Walzer v. Walzer , 1 A.D.2d 482 ( 1956 )

Botein, J.

In 1941 Morris Walzer assigned three policies of insurance on his life to the Berks County Trust Company of Beading, Pennsylvania, as collateral security for a loan. The assignments each provided that ‘ ‘ any designation or change of beneficiary or election of a mode of settlement shall be made subject to this assignment and to the rights of the Assignee hereunder ’ ’. Some years later, using the change of beneficiary form provided by the insurance company, he designated his two infant daughters as beneficiaries “ [s]ubject to prior assignment, to Berks County Trust Company dated July 21,1941 ”.

When Walzer died in 1951, the loan from the Berks County Trust Company was still unpaid. Pursuant to the assignments, the insurer paid the bank the sum owing out of the proceeds of the policies and turned the balance of the proceeds over to the general guardian of the infant daughters. The general guardian then brought this action on behalf of an infant daughter against the executor of Walzer’s estate for repayment of the amount that had been deducted from her share of the insurance proceeds. The executor, contending that the beneficiaries were not entitled to look to the estate for reimbursement, moved for summary judgment, and, the motion having been granted, plaintiff appeals.

Ordinarily, a loan from a bank creates a debt for which the borrower is personally liable, and upon his death, the debt becomes an obligation of his estate (Matter of Stafford, 278 App. Div. 612; Matter of O’Meara, 193 Misc. 790). If specific property has been pledged as collateral security, the bank can satisfy its p.1 aim from the collateral pledged or make claim directly against the estate (Matter of Jones, 81 N. Y. S. 2d 386; Matter of Reinhold, 68 N. Y. S. 2d 347). If the estate’s obligation is discharged by resort to the proceeds of insurance policies held as collateral, the beneficiaries of such policies, by the operation of general equitable principles, are subrogated to the bank’s claim against the estate, and are presumptively entitled to reimbursement for the diminished proceeds (Friedlander v. Scheer, 1 Misc 2d 899, affd. 281 App. Div. 808; Matter of Stafford, 278 App. Div. 612, supra; Matter of Cummings, 200 Misc. 467).

The only exception to this general rule is where the decedent has clearly manifested a specific intention to have the. debt satisfied solely from the security, freeing his estate from any obligation to repay the loan. Thus, when an insurance company lends money on its policies, paragraph (g) of subsection 1 of section 155 of the Insurance Law specifies that the policy shall be the “ sole security ” for advances thereon by the insurer, so that the insurance company may not look to the general assets of the estate, and the beneficiary has no right of subrogation (Wagner v. Thieriot, 203 App. Div. 757, affd. 236 N. Y. 588; Matter of Hayes, 252 N. Y. 148). When the loan is from a bank, however, the bank is not so restricted, for it takes the policies as “ collateral security ”, and, as pointed out in Chamberlin v. First Trust & Deposit Co. (172 Misc. 472, 475), collateral security means security additional to, rather than in lieu of, the personal obligation of the borrower. (Cf. Barbin v. Moore, 85 N. H. 362.) In the absence of a clear and unequivocal showing to the contrary, the presumption is in favor of the right of subrogation, and only by facts affirmatively indicating the decedent’s intention to make the policies the exclusive source of repayment is the presumption overcome (Matter of Cummings, 200 Misc. 467 supra; Matter of Van Hoesen, 192 Misc. 689, 693).

The executor argues that the designation of the beneficiaries to take the policy proceeds “ [s]ubject to prior assignment ” overcomes this presumption, and evidences as a matter of law a clear intention to restrict the beneficiaries to the net policy proceeds. He contends, in effect, that the use of this language is so conclusive as to preclude resort to evidence which plaintiff could offer to show that the decedent at the time of the assignment stated that he intended the beneficiaries of the policy to receive the full proceeds, undiminished by the debt owing to the bank. The executor relies primarily on the cases of Matter of Kelley (251 App. Div. 847), Friedlander v. Scheer (supra), and Matter of Kelekian, 1 Misc 2d 886, affd. without opinion 281 App. Div. 877). The Scheer case (1 Misc 2d 899, 901, supra) was markedly different from this, since the bank was designated as primary beneficiary and the ‘ ‘ ‘ balance if any ’ ’ ’ was payable to the second beneficiary. In the Kelley (supra) and Kelehian (supra) cases, while language similar to that employed here was used, they were decided by reference to the overall plan of the decedent as evidenced by all the arrangements theretofore made.

The use of the quoted phrase has not been deemed conclusive in and of itself on the question of the beneficiaries’ rights against the estate (Matter of Van Hoesen, supra; Matter of Cordier, 1 Misc 2d 887). No one phrase can be taken as the sole touchstone of intent — that intent must be distilled from a study of the decedent’s entire scheme for disposal of his estate as set forth in all the documents, and, if ambiguity persists, in evidence beyond the documents.

The designated beneficiaries, with or without the subordinating language, would take “ [s]ubject to prior assignment ” to the' lending bank. Eights accorded to the bank, however, would not be dispositive of the rights of the beneficiaries as against the estate (Chamberlin v. First Trust & Deposit Co., 172 Misc. 472, 475, supra; Matter of Blackman, 188 Misc. 390). Clearly, the subordinating language was not deliberately selected by the decedent with a view to settling rights between his beneficiaries and his estate. It was contained in a form provided by the insurance company, and was necessary to implement the requirement in the instrument of assignment that ‘1 any designation or change of beneficiary or election of a mode of settlement shall be made subject to this assignment and to the rights of the Assignee hereunder ”. The forms were furnished to clarify the rights and responsibilities of the insurance company and the bank. Those institutions have no interest in whether the beneficiaries are to be permitted to recoup from the estate, and ‘1 The beneficiary has no interest in the form provided in the policy for assigning it, that being a provision inserted for the benefit of the company * * * ” (Davis v. Modern Ind. Bank, 279 N. Y. 405, 410-411).

Even if it be argued that the insured adopted the language of the forms, they contain provisions which indicate that the policy proceeds were not to be considered the exclusive source of repayment of the loan. It was specified that the assignment would be security not only for the existing liability of the insured, but for liability thereafter arising, which future liability might exceed the value of the policy. To make it plain that the bank was not restricted solely to the policy, it was explicitly provided that it could take other security, and that it could exercise any right given by the instrument of assignment at its option without affecting the liability of the insured. A provision that the bank “ may ” apply the policy proceeds to the liabilities was a further recognition that it had a choice, and that it could proceed directly against the estate if it chose so to do.

The bank having been given the option to seek repayment either from the policy proceeds or the general assets of the estate, the executor could not have complained had the bankchosen not to exercise its rights against the security (Chamberlin v. First Trust & Deposit Co., supra). Having done otherwise, the ultimate result should be no different. The rights of the beneficiaries are not to be enlarged or diminished according to the whim or convenience of the assignee. If the bank had a right to proceed directly against the estate, and did not exercise that right, then the beneficiaries should be permitted to be subrogated to that right. There is no clear-cut direction to the contrary—at the very least there is such an ambiguity that extrinsic evidence of intent should be permitted. The order granting the defendant’s motion for summary judgment and dismissing the amended and supplemental complaint should be reversed and the motion denied.