Mutual Life Insurance Company of New York v Pechotsch [1905] HCA 32; (1905) 2 CLR 823 (12 September 1905)

Mutual Life Insurance Company of New York Defendants, Appellants; and Pechotsch Plaintiff, Respondent.

This case, although the amount involved is small, raises questions of some importance to insurance societies in regard to the application of the Act called the Life, Fire and Marine Insurance Act (No. 49 of 1902). Sec. 8 of that Act provides that:—"A policy of insurance by any man on his own life, effected before or after the passing of this Act, and expressed to be for the benefit of his wife or of his children, or of his wife and children, or any of them ... shall create a trust in favour of the objects named therein, and the moneys payable under any such policy shall not, as long as any object of the trust remains unperformed, form part of the estate of the insured or be subject to his or her debts." Then sec. 9 provides that in a case of that kind the insured may appoint a trustee "of the moneys payable under the policy, and from time to time appoint a new trustee or trustees thereof, and may make provision for the appointment of a new trustee or trustees thereof, and for the investment of the moneys payable under such policy." The section then goes on to provide that "in default of any such appointment of a trustee, such policy, immediately on its being effected, shall vest in the insured and his ... legal personal representatives in trust for the purposes aforesaid," and "if, at the time of the death of the insured, or at any time afterwards, there is no trustee, or if it is expedient to appoint a new trustee or new trustees, a trustee or a new trustee, or trustees, may be appointed by any Court having jurisdiction under the provisions of the Trustee Act, 1898, or any Act amending the same." Then there follows a provision in these words:—"The receipt of a trustee or trustees duly appointed, or in default of any such appointment, or in default of notice to the insurance office, the receipt of the legal personal representative of the insured shall be a discharge to the office for the sum secured by the policy, or for the value thereof, in whole or in part." The contention raised by the appellants is based principally upon that last paragraph. They contend that, as express provision is made that the receipt of a trustee duly appointed shall be a discharge, the insured himself, though he is a trustee, cannot give a valid receipt for the moneys payable under the policy, and therefore, by necessary intendment, is not entitled to recover those moneys. The present action is brought to recover the surrender value of the policy. The policy was made on 13th September, 1901. By it the company promised "to pay at the end of twenty years ... unto Mary Pechotsch wife of Raimund Pechotsch the insured if living and if not living then to the children of their marriage their executors administrators or assigns £300." The policy was made subject to the provisions stated on the back, which were made part of the policy. The provision in question was in these words:—"Cash surrender value.—After three full years premium have been paid, upon the non-payment of any subsequent premium on the date called for in the policy and within 60 days thereafter, this policy may be surrendered and the company will pay therefor, within 60 days from the date of such surrender, the amount provided for in the table below for the end of the last completed policy year; deducting any unpaid loan thereon." The promise, therefore, by the company, was not merely a promise to pay £300 at the expiration of the 20 years, but also a promise to pay the surrender value of the policy at any time after three years from the date of the policy, at the option of someone. Now the words are "this policy may be surrendered." If it is to be surrendered, it must be by somebody. And if it is surrendered, the company must pay the surrender value to someone. Now the person to surrender and the person to receive must apparently be the same. The only parties to the contract are the insured and the company. Primâ facie the only person who can sue for the surrender value would be the insured. But the policy is made subject to the terms of the Act, and the contract must be considered subject to its provisions. What is to be inferred upon the application of the Act to the right to receive payment under the policy? There is a promise, depending only upon the option of someone, to pay this sum on the happening of some event. That promise must be capable of performance. But to whom is it to be performed? Considering the matter apart from the Statute the right to insist upon performance must clearly be that of the promisee. So that, if there were no more in it than that, the insured would be entitled to bring the action. Is there then anything in the Act to take away this right? The only contention set up by the appellants is that the Act constitutes the insured a trustee, and, that being so, he has no right to receive the moneys in question. But why? At law where there is a contract made between two persons, involving the payment of money, the person liable to pay cannot set up as a reason why he should not pay that the person to whom he made the promise, and who claims to be paid, is a trustee for someone else. But it is said that there is a different doctrine in equity. No doubt there are many cases in which a Court of Equity will not order the payment of money to the person who is at law entitled to claim it. There are many cases also, in which, when a debtor pays a creditor or the person in law entitled to money, he is held liable in equity to see to the proper application of the money paid. But that is a rule of convenience which must give place to the express or implied terms of the trust itself. The question is whether that rule, even supposing that it is primâ facie applicable, is excluded by the terms of the trust deed. The doctrine was clearly stated by Sir John Leach V.C., in Sowarsby v. Lacy[1]. He said: "It is plain the testator intended that the trustees should have an immediate power