OCCIDENTAL LIFE INSURANCE COMPANY OF CALIFORNIA, Plaintiff, v. Julian M. SIEROTY and Alan Sieroty, as Executors of the Estate of Marc Silver, Deceased, Defendants, Cross-Complainants, Cross-Defendants, Appellants and Respondents. Ethel E. Silver, Defendant, Cross-Defendant, Cross-Complainant, Respondent, and Appellant.*
This suit in interpleader was filed by Occidental Life Insurance Company for the purpose of obtaining an adjudication as to whom the proceeds of two policies of life insurance should be paid. The named defendants are Ethel E. Silver, the surviving widow of Marc Silver, the deceased insured, and the executors of said decedent's will. The plaintiff insurance company was allowed to deposit the proceeds of the policies with the court, and thereupon was discharged from further participation in the matter.
The executors made claim to the proceeds, which totalled $90,062.05, because at the time of the death of the insured they were the named beneficiaries of the policies. Ethel Silver, the widow, filed her amended cross-complaint claiming the proceeds of the two policies. Her pleading was set forth in four counts:
(1) The first cause of action alleges, in substance, as follows: that in 1946 Occidental issued to the deceased husband the two policies of insurance, insuring his life in the amounts of $100,000.00 and $10,000.00, respectively, and naming the widow as beneficiary; that the premiums were paid with community funds and the policies therefore are the community property of the widow and deceased insured; that on December 14, 1956, the insured, without the knowledge or consent of his wife, and without the receipt of any consideration, attempted to change the beneficiaries by designating the executors named in his will; that this attempt to change beneficiaries was without force or effect, and that the proceeds, upon the death of the insured, became the separate property of the widow.
(2) The second cause of action alleges that the insured was of unsound mind at the time he executed the documents purporting to change the beneficiaries and therefore the attempted changes were of no effect.
(3) The third cause of action alleges in substance: that on or about March 1, 1946, the husband and wife entered into an oral agreement by which each agreed to make a will in favor of the other devising and bequeathing all of his or her property to the other, with certain exceptions, and that in further consideration thereof the husband would obtain additional insurance upon his life and make the wife the sole and irrevocable beneficiary; that the agreement was carried out; that the subsequent attempt to change the beneficiaries was contrary to the terms of the agreement and was made to defraud the wife; and that she did not discover that the change had been made until after the death of the insured.
(4) The fourth cause of action incorporates allegations of the first cause of action by reference, and alleges that the widow is the owner and entitled to all the proceeds of the policies and that her title should be quieted against all claims of the executors.
The trial court found that the facts alleged in respondent's first cause of action were true, including the fact that the premiums which became due on the policies during the life of the insured were paid with community funds, and held that upon the death of the insured, the widow became entitled to one-half of the proceeds of the policies ‘as her separate property’. It found that the insured was mentally competent when he executed the documents changing the beneficiaries. It found that he entered into the agreement with his wife to make mutual wills and that they did in fact execute such wills, but that he did not enter into the alleged oral agreement to obtain additional insurance and make the wife the sole and irrevocable beneficiary.
The court concluded that the widow and the estate were each entitled to one-half of the insurance proceeds, with accrued interest. The judgment decrees that the widow ‘is the owner’ of one-half of the proceeds and orders the clerk of the court to disburse the funds in equal portions to the widow and the executors.
The executors have appealed from the judgment and from the order denying their motion ‘under § 663, C.C.P., to enter a new and different judgment’, contending: (1) that upon the death of the husband, the determination of what constitutes community property and the apportionment of the wife's share to her are matters resting exclusively within the jurisdiction of the probate court; (2) that there is no substantial evidence to support the finding that the premiums on said insurance policies were paid with community funds; and (3) that the trial court erred in its conclusion that the widow was entitled to receive one-half the proceeds of the life insurance policies as her separate property.
The widow has filed a cross-appeal. Her contentions are that the evidence is not sufficient to support either of the two following findings of the trial court: (1) that the decedent was mentally competent to execute the changes of beneficiary of the two life insurance policies; and (2) that the decedent did not agree to obtain additional insurance upon his life and make his wife the sole and irrevocable beneficiary of said insurance.
