all liability thereon by payment of its proceeds in accordance with its terms, unless, before the payment, the company shall have written notice by or in behalf of some creditor, with specification of the amount claimed, claiming to recover for certain premiums paid in fraud of creditors.'
The government does not allege its rights under the latter part of the act for as can be seen by the exhibits the premiums were paid by the defendant, Rose Burgo, out of her own funds and the plaintiff is not a creditor of hers.
Therefore, does the statute take the policies in question out of the reach of the creditor plaintiff? I think it does.
This Circuit (Third Circuit Court of Appeals) has already considered the very statute in question in the case of Greiman v. Metropolitan Life Insurance Co., 3 Cir., 96 F.2d 823, and disposed of the two questions, namely, does the law of New Jersey respecting exemption from executions apply? And, does the statute take the policies in question out of the reach of the creditors? In answer to the first point, Judge Davis said in the opinion, 96 F.2d page 825:
'We are nevertheless bound by the decisions of the courts of New Jersey interpreting an exemption law of that state. In re Demarest et al., D.C.N.J., 110 F. 638. See, also, numerous cases cited in 11 U.S.C.A. 24, note 14, pp. 307, 308, 309.'
And on the second question, Judge Davis said, 96 F.2d page 824:
'There can be no doubt that, had the payments of premiums not been in fraud of creditors, the cash surrender values of these policies could not be reached by the trustee in bankruptcy.'
And supporting this same view in the recent case in the 7th Circuit, Fogel v. Bangs, 164 F.2d 214, where the court held, first, that the proposition that an exemption is to be determined by the law of the state of the debtor's domicile is so conclusively settled that it need not be discussed, and second, that the statute there under consideration, similar to the New Jersey statute, sustained the view that the policies of insurance were exempt.
As a part of its opinion, the court said, 164 F.2d page 216:
'In construing an exemption provision, it is pertinent to keep in mind the well established rule that such a provision should be interpreted liberally in favor of those for whose benefit it is enacted.'
An exhaustive study of the statute under consideration in the present case was made by Judge Ackerson for the Supreme Court of New Jersey in Slurszberg v. Prudential Ins. Co. of America, 192 A. 451, 15 N.J.Misc. 423, and in denying the claim of creditors to obtain the cash surrender value of life insurance policies, he said, 192 A. page 455
'The plaintiffs point out that the policy in question specifically reserves to the insured the right to change the beneficiary, surrender the policy for its cash surrender value at will, and recognizes his legal right to assign his right, title and interest therein. They, therefore, argue that, since the insured's right to surrender the policy for its cash surrender value is superior to the right of the beneficiary therein, this right must necessarily pass under a creditor's execution of sale of the right, title and interest of the insured in the policy. In other words, it is contended that the purchaser at such a sale may, in the language of the policy, 'legally surrender' the policy and obtain its cash surrender value, without the consent of the insured manifested in the manner required by the policy.
'To sustain such a claim would wholly destroy the intent and purpose of the legislation in question and deprive beneficiaries in such cases of the protection the Legislature intended for them. A policy thus surrendered would not be 'legally surrendered' within the meaning of the policy if its effect would be to defeat the object of the statute.
'The mere reservation to the insured of the right to nullify or destroy the interest of the beneficiary, whether we consider it vested or contingent, cannot be extended or enlarged to such an extent that the reservation is to be regarded as operating automatically from the time it was made, which would have the effect in such policies of canceling the interest of the named beneficiary at the same instant such interest was created. To hold thus would not only be an absurdity, but would be violative of the policy adopted by the Legislature in the enactment of section 38 and 39 of our 'Insurance Act (N.J.S.A. 17:34-28, 17:34-29)'
'While it may be true that the insured may cash in his policy without regard to the wishes of the beneficiary, that reserved right, since the insurance was effected and taken out for the benefit of the latter to give force and effect to the statute, must, as to creditors seeking to exercise it in the place and stead of the insured, where the latter has not acted, be deemed and held subordinate to the rights of the beneficiary. There are no sound reasons, either in morals or in equity and good conscience, why the creditor, to the detriment of the beneficiary, should be given the right and privilege of the insured in such cases. No credit is extended to the insured on the faith of the insurance, for all persons dealing with him are bound to know the law, and that money to become due thereon, when payable to a third person, having an insurable interest, is exempt from their claims. The Legislature was careful to protect the just claims of creditors, and to give them all that they could equitably ask for when it provided at the end of section 38 of the 'Insurance Act' as follows: 'Provided, that, subject to statute of limitation, the amount of any premiums for said insurance paid in fraud of creditors, with interest thereon, shall inure to their benefit from the proceeds of the policy.' A similar provision is found at the end of section 39 of said act, thus clearly evincing a legislative intent to provide for the just claims of all concerned in such policies and defeating the plaintiffs' contention that to deny their claim would be establishing a haven for fraudulent debtors.'
I, therefore, feel bound to hold that the policies in question are free of the lien of the United States against the defendant, Joseph Burgo, and the suit must consequently be dismissed.
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