Court Opinion

ID: 9601225
Source: CourtListenerOpinion
Date Created: 2023-08-22 01:39:55.117992+00
Date Added: 2024-06-11T10:23:17.850900
License: Public Domain

Don worth, J.
(dissenting)—The majority opinion sanctions, for the first time in this state, a transaction whereby one person deposits money with another upon an agreement that the depositor may withdraw during his lifetime all or any part of the money so deposited and that the depositary will upon his death pay any balance then remaining to certain designated parties. This transaction is upheld upon the ground that it is based upon a contract of life insurance. In my opinion, the supplementary contract here involved is not in any way connected with life insurance and is an attempt to circumvent the statute of wills and constitutes an invalid testamentary disposition. The far-reaching consequences of the majority opinion impel me to register my dissent.
The endowment policy issued to Mr. Sherlock matured December 1, 1943, while he was still living. By its terms the company obligated itself to pay him on that date (if then living) the sum of five thousand dollars (plus accrued dividends not previously withdrawn). The optional methods of settlement included the following:
“Option 1—The proceeds may be left with the Company subject to withdrawal in whole or in part at any time on demand in sums of not less than one hundred dollars. The Company will credit interest annually on the proceeds so left with it at such rate as it may each year declare on such funds and guarantees that the rate of interest shall never be less than three per cent.”
After describing options 2 and 3 (with which we are not concerned), the policy provided:
“In the event of the death of a payee any unpaid sum left with the Company under Option 1 shall he paid in one sum; any unpaid instalments payable under Option 2, or any instalments for the fixed period of twenty years only under Option 3 which shall not then have been paid, shall be com*549muted at three per cent compound interest, and unless otherwise agreed in writing shall be paid in one sum to the executors or administrators of such payee.” (Italics mine.)
The majority opinion interprets the italicized portion of the quoted provision as being modified by the phrase “unless otherwise agreed in writing,” which appears in the latter part thereof. In my opinion, the provision is not ambiguous in any degree and is not susceptible to the interpretation placed upon it by the majority, which seems to me to be a strained and unreasonable interpretation.
Had the life insurance company in drafting this policy intended that the phrase “unless otherwise agreed in writing” apply to Option 1, it would not have placed a semicolon after the words “shall be paid in one sum” appearing in the first part of the provision. We have confessed, in the recent case of Peters v. Watson Co., ante p. 121, 241 P. (2d) 441, to a very high regard, in interpretation of a contract, for the position of a comma. A semicolon, it appears to me, is entitled to at least the same regard in interpreting a provision as free from ambiguity as the one under consideration here.
We also, in the Peters case, recognized and applied, without stating it in so many words, the rule that, unless the intention of the parties appears to be otherwise, a relative word or phrase will be interpreted as referring to, or modifying, only its nearest antecedent.
Option 1 does not purport to give Mr. Sherlock any right to name beneficiaries to receive at his death any balance of the proceeds left with the company under that option. Since no right to designate any person or persons to whom such payment should be made was reserved to Mr. Sherlock in the endowment policy, the intention of the parties must have been that such proceeds were to be paid to his legal representative. It is the statutory duty of an executor or administrator to collect all debts due the deceased (Rem. Rev. Stat, § 1517) which, in this case, would include any balance remaining in the fund upon Mr. Sherlock’s death.
By his letter of December 31, 1943, Mr. Sherlock re*550quested the company to retain a portion of the proceeds under Option 1 and requested that payment thereof be made (presumably at his death) to five named nephews and nieces.
On January 21, 1944, he signed a letter addressed to the company (evidently prepared for his signature by its agent) referring to a certain supplementary contract which was dated January 7,1944, but which evidently had not been delivered to him. This letter stated in detail certain conditions as to the manner of exercising the right of withdrawal and also specified the method of computing interest on the deposit. It concluded as follows:
“It is understood and agreed that once your Supplementary Contract has been issued no change can be made in its terms.
“I further request that in the event of my death any balance remaining in the company’s possession is to be paid as follows [Here are listed the names of the five nephews and nieces.] otherwise to the executors or administrators of my estate.”
The supplementary contract referred to in this letter made no reference to its irrevocability. It contained the following provision:
“If at the death of said payee there shall remain any unpaid balance to the credit of said account, the amount of said balance remaining in the Company’s possession shall be payable in one sum, upon receipt of due proof of the death of the payee and surrender of this agreement, to as follows [Here are listed the names of the five nephews and nieces.] if living, otherwise to the executors or administrators of said Robert Sherlock. . . .
“This agreement is not negotiable nor assignable and must be submitted with each demand for any part of said sum for proper entry herein, and shall be surrendered to the Company whenever the sum so held is paid in full. All payments hereunder are payable at the Home Office of the Company in the City and State of New York.”
