May infants obtain an immediate allowance for support and education from interest accrued upon the proceeds of a life insurance policy left on deposit with the insurance company, despite an agreement between insured and insurer that the interest shall be accumulated but not be paid until the infants become twenty-one years of age?
The facts in so far as pertinent to the decision are in brief as follows: Henry Nires at the time of his death carried life insurance policies with five insurance companies in favor of his three minor children. These policies permitted the insured to select one of several optional modes of settlement. The modes of settlement agreed upon between Nires and the companies provide in general, with minor variations not here material, that settlement of the amounts becoming due upon the death of the insured shall be made with the children of the insured *Page 81 in equal shares, the rights of these beneficiaries against the insurance companies being set forth in so-called certificates of deposit or trust agreements issued by the companies. Two of the insurance companies agreed to pay the proceeds of the policies to themselves or to receive the proceeds "as trustee." This difference, however, is not material in the decision of the question presented, since in both certificate of deposit and trust agreement, it is expressly provided that the amounts of insurance are not to be segregated but may be commingled with the general corporate funds of the companies and the interest determined not by what the principal actually earns but by applying a fixed rate of interest at a minimum rate of three per cent. The beneficiaries have no share in the increase or decrease in value of the assets. Interest is to be accumulated until the infants are twenty-one years of age, when such income is to be paid in one sum and thereafter in periodic payments. Payment of the principal sums is to be made when the beneficiaries become thirty years of age. Such rights, however, are subject to divestment in the event of the death of a beneficiary before reaching the age of thirty, with payments over in such event to the survivors or survivor, and then to the personal representatives of the survivor or of the insured, together with a further contingent interest in unborn children of the beneficiaries, under the trust agreements with the New York Life, if a present infant beneficiary dies after reaching the age of twenty-one. In general, also, there is incorporated as a part of the agreements, in one case even by title, the provisions of section 15 of the Personal Property Law, which provide that the proceeds of these policies, and any and all payments and benefits thereunder, are not assignable, commutable or subject to encumbrance or legal process.
The decedent's widow, as general guardian on behalf of two of the infant beneficiaries, thirteen and sixteen years of age, respectively, has brought this proceeding, alleging that she is without funds to support the two children and that no funds are available besides these accumulations of income held by the life insurance companies under the agreements. She prays for an order authorizing and directing the life insurance companies to pay over to her for the support and education of the two children suitable sums out of the accumulated *Page 82 or current income of the property held by the companies for the benefit of the infants.
At Special Term the application was denied. Upon appeal, the Appellate Division has affirmed unanimously, and the case is here by permission of this court.
It is urged by petitioner that the Supreme Court is given power by the Legislature, under section 17 of the Personal Property Law, to invade and set at naught these agreements made between the insured and the companies. Section 17 is entitled "Anticipation of directed accumulation," and provides in brief that when a minor, for whose benefit an accumulation of the income of personal property has been directed, shall be destitute of other means, the Supreme Court or, if the accumulation shall have been directed by a will, the Surrogate's Court, respectively, may, upon application by the minor, cause a suitable sum to be taken from the moneys accumulated or directed to be accumulated for his support or education and paid over to the infant.
The language of section 17, together with its setting and the nature of the power conferred therein, does not indicate that this section is applicable to a contract between an insured and a life insurance company.
The language of this statute, section 17, by its terms purports to be applicable only where there is a direction for an accumulation of income on a trust of personal property. That the words "* * * a valid accumulation of the income of personal property * * *" refer to a trust of personal property is shown by an examination of section 15 of the same article, as amended in 1911. (L. 1911, ch. 327.) The first sentence of section 15 provides that a beneficiary's interest in "* * * a trust to receive the income of personal property, and to apply it to the use of any person * * *" shall not be transferable. The amendment to section 15 forbids the transfer, if the parties so agree, of "* * * the proceeds of a life insurance policy, becoming a claim by death of the insured," which "are left with the insurance company under a trust or other agreement," thus showing unmistakably the intention of the Legislature to apply the words "income of personal property" solely to a trust of personal property, and sharply to distinguish such a trust from a so-called trust *Page 83 or other agreement relating to the proceeds of a life insurance policy. In other words, section 17 is dealing with trusts of personal property and directions concerning such property given by deed or will, as contrasted with agreements made between insured and insurer concerning the relationship of debtor and creditor between them, as in the case at bar. Accumulation of income under a certificate of deposit or life insurance trust is not based upon a direction by a grantor or testator, but rather upon an obligation arising from contract between insured and insurer. The insurance company does not hold the proceeds of a life insurance policy as a trust fund (Holmes v. John HancockMut. Life Ins. Co., 288 N.Y. 106; Latterman v. Guardian LifeIns. Co., 280 N.Y. 102); although the term "trust" is employed, no real trust agreement is in fact involved. (Crossman Co. v.Rauch, 263 N.Y. 264, 273.) But there is a debt owing to beneficiaries payable in stipulated amounts, at stipulated times, and in a stipulated manner. Nor is the interest due to the beneficiaries the increment or incident of a res held in trust, but is payable under the agreements at a fixed rate regardless of what the sums represented by the certificates of deposit or so-called trust agreements actually earn. Therefore, in the case at bar, we are dealing with rights under an agreement and not with a direction for accumulations upon a trust of personal property created by deed or will. In consequence section 17 by its language is not applicable to the case at bar.
