Matter of Nires , 290 N.Y. 78 ( 1943 )

Each of the defendant insurance companies holds the proceeds of a policy issued by it insuring the life of Henry Nires. In each policy the insured named his three infant children as beneficiaries and each insurance company agreed in substance that at the death of the insured it would hold the proceeds "on deposit" crediting the fund with interest at a rate stipulated in the policy; that when each beneficiary reached the age of twenty-one years the company would pay to him or her the accumulated interest on the share of the proceeds apportioned to such infant; that thereafter, the company would pay the stipulated interest to such beneficiaries till he or she reached the age of thirty and that then it would pay the share held "on deposit * * * together with any interest accrued thereon" to the beneficiary "in a single sum." There are variations in the language in which the obligation of the respective insurance companies is formulated. As Judge FINCH in his opinion points out, in two of the policies the insurance company in terms agrees to hold the proceeds as "trustees" but in substance the obligation of each insurance company is the same. The company owes to the beneficiary a contractual obligation to make the stipulated payment. "Although the word trust is used, the agreement is not in fact a trust agreement." (Crossman Co. v.Rauch, 263 N.Y. 264, 273.)

Two of the beneficiaries named in the policies are infants residing with their mother, the petitioner-appellant. These infants received nothing under the will of their father, the insured. They are, it appears, entirely destitute and their mother with whom they reside is also without money or property which she can use for their support. She has applied to the Supreme Court for an order directing the insurance companies to pay to her as guardian of the two infant children the accumulated interest and any interest that may hereafter accrue to them from time to time on the proceeds of the life insurance policies held by the insurance companies or such sum as to the court may seem sufficient for their support and education. The petition has been denied on the ground that the Supreme Court has no power to direct such payment.

Section 17 of the Personal Property Law provides that "when a minor, for whose benefit a valid accumulation of the income of personal property has been directed, shall be destitute of other sufficient means of support or education, the supreme court * * * may * * * cause a suitable sum to be taken from the moneys accumulated or directed to be accumulated, to be applied for the support or education of such minor." The sole question presented upon this appeal is whether the accumulation of interest on the proceeds of the policies which the insurance companies have agreed to pay to the infants as each reaches the age of twenty-one is a "valid accumulation of the income of personal property" within the meaning of the statutory provision.

It must be conceded at the outset that the insurance company is under no obligation to hold the proceeds of the insurance policy as a separate fund, and as Judge FINCH points out, the accumulated interest which the company has agreed to pay is fixed by agreement and is not in technical sense "income from personal property." The insurance company is not a trustee since it holds no specific fund and for the same reason the statute against restraints on alienation and on accumulations of income do not apply to the contractual obligation of the company. (Holmes v. John Hancock Mut. Life Ins. Co., 288 N.Y. 106.) Though the insurance company is not technically a trustee and holds no specific fund for the benefit of the petitioner's infant children, yet its position is so closely analogous to that of a trustee and its obligation to pay interest on the proceeds of the policy is so closely analogous to an obligation to pay the "income" of a fund of the same amount as those proceeds, that the difference is commonly ignored in thought and speech. So we speak of a depositor's money in a bank and the income of such money though technically the bank holds no money for the depositor and merely owes him a debt. We have in the language of the contracts between the insurance companies and the insured which fixed the contractual obligation of the companies convincing evidence that the parties to the contracts regarded the relationship between the company, promising to make deferred payments of the principal of the proceeds with interest thereon, and the beneficiary entitled to such deferred payment, as that of a trustee holding a specific fund and cestui entitled to the income of the fund. That is clearly expressed in two policies and it is instinct in the language of the other policies. The ultimate question which we must decide is whether the Legislature in section 17 of the Personal Property Law intended that the words "accumulation of the income of personal property" should be confined to the income of personal property held in the form of a technical trust or intended to include the accumulation of interest upon the proceeds of an insurance policy when payment is deferred under such a contract with the insurance company made for the benefit of an infant.

The statute was enacted before the contracts with the insurance companies were made. If the language of the statute is given broad construction it includes the accumulation of interest directed by the contracts. Then the provision of the statute that the court may order payment of such accumulation for the support of the infant beneficiaries is as much a part of each contract as if it had been integrated in terms in the contract. We may not lightly assume that a father who takes out a policy of life insurance for his children would provide that the income of the proceeds of the policy should be accumulated during the infancy of his children unless he believed that if the children should be destitute the income could be applied for their benefit. To the ordinary layman the statute offered such assurance. The petitioner does not, I think, urge that the Supreme Court is given power by the Legislature under section 17 of the Personal Property Law "to invade and set at naught these agreements made between the insured and the companies." Obviously any statute which attempted to given power to the courts to "set at naught" any contract would be unconstitutional. What the petitioner here urges is that the courts should enforce these contracts made by a father to provide for his children, including in the contracts the statutory provision that during the infancy of the children the court may direct that income which would otherwise be accumulated should be applied for the support and education of his children, if they would otherwise be destitute.

Labored analysis of the language of the title and of other sections of the same article of the Personal Property Law furnishes no plain guide to the intention of the Legislature in enacting section 17, and conflicting inferences might be drawn from different parts of the statute. We do know that the relationship created by the contracts is so nearly analogous to that of trustee and cestui that the insurance companies and their attorneys in drafting the terms of the contract ignored the distinction. We do know that in common parlance men are prone to ignore the distinction between "accumulated income of personal property" and accumulated interest on moneys held on "deposit" under a contract for deferred payment. We find no sound reason why the Legislature should have intended a distinction which men not versed in the technicalities of the law might not discern. Upon the argument of the appeal the attorneys for the insurance companies frankly said that they could see no reason why the Legislature should draw such a distinction. The statute is in my opinion misread and the purpose of an insured in taking out the insurance policies for the protection of his children would be thwarted if the language of the statute is confined to its technical meaning.

The order of the Appellate Division should be reversed.

RIPPEY, LEWIS and DESMOND, JJ., concur with FINCH, J.; LEHMAN, Ch. J., dissents in opinion in which LOUGHRAN and CONWAY, JJ., concur.

Order affirmed. (See 290 N.Y. 745.)