Statement of Facts
The deceased insured and respondent, Ethel E. Silver, lived together continuously from the date of their marriage on January 30, 1932, to the date of his death on March 7, 1959, a period of over twenty-seven years. Neither of them had contracted any other marriage. There is no issue of the marriage and there are no other heirs at law. From the beginning of the marriage, and up to March, 1946, a period of over fourteen years, she was continuously employed as a secretary and contributed all of her earnings of the community.
During the marriage, and up to 1946, the husband and wife acquired real and personal property, which was community property of an approximate value of $33,000.00. This included a lot which was sold in 1946 for $22,500. The proceeds of this sale were received by the husband and, during the entire period when premiums on the insurance were being paid, were commingled with other funds in his possession. The spouses also had some small stock holdings valued at approximately $1500.00.
In March of 1946, the husband received from the estate of his brother, under a compromise agreement regarding his claim of heirship, a number of valuable pieces of real property which included a 200-room hotel, apartment houses and an undivided one-half interest in a certain parcel appraised at $18,000.00. The husband and wife later purchased the other undivided one-half interest in the latter property, taking title in joint tenancy. All of the properties were heavily encumbered. After the husband had complied with his obligations under the agreement pursuant to which he received the properties, their net value, taking into account the encumbrances thereon, was the sum of $71,644.16. This amount is computed from the stipulation of counsel at the trial.
During his marriage, and prior to acquiring said property from his brother's estate, the husband had been employed in several occupations and had engaged in three business ventures. Subsequent to March, 1946, and until sometime in 1951, his chief occupation was that of managing the hotel and two apartment houses. He also managed and controlled the community property of his wife and himself which they had acquired up to that time. In his 1947 income tax returns, decedent set up as his salary for managing the hotel and other properties the sum of $10,000.00 per year. It appears that beginning in 1951 he also carried on a ladies' dress manufacturing business.
All of the income from the properties was deposited in one bank account together with stock dividends, proceeds from the sale of other properties, collections on loans owing to Silver, and funds obtained through numerous personal loans made to him by banks and individuals. All expenditures and expenses in maintaining the properties, as well as for personal living, medical expenses, taxes and insurance premiums were paid from said bank account. The bank account, deposits made therein, and expenditures made therefrom were under the control of Mr. Silver except for a period of several months when the account was placed in Mrs. Silver's maiden name ‘for protective purposes'. The premiums on the insurance here in litigation were paid from said bank account. The annual premium on the $100,000.00 policy was $3696.00 and the premium on the $10,000.00 policy was $369.60. As has been noted, the policies here involved were issued in 1946 and named the wife sole beneficiary.
On September 9, 1955, the decedent executed his will reciting that ‘the bulk of my estate I have received through my brother, Isador Silver, and it constitutes my separate property.’ The will leaves to the wife all of the testator's community interest in certain described property, including an automobile, furniture and furnishings and other personal property. It makes a cash bequest in favor of the wife in an amount not to exceed $5000.00, and cash bequests to a number of other individuals. All the remainder of the estate is left to named trustees, who are directed to pay to the wife out of the net income of the trust the sum of $7500 per year together with all reasonable medical and dental expenses. The balance of the trust income is given to certain named individuals. It is provided that the trust shall continue during the lives of the persons named as recipients of income and that upon the death of the wife the net income shall be divided among the said beneficiaries heretofore mentioned. Upon the death of the last survivor of said persons named as beneficiaries, it is provided that the remaining assets of the trust shall be distributed among a number of named charitable institutions.
Finally, it is provided that all income from the trust available for distribution shall be distributed quarterly, or oftener, at the discretion of the trustees, and that no beneficiary shall assign, transfer, convey or encumber his or her interest in either the principal of the trust or any income thereof. The wife and one Allen Sieroty were appointed executrix and executor.
On September 20, 1955, the decedent executed a codicil to said will, the sole effect of which was to nullify the appointment of his wife as co-executrix, and to appoint Allen and Julian Sieroty.
On November 21, 1956, the decedent executed a second codicil by which he reduced the payments to be made to his wife out of trust income to the sum of $2400.00 per year together with reasonable medical and dental expenses, and the sum of $600.00 per year ‘for clothing’.