of sale. Some of the children were infants, and not capable of signing receipts. I must therefore infer that the testator meant to give the trustees the power to sign receipts, being an authority necessary for the execution of his declared purpose." Now, in this policy it is clear that it was intended that the power to surrender might be exercised before the expiration of the 20 years, and therefore somebody must be entitled to surrender it and receive the surrender value. Who should be this person if not the insured himself, who is declared by the Statute to be the trustee? There can be no doubt that the trusts declared by the Statute extend to the surrender value as well as to the moneys payable at the end of the twenty years. In a later case, Cox v. Cox[2], Wood V.C., said with reference to the terms of the will then under consideration, in which powers of sale and exchange were given to trustees as tenants for life of certain lands, that looking at all the circumstances of the case, it would not be right to hold that one of the trustees had a power to give receipts for the purchase money. "It is a power," he said, "which is by no means inserted as of course in legal instruments, it is often excluded, and, where excluded, it has never, so far as I am aware, except under very special circumstances, been held to be capable of being implied." But this is a trust under which money may be payable at any moment. Somebody therefore must be entitled to give a receipt for it. I have, therefore, no difficulty in holding that the trustee can bring the action unless there is some other provision taking away that right. In the case of Ford v. Ryan[3], Brady L.C., dealing with the question whether the assured when suing on the policy could recover the moneys payable under it, and whether the assurers were bound to see that the policy moneys went to the beneficiaries, said: "It is certainly not easy to see why the company should become trustees for everyone interested in a policy of insurance. Here is a legal contract, under which arises a duty to be fulfilled. When the event insured against occurs," that is, when that event occurs on which the insurance money becomes payable, "it becomes the duty of the company to pay the amount to the owner of the policy; it is the duty of such owner to receive the amount due." Then after having shown that the case of assignment did not make any difference, the learned Lord Chancellor went on[4]: "It comes then to this simple question; is it the law that, on the assignment of the policy to A.B. in trust to call in the amount and employ it upon trust for certain specified persons, the company is prohibited from paying the amount to him if he be not armed with receipts from those persons, or with some special authority dispensing with such receipts?" and then stated that he could see no reason why, if the debtor paid the trustee, he could be sued anew by the cestuis que trustent. I confess that these words seem to me to express an eminently common sense view. Primâ facie, therefore, the insured is entitled to sue, and the fact that he is a trustee does not disentitle him to do so. But it is suggested that the insured is likely to misapply the moneys if he receives them. Why is he more likely to misapply them than any other person who might have been a trustee? It is clear that, if any other person had been appointed trustee, he would have been entitled to sue, and the company could have safely paid him the money. So far from the legislature having declared that the assured was not to be entrusted with these moneys, they have actually declared him to be a trustee of the policy. He is the very person who has been made a trustee by the Act, showing that the legislature has reposed implicit trust in him to see to the proper disposal of the moneys. It is said that the words "the receipt of a trustee or trustees duly appointed, or in default of any such appointment, ... the receipt of the legal personal representative of the insured shall be a discharge to the office for the sum secured by the policy," negative that. Why? Because, it is said, that provision would be idle if the assured himself was to have the right to give a receipt. Suppose that provision were omitted. It might be contended that the assured himself would still have the right to bring an action, and that if the company were sued by him, and were to set up in answer to the action that they had already paid someone appointed by him, it might be said: "True; he was appointed trustee of the fund, but what is there to prevent the bringing of the action by the person with whom the contract was made?" This provision was inserted for the protection of the insurance company in such a case, although they have not formally kept their contract with the person to whom they made the promise. That construction gives sufficient effect to those words.

For these reasons I think that the plaintiff was clearly entitled to bring the action for the moneys payable by way of surrender value, and the suggestion that he might misapply the money when he receives it, is, I think, no answer to the action. It is immaterial that this money will be held by the husband on the same trusts as the moneys which would have been payable at maturity, or what those trusts are as applied to the surrender value. Nor would any decision which we could give be binding upon the infants. They are not parties to this action. It is not, therefore, necessary or proper to express any opinion whether they may ultimately be entitled to it or not. It is sufficient for the company to know that they have no answer to the claim, and that they will be protected if they pay it. For these reasons I think that the decision of the Supreme Court was right, and that the appeal should be dismissed.

[1] [1819] EngR 313; 4 Madd., 142, at p. 143.

[2] [1855] EngR 96; 1 K. & J., 251, at p. 254.

[3] 4 Ir. Ch. R., 342, at p. 344.

[4] 4 Ir. Ch. R., 342, at p. 345.

High Court of Australia

Mutual Life Insurance Company of New York v Pechotsch [1905] HCA 32; (1905) 2 CLR 823 (12 September 1905)

HIGH COURT OF AUSTRALIA