically opposed to its spirit and to we do not expressly decide it.” [142 Fed. the purpose it was intended to subserve.” 447.]
198 U. S. 213, 49 L. ed. 1022, 25 Sup. Ct. The court observed that the extract from Rep. 659. Holden v. Stratton was obiter to the ques- And, contemplating the proviso as havtions decided in the case, but considered it ing such purpose, the court used the lansuch an explicit declaration of views that guage quoted by the circuit court of appeals, the court expressed hesitation to dis- and expressed the view that, as between the regard it.
two constructions that had been made of We are hence confronted with the prob- the terms, "cash surrender value," whether lem whether the obiter of Holden v. Stratton they meant a stipulation in the contract or shall be pronounced to be the proper con- the recognition by the company, the latter struction of g 70 of the bankrupt act. We harmonized with the practice under the may remark at the commencement that that bankrupt act of 1867 [14 Stat. at L. 517, obiter was not inconsiderately uttered, nor chap. 176], and tended to elucidate and can it be said that it was inconsequent to carry out the purpose contemplated by the the considerations there involved. It was proviso as the decision construed it. And there necessary to determine between con- the precedent practice is necessarily a flicting decisions of two circuit courts of ap- strong factor and would be so even if it had peals upon the effect of state statutes of a less solid foundation in reason. It is noexemption from liability for debts, and a where better expressed than in Re Mccareful consideration of § 6 of the bank- Kinney, supra. It is there pointed out rupt act, which provided for exemptions, that the foundation of the surrender value and $ 70, which defined the property which of a policy is the excess of the fixed annual passed to the trustee, was necessary to be premiums in the earlier years of the policy over the annual risk during the later years, it make whether the surrender value was of the policy. “This excess," it was said, stipulated in a policy or universally recog. “in the premium paid over the annual cost nized by the companies ? In either case the of insurance, with accumulations of interest purpose of the state would be subserved, constitutes the surrender value.”
which was to secure to the trustee the sum And further:
of such value and to enable the bankrupt to “Though this excess of premiums paid is "continue to hold, own, and carry such legally the sole property of the company, policy free from the claims of the creditors still in practical effect, though not in law, participating in the distribution of the it is moneys of the assured, deposited with estate under the bankruptcy proceedings." the company in advance, to make up the Counsel for petitioner argues that the deficiency in later premiums to cover the policies are mere investments, and intimates annual cost of insurance instead of being the injustice of keeping them from the retained by the assured, and paid by him trustee, and illustrates the comment by conto the company in the shape of greatly in- trasting what the company would have paid creased premiums when the risk is greatest. as the surrender value of policy No. 274,445, It is the 'net reserve' required by law to be if default had been made in payment of prekept by the company for the benefit of the miums, and what the company would pay assured and to be maintained to the credit six months thereafter. The contrast is be. of the policy. So long as the policy re
So long as the policy re-tween $5,905.65 and $11,318.40. But this mains in force the company has not prac- is the result of the age of the policy, and tically any beneficial interest in it, except cannot be a test of other policies or of the as its custodian, with the obligation to construction of the law. And a precisely maintain it unimpaired and suitably invest-like effect would result if the policy exed for the benefit of the assured. This is pressed a surrender value, in which case it the practical, though not the legal, relation is conceded, it would come under the law. of the company to this fund.
The same comment is applicable to other “Upon the surrender of the policy before arguments of petitioner which tend to conthe death of the assured, the company, to found the distinction between surrender be relieved from all responsibility for the value and other value. Section 70 deals increased risk, which is represented by this with the former, and makes it the accumulating reserve, could well afford to ditions of the relative rights of the bank. surrender a considerable part of it to the rupt and the trustee of his estate. Pursuassured, or his representative. A returning the argument farther, it is said that of a part in some form or other is now “the right to participate in the profits was usually made.”
a part and parcel of the policy and of the In Re Newland, supra, it was said that privileges enjoyed thereunder;" and it is the present value of a policy is its cash sur- further observed that the difference between render value, and but for that "it could not the value of the policy which was used for be said to have any appreciable value. illustration, "if lapsed on September 8, Parker v. Anglesey, 20 Week. Rep. 162, 25 1903, given as $5,905.65, and its value on L. T. N. S. 482."