On December 14, 1956, the decedent executed instruments changing the beneficiary of the two policies of life insurance here involved, eliminating the wife and substituting the executors of his will. On December 27, 1956, decedent executed a third codicil to his will which had no material effect other than to require the trustees to pay the encumbrances against the property in which the widow was residing. The fourth and last codicil was dated March 12, 1957. Its only material effect was to increase the annual payments to the widow from the net income of the trust to $3600 per year.
The Controlling Law
We find no merit whatsoever in the contention of the appellant-executors that the court of equity was without jurisdiction to hear and determine this suit, and that the probate court had exclusive jurisdiction. In the first place, it has been held ‘that a suit in interpleader * * * is an equitable proceeding, in which the rights of the parties as between themselves are governed by principles of equity * * *.’ (Union Mutual Life Ins. Co. v. Broderick, 196 Cal. 497, 502, 506, 238 P. 1034, 1036.) At issue in the cited decision was the question whether the proceeds of a life insurance policy should be paid to the insured's widow by virtue of her community property rights or to his sister, the designated beneficiary.
Secondly, appellants expressly concede that jurisdiction of the widow's third cause of action (alleging decedent's contract to make a will in her favor and to obtain policies of insurance on his life naming her the sole and irrevocable beneficiary) was in equity and not in probate. This concession conforms with the settled rule stated in the recent decision in Ludwicki v. Guerin, 57 A.C. 143, 146, 17 Cal.Rptr. 823, 367 P.2d 415, and in the authorities therein cited. Appellants futilely seek to avoid the application of this rule by pointing out that the trial court found against the widow's allegation that the deceased insured had orally agreed to make her the sole and irrevocable beneficiary of the policies of the life insurance herein involved. It is a novel and untenable suggestion that a court may be retroactively divested of jurisdiction by its decision on the merits. (See also Fields v. Michael, 91 Cal.App.2d 443, 452, 205 P.2d 402, hereinafter discussed.)
The finding of the trial court that the premiums on these insurance policies were paid out of community funds is amply supported by the very substantial evidence of the wife's contributions and of the commingling of assets which we have recited above in detail. Furthermore, very substantial personal loans made to the decedent were secured by a continuing guaranty executed by the widow. The proceeds of these loans, the last of which was for $100,000.00, were deposited in the same bank account to which we have previously alluded. Money borrowed on a personal security by a husband and wife is community property. (Mosesian v. Parker, 44 Cal.App.2d 544, 550, 112 P.2d 705, and decisions cited; Mears v. Mears, 180 Cal.App.2d 484, 505, 4 Cal.Rptr. 618.)
In these circumstances, the presumption is that property acquired during the marriage is community, and the provisions of section 164 of the Civil Code should be given full application. As stated in Estate of Duncan, 9 Cal.2d 207, 217, 70 P.2d 174, 179: ‘The burden of producing clear and satisfactory proof that the property was the separate property of decedent was upon the [appellants] as the respondent was entitled to rely upon the presumption that it was community property. In re Estate of Jolly, supra, 196 Cal. 547, at page 553, 238 P. 353; In re Estate of Fellows, 106 Cal.App. 681, 684, 289 P. 887; In re Estate of Donohoe, 128 Cal.App. 544, 17 P.2d 1010.’
State income tax returns of the insured and his wife for the years 1948 through 1958, received in evidence, reported the income they had received from all sources by joint returns or in separate returns in which the income was split equally. This was evidence tending to show an executed agreement to transmute all of their property to community. (Heck v. Heck, 63 Cal.App.2d 470, 474–475, 147 P.2d 110; Estate of Raphael, supra, 91 Cal.App.2d 931, 939, 206 P.2d 391; Estate of Cummins, 130 Cal.App.2d 821, 829, 280 P.2d 128.) Prior to 1951, the state did not permit such returns unless the income reported was community property. (See Barker v. Barker, 139 Cal.App.2d 206, 212–213, 293 P.2d 85.) Whether the returns were thus prepared merely ‘to achieve the best tax results', as asserted by appellants, was a question for the trial court.
Quite obviously, as we have said, the evidence above summarized is more than sufficient to sustain the finding of the trial judge that the premiums on the life insurance policies here involved were paid out of community funds. Upon this finding, the trial court was unquestionably correct in decreeing that one-half the proceeds of the policies be paid to the surviving widow as her separate property.