It is very plain to me that this so-called supplementary contract is an entirely new contract between the parties which is not supplementary to, nor in anywise connected *551with, Option 1 of the endowment policy in so far as it purports to designate substitute payees upon Mr. Sherlock’s death. There is nothing in the endowment policy relating to the payment of the proceeds to any person other than Mr. Sherlock after the close of the endowment period.
When the endowment policy matured by the lapse of twenty years on December 1, 1943, Mr. Sherlock was alive and the proceeds were payable solely to him. Under Option 1 he could and did elect to leave a portion of the proceeds with the company, but the endowment policy (as I construe it) gave him no right to designate to whom the proceeds should be paid at his death.
This supplementary contract is a new contract having nothing whatever to do with life insurance. The fact that the depositary of the proceeds was a life insurance company is immaterial. It might have been a bank or an individual. A deposit in a bank with instructions to pay any balance remaining at the depositor’s death to certain designated beneficiaries would clearly, in my opinion, be void as an attempt at testamentary disposition.
The majority appear to hold that the supplementary contract was a third party donee-beneficiary contract by which the nieces and nephew acquired a vested interest in the fund during Mr. Sherlock’s lifetime. The supplementary contract reserved to Mr. Sherlock the right to withdraw and use any or all of the principal and/or accrued interest during his lifetime as he should see fit. Furthermore, any creditors of Mr. Sherlock could have reached this money by garnishment or otherwise. He had not parted with any incidents of ownership in, nor control over, the money. The interests of the nieces and nephew in .this deposit cannot be considered as having vested at any time prior to Mr. Sherlock’s death.
The majority, in support of their conclusion that the nieces and nephew of Mr. Sherlock acquired vested interests under the supplementary contract, attempt to draw an analogy between the interest of a beneficiary under a life insurance contract wherein the insured has surrendered his *552right to change the beneficiary, and the interests of the nieces and-nephew under this contract, which was issued pursuant to an agreement that “no change can be made in •its terms.”
There can be no question that the interest of a beneficiary under a contract of life insurance wherein the insured has surrendered, or has failed to retain, his right to change the beneficiary is a vested one. In such event the beneficiary takes a vested interest which cannot be impaired or extinguished by the acts of the insured. 2 Appleman, Insurance Law and Practice, 310, § 911. But here Mr. Sherlock expressly reserved the right to extinguish the alleged interests of the named nieces and nephew by withdrawing all of the fund at any time. The rule is that if an insured retains the power to extinguish the rights or interest of a beneficiary, even though he cannot change his designation of the beneficiary, then the beneficiary has a mere expectancy or contingent interest. 2 Appleman, Insurance Law and Practice, 311, § 911.
It cannot, therefore, be maintained that even by analogy to the law of life insurance the named nieces and nephew acquired at any time prior to Mr. Sherlock’s death vested rights to the balance of the fund.
The majority opinion cites, in support of its holding, the decision of the circuit court of appeals (2d Cir.) in Mutual Benefit Life Ins. Co. v. Ellis, 125 F. (2d) 127 (1942), which upheld a similar contract. The court in that case applied what it conceived to be the applicable law of Colorado because the policies involved were payable there.
The basis upon which that case was decided (if such ever was the law in Colorado) has been swept away by the recent decision of the supreme court of Colorado in Urbancich v. Jersin, 123 Colo. 88, 226 P. (2d) 316, which was decided in December, 1950. There the deceased (one Novak) and the defendant opened joint accounts in two banks in which the deceased made all the deposits. It was agreed between them that during Novak’s fife the defendant should have no right to withdraw any funds. It was further *553agreed that upon Novak’s death the defendant should withdraw the entire balance and send it to Novak’s nieces and nephews. This arrangement was held to be an abortive attempt to make a testamentary disposition of the money without compliance with the statute of wills. The supreme court also held that the arrangement did not constitute an inter vivos gift to the nieces and nephews because the deceased did not surrender dominion and control over the money during his lifetime.
The court made it clear that it would not countenance such a contract as was involved in the Ellis case, supra, when it said:
“The money in question belonged to Novak at the time the joint accounts were created. There is no claim that defendant contributed in any way to the fund. It is undisputed that at the time the joint accounts were created, Novak and defendant expressly agreed that upon Novak’s death defendant would withdraw the money and send it to Novak’s nieces and nephews. These nieces and nephews were the sole beneficiaries named in Novak’s will, which was attested prior to the arrangement with defendant. The sole purpose of the transaction resulting in the creation of the joint accounts, was to avoid the probate of the will.
“The agreement between Novak and defendant vested no interest whatever in the nieces and nephews of Novak upon creation of the joint accounts. There was no gift inter vivos. The gifts, channeled through the defendant by the agreement, were to take effect only upon Novak’s death. Novak kept complete and unrestricted control over all the money so long as he lived, and could have withdrawn all of it and made disposition thereof in any manner he desired. Under the agreement, defendant had no right whatever to withdraw any of the money for any purpose during the lifetime of Novak, and upon Novak’s death he could only do so for the purpose of transmittal to the nieces and nephews.
