Court Opinion

ID: 5254137
Source: CourtListenerOpinion
Date Created: 2022-01-06 18:22:30.612018+00
Date Added: 2024-06-11T08:27:59.494888
License: Public Domain

Smith, J. (dissenting):
In 1912 F. Augustus Heinze was insolvent. He then assigned to his sister, this appellant, four life insurance policies which he held payable to his estate. This assignment was without consideration. It is conceded in the case that he had at the time of the assignment borrowed from the several companies in which such policies were held an amount equal to the full surrender value of the policies. After the assignment he paid the premiums as they became due upon the policies and immediately after the payment of the said premiums he, with consent of appellant, borrowed further sums upon the policies to reimburse himself for the premiums thus paid.
' The referee has found that the assignment of these policies without consideration while insolvent was presumptively fraudulent which presumption was not rebutted by the defendant, and upon this finding has directed the judgment appealed from. Heinze died in 1914 and this appellant as assignee collected the amounts due upon the policies.
Appellant has argued with much force that fraud could not be predicated on the assignment of life insurance policies which had no surrender value, because the creditors were not deprived of any substantial security. Authorities have been cited to sustain this proposition. I deem it unnecessary to consider this proposition, however, because of my view of the effect of the National Bankruptcy Act which reserves to the debtor all life insurance policies over and above their surrender value whatever may be the debtor’s equity therein. Most, if not all of the authorities cited arose before the Bankruptcy Act of 1898, which secures this reserved right, and whatever may be their force, the conclusions arrived at are strongly fortified, as I view it, by the terms of the act.
The Constitution of the United States (Art. 1, § 8, subd. 4) gives to Congress the power to enact uniform bankruptcy laws. Pursuant to that constitutional prerogative Congress *770has enacted a National Bankruptcy Act which provides that a bankrupt upon paying or securing to the trustee the cash surrender value of any life insurance policy which he may have, payable to himself, his estate, or personal representatives, may have returned to him that policy for Ms own benefit. (30. U. S. Stat. at Large, 565, 566, § 70, subd. a, cl. 5.) Under this provision of the law it has been held that if a policy has no surrender value it does not pass to the trustee, but is retained by the bankrupt for his own benefit. (Collier Bankruptcy [11th ed.], 1140.) The learned referee has found that these policies were transferred by F. Augustus Heinze to his sister to defraud his creditors. The intent thus found can only be construed as an intent to withdraw these assets from the reach of his creditors. This presents the simple question whether a debtor can be guilty of defrauding creditors by withdrawing from those creditors assets which were never within their reach. It is elementary that a creditor can only complain of a transfer by which he is harmed. If Heinze had voluntarily gone into bankruptcy these policies would still have been his own to dispose of as he pleased. If the creditors had put him into bankruptcy, these policies would still have been his own to dispose of as he pleased. By the acquiescence of these creditors he was not put into bankruptcy, probably because they thought a man of his ability, forty-five years of age, might recoup his misfortunes and work out of his financial difficulties. With the absolute right to reserve these policies for his own benefit under the Bankruptcy Act,- the creditors lost nothing by his assignment to his sister, and it is difficult to see how he can be charged with fraud for withdrawing from his creditors property which he would have the absolute right to withhold from them if they had proceeded to put him in bankruptcy. It may be contended that the right to withhold this asset from creditors was conditioned upon the debtors taking advantage of the Bankruptcy Act. If this were a question of the passing of title this argument would not be without force. A statute prescribing a method by which title shall pass must be strictly followed, otherwise title will not pass. But here title passed to the assignee subject only to impeachment by the creditors for fraud. I cannot conceive, however, how fraud can be *771predicated upon the method employed when the method itself was not adopted with a fraudulent purpose. In other words, if the creditors could not claim this asset in bankruptcy, they cannot claim it on the ground of fraudulent transfer when the debtor abstained from bankruptcy with the creditors’ acquiescence. The reservation by the Bankruptcy Act to the bankrupt of the right to this policy beyond the surrender value may well be based upon public policy on the ground that an insurance policy would have a markedly greater value, to the debtor than to his creditors. A trustee would have no right to hold the policy and pay premiums from the bankrupt estate that the creditors might eventually benefit by the debtor’s death. (Matter of McKinney 15 Fed. Rep. 535.) He could only surrender the policy and take the surrender value. This public policy would negative fraud in this transfer, though the debtor did not go into bankruptcy. But, irrespective of the considerations of public policy, I am of the opinion that fraud cannot be predicated of a transaction which could not have been successfully challenged during the life of the debtor, because if then challenged the debtor could have protected his transfer by invoking the protection of the National Bankruptcy Act. This conclusion is not in antagonism to the case of Continental National Bank v. Moore (83 App. Div. 419), because in that case the policy had a surrender value which was attempted to be fraudulently transferred. Nor does it conflict with the decision in Reynolds v. Ætna Life Insurance Co. (160 N. Y. 635). In the policy there under consideration there was a surrender value and it was held that the title to the policy had passed to the receiver in supplementary proceedings. In fact no case is cited, either before or since the passage of the National Bankruptcy Act of 1898, in which the transfer of a life insurance policy has been held fraudulent where the policy had no surrender value.
I recognize that the question as here presented is a novel one. But its importance is manifest. Upon the question of actual fraud, however, which must here be found to avoid this transfer the absolute legal right to withhold these policies from creditors under the Bankruptcy Act is to my mind a controlling factor. I vote for a reversal of the judgment and a dismissal of the complaint.