Court Opinion

ID: 9564026
Source: CourtListenerOpinion
Date Created: 2023-08-21 18:53:05.438637+00
Date Added: 2024-06-11T09:18:11.384703
License: Public Domain

PETERS, P. J.
Evelyn Corbett and Albert A. Albeck appeal on the judgment roll from a judgment in favor of intervenor, Edward H. Marxen, administrator with the will annexed of the estate of Samuel Beck, deceased, determining that the proceeds of certain insurance policies on the life of Samuel Beck should be used to pay the debts and costs of administration of the Beck estate. It is appellants’ contention that it should have been adjudged that the proceeds of such policies belonged to them.
The facts giving rise to this controversy are as follows: Two policies of life insurance were issued by The Prudential Insurance Company of America on the life of Samuel Beck, one on November 20, 1933, and the other on December 4, 1933, each in the sum of $1,000. Both policies named Louis Beck, the brother of the assured, as beneficiary. Approximately two years later, in the exercise of a right reserved to the insured under the terms of the policies, the insured changed the beneficiary, substituting for his brother, his executors, administrators or assigns. About two months thereafter, he assigned the policies, one to Evelyn Corbett and the other to Evelyn Corbett and Albert A. Albeck, these two to share equally in the proceeds of the latter policy. Six and a half months later Samuel Beck died.
Louis Beck, the beneficiary first named in the policies, and Evelyn Corbett and Albert A. Albeck, as subsequent assignees, made claim to the proceeds of the policies. The insurance company filed an action in interpleader naming Louis Beck, Evelyn Corbett and Albert A. Albeck as defendants, and, upon deposit of the proceeds of the policies with the court, was discharged from liability. Just prior to the trial, the administrator of the estate of Samuel Beck, deceased, who theretofore had filed an answer, filed a complaint in intervention, alleging that certain enumerated assets of the estate were of “practically no value except what may be recovered by the intervenor for said estate in this action”; that the time for filing claims against the estate had not elapsed; that specified claims in excess of the amount deposited with the clerk by the interpleader had been filed; that the change of bene*358fieiary, designating the executors, administrators or assigns, made the policies payable to the' estate and not to the brother, Louis Beck; that the assignments to appellants were brought about by undue influence and deceit practiced upon decedent by the appellants at a time when he was mentally incompetent, representations having been made to him that Evelyn Corbett had advanced moneys for his use and benefit and that Albert A. Albeck had performed certain legal services for which he was entitled to compensation, to secure which compensation and repayment of advances, it was necessary that decedent make the aforesaid assignments; that such representations were untrue. The intervenor further alleged that the assignments were made without consideration and at a time when Samuel Beck was indebted to various parties, and that they were made with intent to hinder, delay and defraud these creditors by preventing the proceeds of the policies of insurance from being applied toward payment of legitimate claims against.him; that appellants received the assignments with knowledge of Samuel Beck’s insolvency and that their purpose was to assist him in defrauding his creditors.
By these pleadings two issues were presented to the trial court: first, whether Evelyn Corbett and Albert A. Albeck were guilty of fraud in the securing of the assignments. The trial court made no direct finding on this issue. Secondly, the trial court was called upon to decide whether Samuel Beck, the owner of the two policies, was guilty of making a fraudulent transfer in assigning the policies. The trial court found that because Beck was insolvent at the time of the assignments, and because the assignments were gratuitously made when he knew he was about to die, they were in fraud of creditors, and, therefore, void. It is from a • judgment based on these findings and conclusions that this appeal is taken.
Appellants’ first contention is that under section 690.19 of the Code of Civil Procedure the proceeds of the two policies were exempt from attachment or execution, and that as to such exempt property the owner thereof cannot be guilty of making a fraudulent conveyance. With this contention we agree.
Section 690.19 of the Code of Civil Procedure provides: “All moneys, benefits, privileges, or immunities, accruing or in any manner growing out of any life insurance, if the an*359nual premiums paid do not exceed five hundred dollars, or if they exceed that sum a like exemption shall exist which shall bear the same proportion to the moneys, benefits, privileges, and immunities so accruing or growing out of such insurance that said five hundred dollars bears to the whole annual premiums paid.”
The legal issue can be simply stated: Can a debtor, in possession of exempt property, ever be guilty of making a fraudulent conveyance or transfer of property made exempt by statute? Respondent in support of the judgment cites several cases which hold that an assignment of an insurance policy, being property, may be set aside if made in fraud of creditors. Most of the cases cited, however, did not involve insurance policies made exempt from attachment or execution by statute. (See notes 6 A. L. R. 1173, and 106 A. L. R. 596, validity and effect as against creditors of change of beneficiary or assignment of insurance policy from estate to individual.) It seems quite clear to us that, under basic and well settled principles, no transfer of property made entirely exempt by statute, can be held to be fraudulent as to creditors.  In the absence of express statutory restrictions a debtor has absolute power over exempt property—he may not only sell, exchange or assign his exempt property for a consideration, but he may give it away, if he sees fit, not only to his wife and children, but to strangers. To hold otherwise would make the exemption laws operate to the detriment rather than to the benefit of the debtor. These principles, supported by authorities from many states, are set forth in 25 Corpus Juris, pages 106 and 107, sections 182 and 184.
