Barbour v. Connecticut Mutual Life Insurance

The finding in this case shows that Arthur W. Masters, a trader in St. John. New Brunswick, Canada, on July 2d, 1870, took out two policies of insurance upon his life in the Connecticut Mutual Life Insurance Company of Hartford, Connecticut, each for the sum of $2,500, and payable to his legal representatives upon his death. One of the policies was a ten payment life policy, upon which an annual premium of $206.53, less dividends, was to be paid for ten years, and the other was an ordinary life policy requiring an annual payment of $128.83, less dividends. The premiums on each of these policies were duly paid in 1871 and 1872.

On February 3d, 1873, Masters made an assignment for the benefit of his creditors under the insolvent act of 1869 of the Dominion of Canada, to an official assignee. The first meeting of creditors was held on February 22d, 1873, to receive a statement and appoint an assignee of the estate and effects of Masters under said insolvent act. At that meeting Masters met his creditors, and when asked by them about his assets, told them, after mentioning other items of property, that he held the two policies of insurance above described, and also informed them that but two premiums had been paid upon them. The creditors discussed the value of the policies in a general way, some of them expressing the opinion that they were of very little value. It appears also from the finding that the Bank of New Brunswick, on account of whose claim the present action was brought, was present at the meeting of creditors by counsel, but it does not. appear whether the bank was at that time a creditor or not. The assignee never demanded, claimed or took possession of the policies, nor did any of the creditors ever take any action to obtain such possession. On January 17th, 1874, Masters surrendered the policies to the insurance company, and new policies were at his request issued for the same amounts and premiums and identical in all respects with those surrendered, except that they were made payable to his wife, Hannah Masters. On February 4th, 1874, Masters was duly discharged in insolvency, and there was not at the date of this suit any creditor whose claim was outstanding at the time of the insolvency, or so far as it appeared of the discharge. After Masters took out the new policies for the benefit of his wife, he applied to his sons for help to keep up the policies, as he was unable to pay the premiums upon them. They from time to time thereafter advanced money to pay these premiums. The premiums on one of the policies became actually paid up in July, 1879, The premium of $128.83 on the other policy, less the dividends, was duly paid each year until the death of the insured. The sons paid directly the premium due in 1883 on the last named policy, and annually thereafter.

In April, 1883, Masters again failed in business, and was then indebted to said Bank of New Brunswick on claims which originated after the beginning of the year 1883, and which are now represented by two judgments amounting to upwards of $2,600. Masters died October 23d, 1888. Thereupon the bank as such creditor caused application to be made in the court of probate for the district of Hartford for the appointment of an administrator upon his estate, and the plaintiff was duly appointed administrator and commenced this suit, in which the defendant subsequently filed an answer by way of cross-bill, and asked that Hannah Masters be made a party thereto and interplead with the plaintiff, as appears of record. No claim against said estate other than that of said bank has been presented or is known to exist. The policies in question were not liable to be taken on execution for the payment of debts in the province of New Brunswick either in 1873 or in 1874, but would have been assets, if of any value, in the hands of the assignee in insolvency, if he had taken possession of them.

Upon the foregoing facts the plaintiff claims in his appeal, as matter of law, that the surrender and re-issue of the policies was fraudulent and void as against, the creditors whose claims existed at the time such surrender was made, and if so fraudulent as against existing creditors, then such surrender and re-issue can be avoided by any subsequent creditor.

A proper consideration of this legal proposition requires its division. The first question is, whether, in view of all the facts found by the court below, the act of Masters, the insolvent, in surrendering the policies to the company and causing them to be re-issued in favor of his wife, was a fraudulent act upon his existing creditors.

A policy of life insurance being a contract to pay a fixed sum of money to the beneficiary of the policy, provided certain stipulated premiums are paid, constitutes a chose in action, its value depending on the nearness of the day for the performance of the contract. Undoubtedly wherever choses in action belonging to a debtor may be reached by creditors, a voluntary transfer of a life insurance policy in fraud of the rights of creditors may be set aside for their benefit. "Where a person has taken out policies of insurance upon his life for the benefit of his estate, it has been frequently held that, as against creditors, his assignment when insolvent of such policies to or for the benefit of wife and children, or either, constitutes a fraudulent transfer of assets within the statute, and this even though the debtor may have had no deliberate intention of depriving his creditors of a fund to which they were entitled, because his act has in point of fact withdrawn such a fund from them and dealt with it by way of bounty. The rule stands upon precisely the same ground as any other disposition of his property by the debtor. The defect of the disposition is that it removes the property of the debtor out of the reach of his creditors." Central Bank v. Hume, 128 U. S. R., 204.

We understand this to be a correct statement of the law as now generally accepted. Freeman v. Pope, L. R., 9 Eq. Cas., 206; Cornish v. Clark, 14 id., 189; Bump on Fraudulent Conveyances, 239, and cases cited. 1 Story's Eq. Jur., §§ 367, 368. The decisions of this court are to the same effect. Freeman v.Burnham, 36 Conn., 473; Paulk v. Cooke, 39 id., 566; Allen v. Rundle, 50 id., 32.