The setting of section 17 among the provisions of the Personal Property Law confirms and harmonizes with the literal wording of the statute. Section 17 is a part of the same statutory structure wherein appear immediately preceding, sections 15 and 16 of the same article, namely, article 2 of the Personal Property Law which is entitled, "Future Estates; Charitable Uses; Accumulation of Income; Trust Estates." This shows, as clearly as titles can, that the Legislature is dealing in this article in general with trusts of personal property where accumulations of income have been directed by deed or will, except where specific provision is made concerning other than such trusts, for instance, in the amendment made in 1911 to section 15, which specifically deals with agreements made between insured and insurer. Moreover, the care *Page 84 fully worked out distinction in this section 15 between the provisions governing trusts of personal property and the so-called "life insurance trusts" leads to the conclusion that if the Legislature had intended to bring life insurance agreements within the scope of section 17, it would have expressly so provided instead of dealing only with trusts of personal property under directions in a deed or will.
Furthermore, the amendment added to section 15 in 1911 provides that when the proceeds of a life insurance policy are left on deposit with an insurance company, "the benefits accruing thereunder after the death of the insured shall not be transferable, nor subject to commutation or incumbrance, nor to legal process * * * if the parties to the trust or other agreement so agree." In other words, we have in the case at bar not only an agreement between the insured and the insurer, but we have also a statute which is made a part of these very agreements expressly prohibiting the invasion of these funds by legal process where the parties have so agreed, as they have in the case at bar.
Finally, the nature of the power given to the Supreme Court under section 17 is readily understandable when that section is viewed as dealing only with directions for accumulations of income under trusts of personal property. The extent of the jurisdiction of the courts of equity over trusts of personal property is well established. On the other hand the jurisdiction of courts to apply the powers conferred by section 17 to a relationship arising out of an agreement made between insured and insurer is not only not an exercise of the normal equity powers over trusts of personal property, but, as already noted, is expressly forbidden by the provisions of section 15.
Other states likewise have held to the view that the general power of an equity court to regulate trusts of personal property and to apply the income thereof contrary to a direction for accumulation does not justify the invasion of an agreement whereby income is to be accumulated in an insurance relationship. (Pierowich v. Metropolitan Life Ins. Co., 282 Mich. 118 and case cited therein.) In harmony with this construction it may be noted that, while in section 16 of the same article accumulations of income of personal property are prohibited, except for infants, an amendment to that section permits *Page 85 accumulations of the income arising out of moneys held pursuant to an insurance relationship, namely certain accumulations of the income of these moneys to be applied to the payment of premiums of insurance. (L. 1927, ch. 681.)
The unfortunate condition existing as to these minor children does not arise from the contract and is not controlling so as to justify its invasion. The intention of the insured is to be gathered solely from the agreements as made and which, while he had power to change them during his life, were left in force at the time of his death. Insurance has developed to large proportions and property rights of insured and beneficiaries have been created upon the faith of the protection accorded by the courts to insurance agreements and upon the enactment of that policy in statutory form in section 15. Nothing in section 17 or related sections furnishes any authority to the courts to invade and render nugatory these agreements.
Since neither the language nor the setting of section 17 nor the nature of the power conferred therein indicates that the section deals with anything other than directions applicable to trusts of personal property, it becomes unnecessary to pass on the question whether an invasion of contractural rights between insured and insurer may be sustained as constitutional if in fact it had been authorized by the Legislature.
The order appealed from should be affirmed, without costs.