creates an inchoate gift of the proceeds of the policy which,
if not revoked by the insured during his lifetime, vests in
the beneficiary at the time of insured's death. Freund v.
Freund, 1905, 218 Ill. 189, 75 N.E. 925; Federal Life Ins. Co.
v. Tietsort, 7 Cir., 1942, 131 F.2d 448. Such continuing right
to receive the proceeds is not impaired by the unexercised
right or privilege of the insured to designate another
beneficiary. A policy of insurance is not deemed an asset of
the estate of the insured unless it is made payable to him,
his executors or administrators. Gurnett v. Mutual Life Ins.
Co., 1934, 356 Ill. 612, 191 N.E. 250. The Supreme Court of
Illinois has also held that with the consent of the
beneficiary a fund to be derived by a policy may be
voluntarily assigned, pledged, or hypothecated for the purpose
of securing a debt, and the holder of the policy will be
entitled to collect it to the extent of his interest therein.
See Lombard v. Balsley, 1913, 181 Ill. App. 1.
The plaintiff's suit is premised on the principle of
subrogation — that is, that the beneficiary of a life insurance
policy pledged as security for the debt has the right to be
subrogated to the pledgee's claim against the insured's estate
for the amount paid to the pledgee out of the proceeds of the
policy. Such a right has been said to be dependent upon the
particular facts and circumstances of the case and a
determining factor is the intention of the insured. See
Annotation, 83 A.L.R. 77; Barbin v. Moore, 1932, 85 N.H. 362,
159 A. 409, 83 A.L.R. 62; Annotation, 160 A.L.R. 1389; Smith v.
Coleman, 1945, 184 Va. 259, 35 S.E.2d 107, 160 A.L.R. 1376. No
Illinois cases have been cited by the parties on this
application of the principle of subrogation.
The court finds the reasoning in Smith v. Coleman, supra,
helpful and persuasive. The Virginia Supreme Court of Appeals
held that if no change was made in the policy, upon the death
of the insured the right of the beneficiary becomes fixed and
vested. The creditor, after the death of the insured, retained
part of the proceeds of the policy involved in payment of the
loan and returned the other collateral to the estate of the
insured. Although the beneficiary had consented to the
assignment of the policy, the court concluded that while the
creditor had the right to use the collateral to pay the debt
due it, the exercise of this right did not deprive the
beneficiary named in the policy of her right to subrogation,
as it was her money that was used to discharge an obligation
for which the estate was primarily obligated; and the rights
of the beneficiary should not be foreclosed through the whim
or arbitrary action of the creditor absent a showing that such
selection of collateral was in accord with the intention of
To defeat the right of a beneficiary it must appear that the
insured, by the wording of the instrument assigning the policy
or evidencing the loan, or by testamentary disposition,
accomplishes such a result.
Neither plaintiff nor defendant has called specific
provisions of the assignments or note to the court's attention
and both rest on the last will and testament of the deceased.
Such document, after providing for the payment of debts,
establishes a trust for the plaintiff's minor children and
makes no reference to plaintiff. It is stated by defendants
that if plaintiff should succeed in this suit, there will be
no assets left to administer the trust and decedent's
intention will thus be defeated. The failure of the last will
and testament to refer in any way to the plaintiff cannot be
interpreted to establish that she was to receive nothing under
the policies of insurance.
If from the assignment of the policies and the promissory
note it appears that decedent intended that the policies be
used as the primary fund for the discharge of his debt rather
than his estate or the other collateral, the rights of the
plaintiff would be effectively negatived. Nothing appears in
the promissory note to aid the court in this regard. It
provides that the holder of the note
had the right to sell, assign, and deliver all of the security
in the event of nonperformance of the promise and
"The holder may at its option, whether this
note is due or not due, demand, sue, collect, or
make any compromise or settlement it deems
desirable with reference to the collateral held
hereunder. The holder shall have no duty as to
the collection or protection of the collateral
held hereunder or any income therefrom, nor as to
the preservation of any rights pertaining thereto
beyond the safe custody thereof,"
The assignments of the life insurance policies were effected
on standard forms and provided that the assignee-creditor had
"The sole right to collect from the Insurer the
net proceeds of the Policy when it becomes a
claim by death * * *.
"E. The Assignee covenants and agrees with the
undersigned as follows:
"1. That any balance of sums received hereunder
from the Insurer remaining after payment of the
then existing Liabilities, matured or unmatured,
shall be paid by the Assignee to the persons
entitled thereto under the terms of the Policy
had this assignment not been executed."
In connection with the pledging of the stock which was in
joint ownership, the power of attorney and agreement signed by
plaintiff are in the usual form.