In all such cases, however, the form or manner of the particular conveyance or the circumstances surrounding the transaction may exempt it from the operation of this general rule. It will be observed in the principal ease cited, (Central Bank v. Hume, supra,) that this doctrine is based upon the ground that the debtor has actually withdrawn a fund from his creditors available for the payment of debts. The court distinctly declares that the rule laid down by them applies only to that which the debtor could have made available for the payment of debts.

The value or rather the want of value, of these policies, therefore, as an available asset for the payment of creditors, becomes important in settling the question now under consideration. The fact that but two premiums had then been paid on the policies would have entitled the assignee only to paid-up policies for small amounts, payable on the death of Masters. Both policies provide "that if after the payment of two or more annual premiums upon this policy the same shall cease and determine by default in the payment of any subsequent premiums when due, then, notwithstanding such default, this company will grant a paid-up policy (payable as above) for such amount as the then present value of this policy will purchase, as a single premium; provided that this policy shall be transmitted to and received by this company and application made for such paid-up policy within one year after default in the payment of premium herein shall first be made."

It is manifest that the policies had no cash surrender value, and even if they had been reduced to possession by the assignee it is not probable that he could thereby have increased the cash in his hands for distribution to creditors. Doubtless this consideration influenced both assignee and creditors in deciding to treat the policies of insurance as worthless to the insolvent estate. Masters's conduct concerning the policies removes from him any suspicion of an intent to defraud his creditors. He did not conceal, but promptly revealed at the first opportunity he had, their existence, and was apparently ready at all times to put the assignee in possession of them. He held them nearly a year, and until by the provisions of the insolvent act proceedings looking to his discharge in insolvency must have been commenced. Here was an open disclosure and offer of the policies by the debtor to his creditors and their assignee, and an entire neglect on the part of both for such a time as to raise a presumption that they had abandoned the policies as of no value — as in fact they did, for no creditor of 1874 has ever made any claim to them. "The insolvent law assumes that creditors will reject nothing that has a seeming value." Filley v. King,49 Conn., 214.

Acting upon this lawful assumption, Masters, on the 17th day of January, 1874, less than three weeks before the date of his discharge, caused the policies to be re-issued and made payable to his wife. As his discharge was granted after the transfer of the policies, and could have only been granted by the action of his creditors representing in value at least three fourths of his total liabilities, and as all his creditors had knowledge of the existence of the policies in question, it is not a violent inference that they knew and approved of this act of Masters. At all events there is nothing in the whole transaction that indicates any intent on Masters's part to defraud his existing creditors.

No evidence was offered in the court below tending to prove that these policies, with hut two premiums paid thereon, eight move to be paid on one and an indeterminable number on the other, had any value as an asset in 1874, nor does the finding show they had such value. All the facts upon the record justify the conclusion that all the creditors of Masters regarded the policies in question as absolutely valueless for the payment of the insolvent's debts.

If this is true, then another element indispensable to a fraudulent conveyance is wanting in this case. To constitute a disposition of property by a debtor with intent to defraud his creditors, the thing disposed of must be of some value, out of which the creditor could have realized his claim or some part of it. Hoyt v. Godfrey, 88 N. York, 669.

If not fraudulent or prejudicial to creditors, then under the settled law there can be no question as to the insolvent's right to transfer the policies to his wife or for her benefit. Darcy, Trustee, v. Ryan,44 Conn., 520; Benton v. Jones, 8 id., 186;Converse v. Hartley, 31 id., 879;Gilligan v. Lord, 51 id., 562.

But even if the policies had been found to have been of value as an asset for the then existing creditors of Masters, and on that account we were compelled to hold their transfer fraudulent as to such creditors, we should still, under the foots of this case, be unable to sustain the plaintiff's claim.

The demand sought to be enforced in this action did not arise till nine years after Masters's discharge in insolvency. By the terms of the Canadian insolvent act the effect of such discharge was to completely absolve the insolvent debtor from all liabilities whatsoever then existing against him and provable against his estate. It was equivalent to payment by Masters, and left him free to face the world anew unburdened by debt. Insolvent Law of Canada, 32 and 33 Vict., chap. 16, §§ 109, 110.

Under such a state of facts there is no ground upon which a subsequent creditor can attack the conveyance in question. While the authorities differ as to whether, to entitle a subsequent creditor to relief, he must show that at the time of the commencement of his suit there were debts still outstanding which the debtor owed at the time he made the alleged fraudulent conveyance, yet all will agree that there must at least have been debts contracted before the conveyance which remained unpaid at the time when the subsequent creditor's debt was created. A subsequent creditor must rest the foundation for his individual relief upon the equity of an antecedent creditor. Claflin v. Mess, 30 N. Jer. Eq., 212; 2 Bigelow on Fraud, 107. The case at bar fails to disclose the existence of a single unsatisfied debt created prior to the origin of the claim in suit.

Payment or satisfaction by a debtor of all debts existing prior to the time he makes a voluntary conveyance, repels the idea that he thereby intended to defraud creditors.Claflin v. Mess, supra; Freeman, v.Pope, supra; Lush v. Wilkinson, 5 Ves., 387; 1 Am. Lead. Cases, 41; Kerr on Fraud, 207, and cases cited.

There is no error in the judgment appealed from.