It is urged by respondent, however, that these basic concepts have no application where the gift of the exempt property is made by the debtor while insolvent. The complete answer to this argument is that creditors have no rights and no interest of any kind in the exempt property of their debtors. The mere fact that a general fraudulent conveyance statute has been enacted does not change the rule. So far as exempt property is concerned there are no creditors within the meaning of such a statute. These principles are so well settled that citation of the many eases establishing them would unduly lengthen this opinion. The cases are collected in 24 Am. Jur. 259, sec. 109; 27 Cor. Jur. 438, 439, secs. 62 and 63. The mere fact that the assigning debtor has died in no way *360changes the rule. According to the weight of authority, where exempt property is assigned or otherwise transferred “the transferee may retain it as against the claim of the transferor’s creditors, notwithstanding the intent of the debtor was to place it beyond the reach of and to defraud his creditors”. (25 Cor. Jur., p. 125, sec. 218, where many cases are cited to support the text.)
Section 690.19 of the Code of Civil Procedure exempts from execution or attachment all moneys, benefits, privileges or immunities, accruing or in any manner growing out of any life insurance, if the annual premiums paid do not exceed $500. That the purpose of the section is to protect the beneficiary as well as the insured is indicated by decisions that the insurance proceeds in the hands of the beneficiary, to the extent that the annual premiums have not exceeded $500, are exempt from execution for debts of the beneficiary. (Holmes v. Marshall, 145 Cal. 777 [79 Pac. 534, 104 Am. St. Rep. 86, 2 Ann. Cas. 88, 69 L. R. A. 67]; 12 Cal. Jur., p. 340.) The plain meaning of the unqualified language of section 690.19 is also to exempt such proceeds in the hands of the beneficiary from the debts of the insured.
If a conveyance or transfer is fraudulent it must be fraudulent when it is made. It can hardly be contended that at the time the assignments were made, or at any time during Samuel Beck’s lifetime, the creditors could reach the interest of Beck in the policies. To so hold would be to completely abolish the exemption. His subsequent death could not create a cause of action that did not exist prior to his death.
There are apparently no cases directly in point in California dealing with property made exempt by the various subdivisions of section 690 of the Code of Civil Procedure. There are many cases, however, holding that “the doctrine bearing upon conveyances made to hinder, delay, and defraud creditors has no application to the creation of a homestead” and that “it has long been the rule that a gift, sale, or pledge of any part.of a homestead cannot, under any circumstances, be with intent to defraud a creditor not having a lien upon the premises, for a creditor is not entitled to complain of the transfer by the debtor of an asset which he could not have reached, had the debtor retained it”. (Italics ours.) (Montgomery v. Bullock, 11 Cal. (2d) 58, at p. 62 [77 Pac. (2d) 846], where many cases are cited.) These principles are de*361cisive of the present appeal. Had the debtor retained the policies, the creditors could not have reached them prior to his death. They cannot complain, therefore, of a transfer made prior to death, whether such transfer was made with or without consideration, or while solvent or insolvent.
There is nothing in section 660 of the Probate Code, cited by respondent, that in any way affects this case. That section provides that in probate, exempt property, in the discretion of the court, may be set aside to the widow and minor children. Section 690.19 of the Code of Civil Procedure contains no such limitations. Where a policy is payable to a named individual, its proceeds do not pass through the estate of the insured. In such event the provisions of section 690.19 compel, without limitation, the exemption from liability for the insured’s debts and those of the beneficiary, of insurance benefits to the extent that the annual premiums do not exceed $500. The benefits of this section are not limited to the widow and children.
Respondent contends that it was not shown or found that the premiums on all policies on the life of Samuel Beck did not exceed $500 annually. The court did find, however, that the premiums on each of the policies herein were $4.32 a month. The appellants were not required to prove the absence of other insurance. Having proved that the premiums on their policies totaled less than $500 annually, they established a prima facie case.
There is nothing in the case of Bryson v. Manhart, 11 Cal. App. (2d) 691 [54 Pac. (2d) 778], so heavily relied upon by respondent, contrary to the views herein expressed. In that case $200,000 of insurance purchased by the insured with embezzled funds was payable to his estate. Thereafter, while insolvent, the insured named his sister as beneficiary. After his death it was held that the administrator of the insured’s estate could reach the proceeds for the benefit of the person from whom the moneys had been embezzled, and that the naming of the sister was, in effect, a fraudulent conveyance or transfer of assets. The court referred to a number of decisions in support of its conclusion that where insurance is payáble to the estate of the debtor and he changes the beneficiary while insolvent, his creditors in the event of his death insolvent may reach the proceeds of the policies. The only unpaid creditor was the aunt of the decedent from whom *362the money had been embezzled. The case is not in point for two reasons. In the first place, there is no reference at all in the opinion to section 690.19 of the Code of Civil Procedure. The question of whether any portion of the proceeds of the policies was exempt was not mentioned or discussed. In the second place, the court emphasized that the defrauded person could trace the embezzled funds into the insurance policies. At page 696 the court stated: “Plaintiff is entitled to pursue the property fraudulently transferred and to force an accounting thereof from defendants.”
For the foregoing reasons the judgment appealed from is reversed.
Knight, J., concurred.