March 8, 1904, $11,318.40, is chiefly made up There is no expression in either of the of the value of this right to participate in cases that the cash surrender value depend profits.” And counsel for petitioner is dised upon contract as distinct from the usage of companies. And § 70 expresses no dis- posed to think the contention absurd that tinction. At the time of its enactment there the bankruptcy law contemplated that such were policies which stated a surrender value a valuable right “could be absolutely wiped and a practice which conceded such value out and taken from the trustee in such a if not stated. If a distinction had been in
case as this by allowing the bankrupt to tended to be made it would have been ex
take up the policy by paying what the pressed. Able courts, it is true, have de- / bankrupt here claims to be the surrender cided otherwise, but we are unable to adopt value." Such result would not appear to be their view. It was an actual benefit for absurd if the policy were only two years which the statute provided, and not the old instead of nineteen years. Manifestly a manner in which it should be evidenced. policy cannot be declared in or out of the And we do not think it rested upon chance law according to its age, nor can anything concession. It rested upon the interest of be deduced from the investment features of the companies and a practice to which no tontine policies. Such policies were decided exception has been shown. And that a pro- to be covered by the law in Holden v. Stratvision enacted for the benefit of debtors ton. Whether the law should have included should recognize an interest so substantial them is not our concern. Whatever may be and which had such assurance was perfect- said against it, it has seemed best to the ly natural. What possible difference could I legislature to encourage the extra endeavor
and sacrifice which such policies may repre- |INS ERROR to the Supreme Court of the
State of a It is further contended that respondent ment entered pursuant to the mandate of has not made out that the policies have a the Court of Appeals of that state, which cash surrender value, because it appears reversed a judgment of the Appellate Di. from the evidence that the company would vision of the Supreme Court, Fourth De. not accept their surrender until they had partment, afirming a judgment of a trial lapsed, and that they had not lapsed either term of that court held in and for the when the petition was filed or the bank- county of Erie, in favor of plaintiffs in an ruptcy adjudged. But this is tantamount action to recover damages arising out of to saying that no policy can ever have a false and fraudulent representations insurrender value. According to the testi- ducing the sale of merchandise, in which mony, policies which have a stipulation for the defendant pleaded a discharge in bank. such value are subject to the same con- ruptcy as a defense. Affirmed. dition. And there is nothing in the record See same case below in Court of Appeals, to show that the practice and policies of 183 N. Y. 207, 76 N. E. 25. other companies are not the same as those The facts are stated in the opinion. of the Equitable Life Assurance Society. Mr. Frank Gibbons for plaintiff's in error. Section 70 is broad enough to accommodate No counsel appeared for defendant in such condition. It permits the redemption error. of a policy by the bankrupt from the claims of creditors by paying or securing to the Mr. Chief Justice Fuller delivered the trustee the cash surrender value of the opinion of the court: policy "within thirty days" after such value This was an action brought in 1899 to re"has been ascertained and stated to the cover damages claimed to have been sus. trustee by the company issuing the same." tained in consequence of specified false and Judgment affirmed.
fraudulent representations made by the firm of which the defendant was survivor, by reason whereof plaintiffs alleged they
were deceived into selling goods to defendTHOMAS TINDLE and Willis K. Jackson, ant’s firm, which they otherwise would not Plffs. in Err.,
have done. The complaint contained three
counts, setting up separate items of damCLARENCE T. BIRKETT.
ages, namely, $349.30, $230.83, and $321.73
for goods sold, and judgment was demanded Bankruptcy-provable debts-discharge. for the aggregate, with interest on each
1. Claims for damages arising out of item. false and fraudulent representations indu- One of the defenses was that plaintiffs’ cing sales of merchandise might have been claims were barred by a discharge in bankproved under the bankrupt act of July 1, ruptcy of defendant's firm, to which plain1898 (30 Stat. at L. 550, 562, chap. 541, tiffs replied that they were not such as U. S. Comp. Stat. 1901, pp. 3428, 3447), şcould be discharged in bankruptcy proceed63a, as debts "founded upon an open account
ings. or upon a contract, expressed or implied,” if the sellers had chosen to waive the tort and
The New York court of appeals held that, take their places with the other creditors according to the rulings of this court in of the bankrupt estate, and are therefore Crawford v. Burke, 195 U. S. 176, 49 L. ed. barred by a discharge in bankruptcy. 147, 25 Sup. Ct. Rep. 9, the alleged indebted. Bankruptcy-provable debts—discharge. ness to plaintiffs was covered by the dis
2. The words “while acting as an offi- charge, and directed plaintiffs' complaint cer or in any fiduciary capacity," as used in to be dismissed. 183 N. Y. 267, 76 N. E. the bankrupt act of July 1, 1898, § 17, subd. 25. 4, making an exception from the operation This writ of error was then prosecuted, of a discharge in bankruptcy in favor of and plaintiffs' counsel contends that their debts created by the bankrupt’s “fraud, em- debts were not provable debts, and therebezzlement, misappropriation, or defalcation while acting as an officer or in any fi fore not discharged, and that Crawford v. duciary capacity,” extend to "fraud, embez- Burke might well be modified in view of zlement, misappropriation,” as well as to certain suggestions deemed to be novel. "defalcation."
Sections 17 and 63a of the bankruptcy act
of 1898 read as follows: [No. 217.)
"Sec. 17. A discharge in bankruptcy shall
release a bankrupt from all of his provable Argued February 28, 1907. Decided March debts, except such
. (2) are 25, 1907.
judgments in actions for frauds, or obtain
ing property by false pretenses or false Crawford and Valentine, plaintiffs in error, representations, or for wilful and malicious to recover damages for the wilful and injuries to the person or property of an- fraudulent conversion of the interests of the other;
or (4) were created by his plaintiff in certain shares of stock. There fraud, embezzlement, misappropriation, or were ten counts in the declaration, five defalcation while acting as an officer or in charging fraudulent conversion of that any fiduciary capacity.
stock, and five, the obtaining of money from “Sec. 63. Debts which may be proved:- plaintiff in the way of margins by means of
“(a) Debts of the bankrupt may be false and fraudulent representations. Deproved and allowed against his estate which fendants pleaded their discharge in bankare (1) a fixed liability, as evidenced by a ruptcy, but were found guilty on all the judgment or an instrument in writing, abso- counts, and judgment was entered against lutely owing at the time of the filing of the them, which was affirmed by the appellate petition against him, whether then payable court and by the supreme court of Illinois. or not
; (4) founded upon an open This court held that plaintiff's claim was account, or upon a contract expressed or im- "provable under the bankruptcy act,” that plied; and (5) founded upon provable debts is, was "susceptible of being proved," and reduced to judgments after the filing of the that it might have been proved under § 63a petition and before the consideration of the as "founded upon an open account or upon bankrupt's application for a discharge.” a contract express or implied,” if plaintiff [30 Stat. at L. 550, 562, chap. 541, U. s. had chosen to waive the tort and take his Comp. Stat. 1901, pp. 3428, 3447.]
place with the other creditors of the estate.
That case completely determines this, as