BANK OF MINDEN ET AL.
v.
CLEMENT, ADMINISTRATRIX OF CLEMENT
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The Supreme Court held that a Louisiana statute exempting life insurance proceeds from the claims of a deceased debtor's creditors violated the Contracts Clause of the Federal Constitution, as applied to policies purchased before the statute's enactment and to debts incurred before the exemption law took effect. The Court reasoned that life insurance policies constitute property subject to creditors' claims, and any law that releases future acquisitions from liability for preexisting contracts impairs the obligation of those contracts regardless of the degree of impairment.
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Mr. Justice McReynolds delivered the opinion of the court.
By Act No. 189 of 1914, the Louisiana Legislature undertook to exempt from debts of the assured the avails of .insurance upon his life when payable to his estate. .
Before passage of that act and while indebted to plaintiffs in error banks by notes which were renewed from time to time until his death, O. P. Clement took out two policies upon his life with loss payable to his executors, administrators or assigns. He died in 1917 and his administratrix .collected the stipulated sums amounting to $4,433.33. 'The succession was insolvent, and the banks sought to subject the insurance money to their claims, maintaining that if construed and applied so. as to exempt such funds the Act of 1914 would impair the obligations of their contracts and violate § 10, Article I, Federal Constitution. The Supreme-Court of the State held that acceptance of the renewal notes did not operate as novations, but that the statute protected the insurance money without violating the Federal Constitution since the exemption “impaired the obligation of the preexisting contract very slightly and remotely.” 146 Louisiana, 385.
Section 10, Article I, of the Constitution — “No State shall ... pass any . . . law impairing the obligation of contracts” — has been much considered by this court and often applied tó preserve the integrity or contractual obligations, When the deceased took out the policies of insurance upon his life they became his property subject to claims of his creditors. New York Mutual Life Ins. Co. v. Armstrong, 117 U. 591, 597; Central Bank of Washington v. Hume, 128 U. S. 195, 204; Burlingham v. Crouse, 228 U. S. 459, 471, 472; In re Coleman, 136 Fed. Rep. 818; In re Bonvillain-, 232 Fed. Rep. 372; Blinn v. Dame, 207 Massachusetts, 159; In re Heilbron’s Estate, 14 Washington, 536; Rice v. Smith, 72 Mississippi, 42; Skinner v. Holt, 9 S. Dak. 427; Joyce on Insurance, § 2341.
In Sturges v. Crowninshield, 4 Wheat. 122, 197, 198, opinion by Mr. Chief Justice Marshall, it was said: “What is the obligation of a contract? and what will impair it? It would seem difficult to substitute words which are more intelligible, or less liable to misconstruction, than those which are to be explained. A contract is an agreement, in which a party undertakes to do, or not to do, a particular thing. The law binds him to perform his 'undertaking, and this is, of course, the obligation of his contract. . ... Any law which releases a part of this obligation, must, in the literal sense of the word, impair it. . . . But it is not true, that the parties have in view only the property in possession when the contract is formed, or that its obligation does not extend to future acquisitions. Industry, talents and integrity constitute a fund which is as confidently trusted as property itself. Future acquisitions are, therefore, liable for contracts; and to release them from this liability impairs their obligation.” And, in Planters’ Bank v. Sharp, 6 How. 301, 327, opinion by Mr. Justice Woodbury: “One of the tests that a contract has been impaired is, that its value has by legislation been diminished. It is not, by the Constitution, to be impaired at all. This is not a question of degree or manner or cause, but of encroaching in any respect on its obligation, dispensing with any part of its force.” Ogden v. Saunders, 12 Wheat. 213, 257; McCracken v. Hayward, 2 How. 608, 612; Edwards v. Kearzey, 96 U. S. 595, 600.
So far as the statute of 1914 undertook to exempt the policies and their proceeds from antecedent debts it came into conflict with the Federal Constitution. See Lessley v. Phipps, 49 Mississippi, 790; Johnson v. Fletcher, 54 Mississippi, 628; Rice v. Smith, 72 Mississippi, 42; In re Heilbron’s Estate, 14 Washington, 536; Skinner v. Holt, 9 S. Dak. 427; The Homestead Cases, 22 Grattan, 266.
The judgment of the court below must be reversed and the cause remanded for further proceedings not inconsistent with this opinion-
Reversed.
Mr. Justice Clarke dissents.
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Gray v. Moss, 115 Fla. 701 (Fla. 1934)…* * pass any * * * iaw impairing the obligation of contracts.”. See [*713] Edwards v. Kearzey, 96 U. S. 595, 24 Law Ed. 793; 12 C. J. 1076. See also Kener v. La Grange Mills, 231 U. S. 215, 34 Sup. Ct. 83, 58 Law Ed. 189; Bank of Minden v. Clement, 256 U. S. 126, 41 Sup. Ct. 408, 65 Law Ed. 857; Mobile v. Watson, 116 U. S. 289, 6 Sup. Ct. 398, 29 Law Ed. 620; Humphreys v. State, 108 Fla. 92, 145 So. 858; Smith-Courtney Co. v. Bd. Road Comm'rs (N. C.), 108 S. E. 443; Alexander v. Kilpatrick, 14 Fla. 450, 103…
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Arthur Y. Milam & the First Nat'l Bank of Tampa v. Davis, 97 Fla. 916 (Fla. 1929)…made payable for their benefit; and the statute takes nothing from creditors of an insured. Ordinarily exemptions apply to debts incurred after the exemption laws become effective. This accords [*981] with the decision in Bank of Minden v. Clement, 256 U. S. 126. The family home place and the personal property exemption obviously were, as a matter of public policy, not regarded by the law making power of the state even before the adoption of the Constitution of 1885, as being in all cases sufficient for th…
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Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398 (U.S. 1934)…v. King, 91 U.S. 3; Memphis v. United States, 97 U.S. 293; Virginia Coupon Cases, 114 U.S. 269, 270, 298, 299; Effinger v. Kenney, 115 U.S. 566; Fisk v. Jefferson Police Jury, 116 U.S. 131; Bradley v. Lightcap, 195 U.S. 1; Bank of Minden v. Clement, 256 U.S. 126. See, also, New Orleans Gas Co. v. Louisiana Light Co., 115 U.S. 650, 673; Offield v. New York, N. H. & H. R. Co., 203 U.S. 372; Cincinnati v. Louisville & N. R. Co., 223 U.S. 390; Pennsylvania Hospital v. Philadelphia, 245 U.S. 20, 23; Galveston W…
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Join FLexlaw to unlock all legal intelligenceAuthorities Cited
- Sturges v. Crowninshield, 4 Wheat. 122 (U.S. 1819)
- Ogden, 12 Wheat. 213 (U.S. 1827)
- Burlingham v. Crouse, 228 U.S. 459 (U.S. 1913)
- Edwards v. Kearzey, 96 U.S. 595 (U.S. 1877)
- Cent. Bank of Wash. v. Hume, 128 U.S. 195 (U.S. 1888)
- McCracken v. Hayward, 2 How. 608 (U.S. 1844)
- The Planters' Bank of Miss. v. Sharp, 6 How. 301 (U.S. 1848)