Appeal from the Superior Court of Cook county; the Hon. DONALD
S. McKINLAY, Judge, presiding. Judgment reversed and cause
remanded with directions.
JUSTICE FRIEND DELIVERED THE OPINION OF THE COURT.
Rehearing denied January 28, 1960.
The decedent, Hyman Cohen, during his lifetime made a loan from the Lake View Trust and Savings Bank of Chicago and placed as primary collateral security therefor a certain life insurance policy in the amount of $100,000 in which Susan Janet Cohen was named as beneficiary, together with secondary collateral. Upon his death, the bank looked to this policy as the source for payment of its loan. The beneficiary of the policy thereupon filed a claim in the Probate Court, contending that she was subrogated to the interests of the bank. The claim was allowed by the Probate Court. On appeal to the Superior Court, pursuant to a trial de novo, an order was entered on November 6, 1958, allowing plaintiff's claim in the sum of $53,848.47, together with interest, from which defendants appeal.
The filing of an abstract having been excused, the case is here submitted on an agreed statement of facts, from which it appears that in 1952 decedent applied for a $100,000 life insurance policy, to be issued by the National Life Insurance Company of Vermont, and he arranged with the Lake View Trust and Savings Bank for a loan to provide money with which to pay the entire amount of the initial premium and the subsequent annual premiums for four years. The beneficiary designated in the policy was Pearl Cohen (who predeceased Hyman Cohen), with plaintiff Susan Janet Cohen named as contingent beneficiary.
The loan was secured by an assignment of this insurance policy to the bank, together with other collateral. The loan was for an amount exactly sufficient to pay the initial and the four subsequent annual premiums on the $100,000 policy. By direction in writing signed by Hyman Cohen, the bank was instructed to pay the entire proceeds of the loan for this purpose directly to the insurance company which issued the policy. No part of the loan passed into or through the hands of Hyman Cohen.
The sixth annual premium on the policy became due in 1957, and on August 23rd of that year decedent executed a new note to the bank in an amount sufficient to retire the note dated November 13, 1952, and to pay the sixth annual premium to the insurance company; in other words, he signed a new note for the old loan, plus the amount of the sixth annual premium. At the same time he again signed a written direction to use the proceeds of the new loan to retire his earlier note and to use the balance in payment of the premium due the insurance company; again, none of the money went into or passed through his hands. The new note was in the amount of $53,848.47, and is the one upon which plaintiff predicates her claim.
After Hyman Cohen's death on December 18, 1957, the bank secured the matured value of the $100,000 policy from the insurance company under the terms of its assignment from decedent, retained the amount due on its loan, and paid the balance to the designated contingent beneficiary, who is the plaintiff here. The bank returned the other collateral to the parties entitled thereto. Decedent's heirs at law were Geraldine J. Cohen (his widow by his second marriage) and Susan Janet Cohen, his only child, who is now in her early twenties. By his will, dated August 14, 1957, decedent named Eugene A. Weinberg as executor and gave his home and household furnishings to his wife Geraldine J. Cohen. The rest and residue of his estate was bequeathed one-third to his wife Geraldine, and two-thirds in trust to his brother Myer Cohen for the use and benefit of his daughter Susan. Weinberg filed his petition for letters testamentary and was appointed executor December 24, 1957.
As security for the original promissory note in the principal amount of $44,606.47 decedent deposited as collateral the following: the $100,000 policy in the National Life Insurance Company of Vermont; a $5000 policy in the Mutual Life Insurance Company of New York; a $10,000 policy in the Connecticut Life Insurance Company; and United States Treasury bonds in the amount of $6500, not wholly owned by decedent. Decedent also executed three separate assignments of the insurance policies and their proceeds, all dated November 13, 1952, and all duly acknowledged by the respective insurance companies in that month and year. The assignments were all identical in form.