“We are fully satisfied that the transaction from the beginning was an abortive attempt to make a testamentary disposition of property without compliance with the statutory law which- governs such transactions. It is fundamental that any testamentary disposition of property made otherwise than by compliance with the statute, section 39, chapter 176, ’35 C. S. A., cannot be enforced, and gives rise to no enforceable rights whatever.”
*554The Colorado court then cited with approval its recent decision in Johnson v. Hilliard, 113 Colo. 548, 160 P. (2d) 386.
The following cases are in accord with the Colorado cases above cited: Turpin’s Administrator v. Stringer, 228 Ky. 32, 14 S. W. (2d) 189; Johnson v. Savings Inv. & Trust Co., 110 N. J. Eq. 466, 160 Atl. 371; Trenouth v. Mulroney, 124 Mont. 499, 227 P. (2d) 590.
The result of the .majority opinion will be to permit a contract between a bank and its depositor to the effect that, if the depositor dies before his account is closed, the bank shall pay the balance to X, Y and Z.
In Stevenson v. Earl, 65 N. J. Eq. 721, 55 Atl. 1091, a husband had a savings account in which he had made periodic deposits and withdrawals. He delivered the pass book to his wife, stating that if he should die the money in the account should go to her. The court held that.there'was no gift inter vivos because he had no intention of parting with complete dominion and control over the money during his lifetime but that it was an attempt to transfer the savings account to his wife at his death. In holding that this arrangement violated the statute of wills, the court stated:
“But, in order to legalize such a gift, there must be not only a donative intention, but also, in conjunction with it, a complete stripping of the donor of all dominion or control over the thing given. Cook v. Lum, 26 Vr. 375, 376. As was said in the case cited, this is the crucial test, and if it be applied to the present case the gift is not to be sustained; for, neither by force of his contract with the company nor by the delivery of the pass-book, did he intend to, nor did he in fact, part with his complete dominion over any part of the moneys deposited by him.
“The expressed intention of the deceased was only to bestow upon his wife so much of his deposit as should remain undrawn by him at his death. Such a gift, it seems to us, is purely testamentary in its character. If it is not, then it is a perfectly easy thing for a person to retain the absolute control and dominion over his moneys and personal securities during his life and transfer that dominion to another at his death, with total disregard of the requirements contained in the statute of wills, by the simple device of *555depositing such moneys and securities, under an agreement with the depositary that he shall have the right to use them or deal with them as he pleases during his life, and that at his death so much of them as may remain shall be delivered to such person as is named in the agreement, who shall then become the owner thereof, and then delivering the agreement to the beneficiary with a statement of the same purport as that made by the deceased to his wife when he gave the pass-book to her. To hold that such a method of disposing of property by the owner at his death is valid, would be to practically repeal the statute of wills in its operation upon personal property, so far as its mandatory provisions are concerned.” (Italics mine.)
I think that the principles enunciated in this decision and in those referred to above are applicable to the case at bar and that, since Mr. Sherlock retained possession of the supplementary contract and control over the funds during his lifetime, no interest therein vested in his nieces and nephew. Their claim to the money could only arise by reason of his death and, not being based upon his will, nothing was transmitted to them by the supplementary contract.
Let us examine the nature of a third party donee-beneficiary contract. The very word “donee” connotes a gift. A third party donee-beneficiary contract is one means of effecting a gift. It cannot be used as a vehicle for passing property at death, without regard for the requirements of the statute of wills. There is no authority, to my knowledge, which attempts to divorce such type contracts from all other fields of law, or which holds that they shall be given effect regardless of whether or not a contract interest vests during the lifetime of the donor.
It is fundamental that a valid gift inter vivos can be completed by delivery to another person for the benefit of the donee. But it is equally fundamental that in such a case the donor must irrevocably divest himself of dominion and control over the subject matter of the gift. In the present case, Mr. Sherlock expressly retained control and dominion over the funds during his lifetime, and the transaction must, then, fail both as an abortive attempt to make a gift inter *556vivos as well as an abortive attempt to make a testamentary-disposition of the funds.
By the decision in this case, it is held .for the first time that the owner of personal property may avoid probate proceedings and the expense of administering his estate by the simple expedient of reducing his assets to cash and entering into a contract with a bank, insurance company or individual (similar in form to the supplementary contract here involved), while still retaining control over the money during his lifetime.
If such a revolutionary change is to be made in this state in the method of transmitting property at death, which has heretofore been recognized as exclusive, only the legislature should make it effective. It surely did not amend or repeal the statute of wills by enacting the section of the insurance code (RCW 48.23.300) which is quoted in the majority opinion.
I think that the judgment should be reversed with instructions to direct the payment of this money to appellant as executor of Mr. Sherlock’s estate.
Schwellenbach, C. J., and Weaver, J., concur with Don-worth, J.