The decision in Fields v. Michael, 91 Cal.App.2d 443, 205 P.2d 402 strongly indicates that the trial court's decision in this case is correct and that appellants are wrong in their contentions that (1) the determination of what constitutes community property is a matter resting exclusively in the probate court; and (2) that decedent's acts in changing the beneficiaries of the life insurance policies did not violate the provisions of section 172 of the Civil Code.
In the cited case, the widow of W. C. Fields brought an action against the executrix of the decedent's will to recover sums representing her community interest in gifts made by the decedent without her consent. These gifts, which totalled $482,450.00, were made from community assets, without the wife's knowledge or consent, and she did not learn about them until after her husband's death.
Upon learning of the gifts, the widow immediately disavowed them, and filed with the defendant executrix her creditor's claim and a statement of disaffirmance, setting forth substantially the same facts as above related and claiming the sum of $241,225.00 due to her as her community interest in the unauthorized gifts. The executrix rejected the claim and the widow thereupon filed her action. The trial court entered judgment in favor of the defendant executrix after an order sustaining a demurrer to the widow's complaint without leave to amend. In reversing the judgment, the appellate court declared at pages 447 and 448, 205 P.2d at pages 405, 406:
‘The position of the husband, in whom the management and control of the entire community estate is vested by statute, Civ.Code, secs. 161a, 172, 172a, has been frequently analogized to that of a partner, agent, or fiduciary. [Citations.] * * * Nine years prior to their marriage, section 172 of the Civil Code was amended to provide that the husband could not make a gift of community property without the written consent of his wife. Stats.1891, p. 425. Fields' disregard of this affirmative duty imposed upon him as manager of the community estate was a violation of his fiduciary obligations as defined in sections 2228 and 2229 of the Civil Code, supra. Even if good faith were to be shown, he would nevertheless be subject to personal liability for disposing of trust property in an unauthorized manner. Civ.Code, sec. 2238.
‘It is well settled, of course, that a gift made in violation of section 172 is, as against the donee, voidable by the wife in its entirety during the husband's lifetime, [citations], and to the extent of one-half after his death. [citations]. * * * Manifestly, a wife whose community property rights have been violated, as plaintiff alleges hers have been, is entitled to pursue whatever course is best calculated to give her effective relief.’
In rejecting the contention of the defendant executrix that the widow could not properly sue her, i. e., the estate, the court stated, at page 449, 205 P.2d at page 406, that the acceptance of such a contention would ‘amount to a concession that the law is powerless to accord to the wife's community interest the full protection which section 172 was evidently designed to ensure. We think the law is not so toothless.’ (Emphasis added.) With respect to the question of jurisdiction, the court stated at page 452, 205 P.2d at page 408: ‘No question was raised either here or in the trial court as to whether plaintiff should have proceeded in the probate court to claim as her share of the community property an amount equal to one-half of all sums previously given away without her consent, in addition to her share in the assets presently remaining in the estate. See McKay, Community Property 2d Ed. Secs. 734, 735, p. 494; 1 de Funiak, ibid., sec. 232, p. 600. We have nevertheless considered the question of jurisdiction and think it is clear that the present action, being one on a rejected claim based upon a personal liability arising out of the breach of a fiduciary duty, is within the general jurisdiction of the superior court. 119 Cal.Jur., secs. 500, 600, pp. 706, 842; Probate Code, sec. 714.’
A policy of insurance on the life of a married man, and the proceeds thereof, are community property if the premiums have been paid out of community funds. (Blethen v. Pacific Mutual Life Insurance Co., 198 Cal. 91, 99, 243 P. 431; New York Life Insurance Co. v. Bank of Italy, 60 Cal.App. 602, 605, 214 P. 61; McBride v. McBride, 11 Cal.App.2d 521, 523, 54 P.2d 480; Grimm v. Grimm, 26 Cal.2d 173, 175, 157 P.2d 841.)
Upon the death of either spouse, one-half of the community property vests in the surviving spouse and the other half is subject to the testamentary disposition of the decedent. (Probate Code, § 201.) During the lifetime of the spouses, the husband's powers of management and control are limited by the proviso that he ‘cannot make a gift of [the] community personal property, or dispose of the same without a valuable consideration, * * * without the written consent of the wife.’ (Civ.Code, § 172; and see Blethen v. Pacific Mutual Life Insurance Co., supra, 198 Cal. 91, 99, 243 P. 431; New York Life Insurance Co. v. Bank of Italy, supra, 60 Cal.App. 602, 605, 214 P. 61.)
In accordance with these rules, it is well settled that when a policy of insurance issued on the husband's life is community property because the premiums have been paid out of community funds, he cannot make a gift of her share of the proceeds thereof by designating someone other than his wife as beneficiary, without her written consent. (New York Life Insurance Co. v. Bank of Italy, supra; Mundt v. Connecticut General Life Insurance Co., 35 Cal.App.2d 416, 421, 95 P.2d 966; McBride v. McBride, supra, 11 Cal.App.2d 521, 523–524, 54 P.2d 480. See also 10 Cal.Jur.2d 754, Community Property, § 74, and cases cited therein.) She may attack the gift after the death of the husband and recover one-half of the proceeds (New York Life Insurance Co. v. Bank of Italy, supra; Mundt v. Connecticut General Life Insurance Co., supra), but the remainder of the gift is valid (Beemer v. Roher, 137 Cal.App. at pages 293–294, 30 P.2d 547; McBride v. McBride, supra.)
The latest case on the subject allowing the wife to take one-half of the proceeds as her separate property appears to be Tyre v. Aetna Life Ins. Co., 54 Cal.2d 399, 6 Cal.Rptr. 13, 353 P.2d 725, which we find particularly helpful here. In that case the plaintiff, the widow of the insured, appealed from a judgment in favor of defendant in an action to recover the widow's community property interest in the proceeds of a life insurance policy. The defendant issued the policy in the face amount of $20,000.00 upon the life of plaintiff's husband in 1926. All premiums were paid from community funds.
In 1950 the widow was the named beneficiary of the policy; in that year the insured exercised his option under the policy of selecting an alternate plan of settlement. He directed that upon his death his wife should receive an annuity based upon her life expectancy at that time. If she failed to survive him by ten years, the monthly payments were to be divided among three daughters for the balance of the ten-year period. As so amended, the policy continued in force for the remainder of the insured's life, and was in effect at his death.
Under the terms of the insured's plan of settlement the plaintiff-wife would receive payments in installments of $123.00 per month provided she lived out her full life expectancy. The insured changed the method of payment without plaintiff's knowledge or approval. She did not learn of the change until a few months after her husband's death. She promptly disavowed the plan of settlement and demanded payment of the face amount of the original policy in cash. Defendant refused her demand.
In reversing the trial court's judgment in favor of defendant, the Supreme Court reiterated the well established rule that a policy of insurance on the husband's life is community property when the premiums have been paid out of community funds. After commenting upon the right of the insured to change the beneficiary, the court declared as follows (p. 404, 6 Cal.Rptr. p. 16, 353 P.2d p. 356):
‘Nevertheless, it is settled that even though the insurance contract provides that the insured husband has the right to change the beneficiary without the wife's consent when she is named as such, any such change of beneficiary without her consent and without a valuable consideration other than substitution of beneficiaries is voidable, and after the death of the husband the wife may maintain an action for her community share in the proceeds of the policy. [Citations.]’
We have concluded that, under the well supported findings in this case, the changes of beneficiary in favor of the executors of the husband's will without the wife's consent were voidable as to one-half of the proceeds, and that upon the death of the insured, the widow became entitled to that amount as her separate property. The judgment is well supported by the law as established by the controlling authorities hereinabove discussed.
Especially in view of the treatment accorded to the wife of twenty-seven years by the terms of the will and codicils above summarized, it appears to us that the controlling law which we have applied has led to a decision which is in accord with the dictates of common sense and plain justice.
It is the widow's contention, on her cross-appeal, that she is entitled to receive all of the proceeds of the insurance policies because: (1) the changes of beneficiary were null and void for the reason that the insured was mentally incompetent at the time he executed them; and (2) the insured was bound by an oral agreement to carry the insurance for her as sole and irrevocable beneficiary. She argues that the adverse findings of the trial court on these two issues are unsupported by the evidence.