By direction in writing, the decedent directed the bank to pay the proceeds of the note of November 13, 1952, to the National Life Insurance Company of Vermont. On November 14, 1952, the bank issued two cashier's checks in the amounts of $9242 and $35,364.47 to the National Life Insurance Company of Vermont in payment of the first annual premium, and the second, third, fourth, and fifth annual premiums of the $100,000 policy. Decedent made no payments on the principal of the $44,606.47 note through August 1957, but maintained the interest payments to the bank out of his own funds.
On August 23, 1957, decedent executed a new note to the bank in the principal sum of $53,848.47 due and payable one year after date, to retire the original note and to pay the sixth premium which came due at that time. The original collateral and assignments still remained with the bank, and no new assignments were executed. By a written instruction executed on August 23, 1957, Cohen authorized the bank to use the proceeds of his note for $53,848.47 to retire his note, dated November 13, 1952, of $44,606.47, and to pay the balance to the National Life Insurance Company of Vermont for the sixth annual premium of $9242. No payments on account of principal were made on the new note of $53,848.47, but interest payments were maintained out of decedent's personal funds.
All the insurance policies on the life of Hyman Cohen deposited as collateral were payable to Pearl Cohen as primary beneficiary and, on her death, to Susan Janet Cohen, with the exception of the $5000 policy of the Mutual Life Insurance Company of New York which was payable to Pearl Cohen solely, and, by reason of her predeceasing Hyman Cohen without contingent beneficiary named in the policy, the proceeds became payable to the estate of Hyman Cohen. Of the United States Treasury bonds deposited as collateral, bonds in the amount of $3000 were owned by Hyman Cohen, and consequently belonged to and were part of his estate; bonds in the amount of $3500 were the property of Schwartz-Krueger Company and were returned to it.
At the time of decedent's death there was due and unpaid on his note to the bank the sum of $53,848.47, and the bank demanded payment. Susan Janet Cohen requested that the bank file its claim as a creditor against the estate for the amount due on said note, but the bank determined that it would apply the collateral in its possession to the payment of the obligation. Plaintiff further requested that, in the event the bank did so apply the collateral, it first apply the collateral belonging to the estate to the payment of the claim, and then resort to the remainder of the collateral for the balance due. This the bank also refused to do; it proceeded under the collateral assignments that it held, collected the proceeds of the $100,000 policy of which plaintiff was the beneficiary, applied these proceeds to pay the entire indebtedness due on the note of Hyman Cohen, and remitted the balance to Susan Janet Cohen, the plaintiff. The $10,000 policy of the Connecticut Mutual Life Insurance Company was delivered to plaintiff, and the $5000 policy of the Mutual Life Insurance Company and the United States Treasury bonds in the amount of $3000 were turned over to the estate. Subsequently Susan Janet Cohen filed her claim against the estate of Hyman Cohen, decedent, for reimbursement in the amount of $53,848.47, and interest at the rate of five per cent per annum from May 9, 1958. She contended that she was subrogated to the rights of the bank inasmuch as funds belonging to her, as she claimed, were used to retire the loan of Hyman Cohen. The sole question presented is whether plaintiff is entitled to be subrogated to the rights of the bank and reimbursement of the amount of decedent's loan in the sum of $53,848.47 from the estate.
Plaintiff proceeds on the theory that the bank loan created an indebtedness which, on the borrower's death, became the primary obligation of the estate, and that if the estate's obligation was discharged by resort to the proceeds of an insurance policy held as collateral, the beneficiary of the policy under general equitable principles was subrogated to the bank's claim against the estate and was presumptively entitled to reimbursement of the diminished proceeds. She also contends that the bank should have resorted to all the collateral in its possession and first applied that portion of the collateral held by it belonging to Hyman Cohen.
It should be noted at the outset that decedent reserved the right to change the beneficiary in this policy. In the circumstances the beneficiary (plaintiff) acquired no vested interest in the policy during the insured's lifetime. Equitable Life Assur. Soc. v. Stilley, 271 Ill. App. 283, expresses the rule that "where a contract of insurance reserves to the insured the right to change the beneficiary, the latter has a mere expectancy, and no vested right or interest during the lifetime of the insured." Consequently the ...