Holden v. Stratton (198 U.S. 202)

Separate proceedings in bankruptcy were begun in the district court of the United States for the district of Washington, northern division, against Daniel N. Holden and Lizzie Holden, his wife. They were consolidated. Both the parties were adjudicated to be bankrupt, and J. A. Stratton became the trustee of both estates.

All the liabilities of the bankrupts were contracted between the first day of September and the first day of December, 1900, and the creditors of each were the same. There were two policies upon the life of Daniel N. Holden, one for $2,000, the other for $5,000, issued by the same company. Both bore date June 15, 1894, having been issued as the result of an arrangement by which the insured and his wife, as the beneficiary, surrendered a policy for $10,000, dated May 21, 1890.

The policy for $2,000 was a full-paid, nonparticipating one, and the amount became due only upon the death of the insured, and was then payable to the wife, or, in the event she did not survive her husband, to his executors, administrators, or assigns. The policy for $5,000 was on what was termed the semitontine plan. An annual premium of $233.80 was required to be paid for ten years from the date of the previous policy, which had been surrendered, that is, until May 21, 1900, and therefore, at the date when the bankrupts contracted the debts set forth in their schedules, and at the date of the adjudications in bankruptcy, this period had expired, and no further payment of premiums was necessary. Upon the death of the insured the amount of the policy was to be paid to the wife, as the beneficiary, or, in the contingency of her prior decease, to the executors, administrators, or assigns of the insured. It was provided, however, that upon the completion of the tontine dividend period of twenty years,-on May 21, 1910,-if the insured was then alive, he or his assigns, if creditors, might surrender the policy, and receive its full cash value, or a nonparticipating policy, payable to the original beneficiary, or if she was not alive, to the executors, administrators, or assigns of the insured, or the option was given to keep the policy in force, and to withdraw the surplus to the credit of the policy in cash, or use the same to purchase additional insurance.

The bankrupts made application to have these policies set aside to them, because, it was asserted, they were exempt by the law of the state of Washington. This was resisted by the trustee upon the ground that the policies had a cash surrender value of $2,200, which it was the duty of the bankrupts to pay to the trustee as a condition precedent to the exemption of the policies. The referee sustained the claim of the trustee. His ruling was reversed by the district court. On a petition for revision the circuit court of appeals held that the bankrupts were obliged to pay the cash surrender value as asserted by the trustee. 51 C. C. A. 97, 113 Fed. 141. An appeal was prosecuted to this court, and was dismissed. 191 U.S. 115, 48 L. ed. 116, 24 Sup. Ct. Rep. 45. This writ of certiorari was then allowed. 193 U.S. 672, 48 L. ed. 841, 24 sup. Ct. Rep. 854.

Messrs. P. P. Carroll and John E. Carroll for petitioners.

Messrs. Frederick Bausman and Hugh A. Garland for respondent.

[Argument of Counsel from pages 204-207 intentionally omitted]

Mr. Justice White, after making the foregoing statement, delivered the opinion of the court: