Appeal by defendants from the Circuit Court of Cook county;
the Hon. LEONARD C. REID, Judge, presiding. Heard in the first
division of this court for the first district at the December
term, 1949. Reversed and remanded with directions. Opinion filed
June 5, 1950. Released for publication June 26, 1950.
MR. PRESIDING JUSTICE TUOHY DELIVERED THE OPINION OF THE COURT.
Defendants Massachusetts Mutual Life Insurance Company and National Life Insurance Company appeal from portions of a decree entered by the circuit court of Cook county and from an order denying a petition to vacate the portions of the decree challenged. Emerging from lengthy pleadings is the fundamental question whether the assignee of a policyholder may surrender life insurance policies for their cash value without the consent of all irrevocable beneficiaries, and its corollary, whether or not the children of the insured who will gain by the cash surrender can represent, under the equitable doctrine of "virtual representation," the living minor grandchildren of the insured and the possible unborn issue whose interests as irrevocable beneficiaries are destroyed by the surrender.
The complaint herein was filed by William Waller, Jr., and Virginia Waller Hill, as trustees, seeking a decree that they are the owners of three insurance policies, one issued by the Massachusetts Mutual Life Insurance Company and two by the National Life Insurance Company, by virtue of an assignment from the insured; and that the trustees are vested with the full and complete ownership of all incidents of ownership of the policies excepting the power to change the beneficiaries, but including full right to surrender said policies.
Defendant insurance companies alleged that there were then in being three minor grandchildren of Lucia T. Waller and possible unborn persons who might be entitled to a share of the proceeds of the policies in case any of the children of Lucia T. Waller should predecease her, and denied that the plaintiff trustees had any right to surrender or receive surrender value of the policies. Defendants further alleged that the insured, Lucia T. Waller, had cancelled her right to make a change in the beneficiaries designated by her; that the entire ownership of the policies was vested in the beneficiaries, and that because of the irrevocable designation of the beneficiaries it could not at the time of the filing of the suit be determined whether all of the persons interested in the policies were in being or had been made parties to the suit; and that a decree foreclosing the rights of such beneficiaries would not protect defendants from subsequent claims of such beneficiaries.
Plaintiffs denied that any of the persons in being or unborn persons not made parties to the suit had any present or vested interest in the policies or were necessary parties to the proceedings. They denied, also, that the grandchildren of Lucia T. Waller and any unborn persons were unrepresented in the suit, and alleged that such persons were represented herein by their parents, respectively, and by the plaintiffs as trustees.
The cause was referred to a master in chancery who recommended a decree in favor of the plaintiffs. Exceptions to the report were overruled and a decree entered. The portions of the decree to which objection is made are contained in paragraphs 3, which has reference to the Massachusetts Mutual Life Insurance Company policy, and 5, which has reference to the National Life Insurance Company policies, which paragraphs are identical except for the names of the companies and the description of the policies. Paragraph 3 provides as follows:
"That Massachusetts Mutual Life Insurance Company, and its officers and agents, be and they are hereby perpetually enjoined and restrained from requiring any assent of said Lucia T. Waller in connection with the exercise of any right, option or privilege granted under the provisions of its policy No. 472464, and from refusing to permit the exercise of any right, option or privilege for which said policy may provide if the exercise of the same be requested by William Waller, Jr., and Virginia Waller Hill as trustees under Trust No. 2462, or their successors as such trustees, and William Waller, Jr., Virginia Waller Hill, William Waller, III, Thatcher Waller and Lucia Waller Thatcher as beneficiaries under said policy, and from withholding payment from the trustees aforesaid of any dividend which may be payable upon said policy."
It is alleged that the insurance companies have "been advised" that the persons intend to and claim the right to surrender the policies for their cash surrender value. This allegation is not denied.
The irrevocable provisions of the policy in the case of the Massachusetts Mutual Life Insurance Company are as follows:
"Make proceeds of the insurance under the above mentioned policy payable at my death, in equal shares to my husband, William Waller, Jr., and the children born of the marriage of myself and my said husband. If my said husband predeceases me, the share of the proceeds which would be paid to him, if living, shall be paid to the executors or administrators of my said husband. If any of my said children shall predecease me, the share of the proceeds which would be paid to such deceased child, if living, shall be paid to his or her then surviving issue, equally, but if there be no such surviving issue, then to the executors or administrators of such deceased child.
"The right to change the beneficial interest at any time without the consent of the beneficiary or beneficiaries is hereby specifically canceled and revoked."
The National Life irrevocable beneficiary clause provides as follows:
"The proceeds of this policy will be paid in equal shares to those of insured's husband, William Waller, Jr., and insured's lawful children who are living, and per stirpes to the lawful children then living of any of insured's lawful children who shall have died, if any; otherwise in equal shares to the ...