Court Opinion

ID: 7990835
Source: CourtListenerOpinion
Date Created: 2022-09-09 01:30:52.290075+00
Date Added: 2024-06-11T16:35:21.845042
License: Public Domain

Mayes, C. J.,
delivered the opinion of the court.
By section 2141, Code of 1906, it is provided that: “The proceeds of a life insurance policy not exceeding three thousand dollars, payable to the executor, or administrator of the insured, shall inure to the heirs or legatees, freed from all liability for the debts of the decedent, except premiums paid on the policy by any one other than the insured and debts due for expenses of last illness and for burial,” etc. The policy in controversy in this case is for three thousand dollars. The policy was made payable to the executor or administrator in the very language of the above statute, and while it was a current policy, having only a cash surrender value, or after it matured by reason of the death of the insured, it was never in any way liable for the debts of S. K. Barton. The object of this .statute is to secure to the insured a policy, not to exceed three thousand dollars, from liability to any creditor for any debt. This statute exempts the whole proceeds, or any part of it, whether the value accrues during the life or after the death of the insured. The cash surrender value of the policy is just as-much “proceeds” of the policy, within the meaning of the statute, as would be the full amount after the death of the insured. In other words, when the person insured dies, the proceeds of the policy are exempt; while he lives, if the policy acquires a cash surrender value, this cash surrender value is “proceeds” within the meaning of the statute, and exempt so long as the value in either case does not exceed three thousand dollars. Any other construction of the statute would impair, if it did not destroy in some cases, the object of the statute.
*769As an illustration, suppose a person should insure his life under a contract of insurance maturing in twenty years, and suppose such person should become bankrupt at the end. of nineteen years and six months, when the cash surrender value should almost equal the face of. the policy; if the. statute-would not protect such policy, and the cash surrender value should become liable to creditors, the statute would be. practically nullified as to that policy, and the insured might be unable to get another. The usual purpose of persons in insuring is not to build up estates for creditors. The usual creditor does not rely upon a policy of insurance as the basis for extending credit. Of course, it is true that in some instances insurance policies play a part in commercial transactions and form the basis for some credit; but this is the exception. The law recognizes this, and also recognizes the fact that in the main the insurance policy is procured for the benefit of dependents, and undertakes to secure it to them, rather than to creditors. Persons insure, frequently, for the very purpose of building up an estate which cannot be taken for the purpose of paying their debts, and frequently these policies of insurance furnish the only protection to the family of the insured against poverty and want.
The federal bankrupt law makes no attempt to interfere with the exemption laws of any state, and both by the statutes and decisions of this state a liberal interpretation has always been given to exemption laws. See Bank v. O’Neal, 86 Miss. 45, at page 52, 38 South. 630. This has been the uniform holding of this and all courts upon this subject. The insured had the right to assert the exemption at any time before he actually allowed the value of it to be paid to his creditors, and although he listed it with the bankrupt estate as an asset, and died before asserting the exemption allowed by section 2141 of the Code of 1906, his legal representative had the same right to assert the exemption and effectuate the *770purposes of the statute as the insured himself could do, to say nothing of the right of the heirs.
Section 70a of the bankrupt law expressly provides that: “The trustee of the estate of a bankrupt, upon his appointment and qualification, and his successor or successors if he shall have one or more, upon his or their appointment and qualification, shall in turn be vested by operation of law with the title of the bankrupt, as of the date he was adjudged a bankrupt, except in so far as it is to property which is exempt,” etc. Act July 1, 1898, c. 541, 30 Stat. 565 (U. S. Comp. St. 1901, p. 3451). The trustee in bankruptcy gets no such title to the exempt property of the bankrupt as to make it indefeasible by the bankrupt, or his legal representative,' until such exempt property has been actually allowed to be distributed to the creditors. That part of section 70a which provides “that when any bankrupt shall have any insurance policy which has a cash surrender value payable to himself, his' estate, or personal representatives, he may, within thirty days after the cash surrender value has been ascertained and surrendered to the trustee by the company issuing the same, pay or secure to the trustee the sum so ascertained and stated, and-continue to hold, own, and carry such policy, free from the claims of the creditors participating in the distribution of his estate under the bankruptcy proceedings,” was held in the case of Holden v. Stratton, 198 U. S. 202, 25 Sup. Ct. 656, 49 L. Ed. 1018, to have no application to insurance policies which were exempt under any statute of a state. In the above case the court held that the cash surrender value of an exempt policy was not liable to be taken by the creditors.
In the case of Holden v. Stratton, supra, the court says: “As section 70a deals only with property which, not being exempt, passes to the trustee, the mission of the proviso was, in the interest of the perpetuation of policies of life insurance, to provide a rule by which, *771where such policies passed to the trustee because they were not exempt, if they had a surrender value their1 future operation could be preserved by vesting thé bankrupt with the privilege of paying such surrender value,5 whereby the policy would be withdrawn out of the category of an asset of the estate. That is to say, the purpose of the proviso was to confer a benefit upon the insured bankrupt by limiting the character of the interest in a non-exempt life insurance policy which should pass to the trustee, and not to cause such a policy when exempt to become an asset of the estate. When the purpose of the proviso is thus ascertained, it becomes apparent that to maintain the construction which the argument seeks to affix to the proviso would cause - it to produce a result diametrically opposed to its spirit and to the purpose it was intended to subserve. And the meaning which we deduce from the text and context of the proviso is greatly fortified by obvious considerations of public policy. It has always been the policy of congress, both in general legislation and in bankrupt acts, to recognize and give effect to the state exemption laws. This was cogently pointed out by Circuit Judge Caldwell, in delivering the opinion in Steele v. Buel, 104 Fed. 972, 44 C. C. A. 287, where he.said: ‘From the organization of the federal courts under the judiciary act of 1789, the law has been that creditors suing in these courts could not subject to execution property of their debtor exémpt to him by the law of the. state. Judiciary Act of 1789 (1 Stat. 93, c. 21); Wayman v. Southard, 10 Wheat. 1, 32, 6 L. Ed. 253, 260; Lamaster v. Keeler, 123 U. S. 376, 8 Sup. Ct. 197, 31 L. Ed. 238; Dartmouth Sav. Bank v. Bates (D. C.), 44 Fed. 546 .... The same rule has obtained under the bankrupt acts, which have sometimes .increased the exemptions, notably so under Act March 2, 1867, ch. 176, 14 Stat. 517 (section 5045, Eev. St.), but have never lessened or diminished them,’ etc.”
*772It' is our judgment that the case should be affirmed on the direct appeal of the appellants and reversed on the cross-appeal of appellee, and judgment entered here awarding to appellees and cross-appellants, as to this feature of the case, the forty-two dollars cash surrender value of the policy awarded to appellants by judgment of the lower court, all costs to be taxed on appellants.

jReversed and judgment here as above.