It is asserted that the insured, while rational in other respects, suffered insane delusions concerning his wife. Extensive and impressive evidence, including hospital records and medical testimony, was introduced to show the failing health of the insured and his increasingly hostile attitude toward his wife at the time he made the changes of beneficiary. On the other hand, a number of witnesses testified to the effect that he appeared generally competent and normal in respect to his business and personal affairs and that he fully understood the nature and effect of the execution of the changes of beneficiary. It is the widow's contention on this appeal that this latter evidence did not controvert the showing that he suffered insane delusions concerning her.
The argument assumes, without citation of authority, that the test to be applied in determining whether the insured was competent to make the change of beneficiary is that used in determining testamentary capacity. The executors assert that inasmuch as there was substantial evidence that he fully understood the nature and effect of the transaction, it was sufficient to support the finding of his competence to execute a contract and thus to execute the documents making the changes of beneficiary.
‘No hard-and-fast rule can be stated as to whether a different degree of capacity is required to make a deed or contract than to execute a valid will. As a general proposition of law it is impossible to say that either requires a greater degree of capacity than the other; rather, in each case, the degree of capacity required must be determined with reference to its own peculiar facts.’ (27 Cal.Jur.2d, 349–350.)
The insured undoubtedly was in a highly emotional mental state and was suffering from great physical distress. However, presumptions are in favor of competency, whether it be to make a will, an inter vivos gift, or a contract. (Estate of Wright, 7 Cal.2d 348, 356, 60 P.2d 434; Wilson v. Sampson, 91 Cal.App.2d 453, 459, 205 P.2d 753; California Bank v. Bell, 38 Cal.App.2d 533, 538, 101 P.2d 724.) To the extent that the insured had the right to revoke the interest of the cross-appellant in the insurance policies, the revocation cannot be set aside merely because the actions of decedent do not conform with our ideas as to what was just and proper. ‘Prejudices, dislikes and antipathies, however ill founded, or however strongly entertained, cannot be classed as insane delusions; nor is every delusion an insane delusion.’ (Estate of Kendrick, 130 Cal. 360, 364–367, 62 P. 605, 607; Estate of Perkins, 195 Cal. 699, 708, 235 P. 45; and see Estate of Alegria, 87 Cal.App.2d 645, 656–658, 197 P.2d 571, and decisions therein cited.)
The second contention of the widow also raises a question as to the sufficiency of the evidence to support a finding of fact. She testified that in consideration of their agreement to make mutual wills, the insured also agreed to obtain as large an amount of insurance as he could and make her sole and irrevocable beneficiary. Two witnesses testified that the decedent mentioned to them that he had provided insurance for her benefit. Further, it is asserted that the fact that they made their mutual wills and that he subsequently obtained the insurance and named her as sole beneficiary is evidence that the contract was made. It is urged that in view of this evidence, the court had ‘no right to indulge in an inference that no agreement was made. * * *’
The trier of fact may reject all or any part of the testimony of a witness although he is uncontradicted if there is any rational ground for doing so. (Hicks v. Reis, 21 Cal.2d 654, 659, 660, 134 P.2d 788.) The testimony must be considered in connection with other testimony and reasonable inferences therefrom. (Bechtold v. Bishop & Co., Inc., 16 Cal.2d 285, 291–292, 105 P.2d 984; Nevarov v. Caldwell, 161 Cal.App.2d 762, 777, 327 P.2d 111.)
Unlike the testimony of the widow in respect to transmutation of the property to community, her testimony in respect to an agreement to obtain insurance is not corroborated by other evidence. That the husband obtained insurance and stated to others that he had provided insurance for the wife does not tend to establish that he made a binding agreement to do so; nor does the making of mutual wills. In view of the obvious interest of the widow, the trial court was not required to accept this portion of her testimony as the truth. (Leonard v. Watsonville Community Hospital, 47 Cal.2d 509, 518, 305 P.2d 36; Nevarov v. Caldwell, supra, 161 Cal.App.2d 762, 777, 327 P.2d 111.)
The judgment and the orders denying motions to modify and vacate said judgment and to enter a new and different judgment are affirmed. The attempted appeal from the order denying motion for a new trial is dismissed.
FOX, P. J., and ASHBURN, J., concur.