Fidelity Mut. Life Ins. Co. v. Merchants'& M. Bank

• Citation: 71 F.2d 777
• Decision Date: 23 July 1934
• Docket Number: No. 7227.,7227.
• Parties: FIDELITY MUT. LIFE INS. CO. v. MERCHANTS' & MECHANICS' BANK et al.
• Court: U.S. Court of Appeals — Fifth Circuit

71 F.2d 777 (1934)

FIDELITY MUT. LIFE INS. CO. v. MERCHANTS' & MECHANICS' BANK et al.

No. 7227.

Circuit Court of Appeals, Fifth Circuit.

June 23, 1934.

Rehearing Denied July 23, 1934.

C. Baxter Jones and A. O. B. Sparks, both of Macon, Ga., for appellant.

Orville A. Park and Harry S. Strozier, both of Macon, Ga., for appellees.

Before BRYAN, FOSTER, and SIBLEY, Circuit Judges.

SIBLEY, Circuit Judge.

On removal to the federal court the case was repleaded so as to stand as a suit by Merchants' & Mechanics' Bank against Fidelity Mutual Life Insurance Company to recover the face value of a policy on the life of one Hawkes which had been absolutely assigned to the bank with the company's consent. The defense was that the policy had, pursuant to an option in it, been surrendered by the bank on December 26, 1930, the day before Hawkes died, and that only the cash surrender value was due, which was tendered. Jury having been waived by written stipulation, the court on an agreed statement of the facts gave judgment for the bank, and the insurance company appeals. The seventh annual premium fell due September 29, 1930, and was not paid. The policy provided: "After three years premiums shall have been paid, the insured or assigns at any time within three months after any default in premium, but not later, may surrender this policy (a) for its cash surrender value less any indebtedness to the Company hereon, or (b) for participating paid up insurance. * * * If the policy be not surrendered as above the insurance shall be automatically continued, etc." If not surrendered, this policy was in force at Hawkes' death. On December 8, 1930, a member of the law department of the company, whose authority in the matter does not appear, wrote the attorneys for the bank a letter in which attention was called to the nonpayment of this premium and that the policy might be surrendered within three months from the lapse. In reply, the bank's attorneys asked what the surrender value would be, and were informed in turn of the amount. On December 26th one of the bank's attorneys delivered the policy to Brown Nicholson in Macon, Ga., who represented the insurance company to an extent discussed below, with a request that the company pay the cash surrender value, and on the same day the attorney mailed at Macon a letter addressed to the company at Philadelphia stating: "We have today delivered this policy to your branch office at Macon, in charge of Mr. Brown Nicholson, for the purpose of obtaining its cash surrender value." On the same day Nicholson sent the policy by mail to the company at Philadelphia with a letter which said: "I am enclosing the above policy which the Merchants & Mechanics Bank wishes to surrender for cash. Please forward the necessary form just as soon as possible. You will note that sixty days (sic) since the lapse of this policy will be up on Dec. 29th." While these letters were in the mail on December 27, 1930, Hawkes suddenly died. Nicholson of his own motion on that day telegraphed the company: "Stop surrender procedure Thereon Wallace Hawkes. Hawkes dead. Forward papers." The telegram was delivered that day. The bank's attorney the same day delivered a letter to Nicholson revoking the action of the day before, and asking a return of the policy. The letters written to the company on December 26th were received by it on Monday, December 29th.

The right of the bank as assignee to surrender the policy by December 29th for cash measured by its surrender value was an absolute option dependent only on the bank's will and act, and not requiring any consent on the part of the insurance company. The quoted provision of the policy was a continuing offer on the company's part kept open for a sufficient consideration and requiring only the acceptance of the bank by its making the election to take the cash surrender value. The effect of such election would be to change the liability of the company from one to pay the face of the policy according to its conditions on the death of the insured into a present absolute liability to pay the lesser surrender value. We do not think that the expression "surrender this policy" makes the physical delivery over to the company of the policy a prerequisite to or always a necessary part of this change of obligation. The policy might at the critical time be inaccessible, mislaid, or destroyed. If, as we are about to hold, the transaction must be with the company, it might be that there was not time to transport the policy physically to it or an authorized agent. A fair reading of the words of the policy would be that the surrender of the policy, so far as the physical delivery of it is meant, is to be concurrent with the payment of the cash and not precedent to it. Until the cash is paid, the bank should be entitled, if it insists, to retain custody of the instrument which evidences its right to have the surrender value, just as, when that value is paid, the company ought to receive the instrument which it has discharged. A similar question has arisen where under a statute or a provision of the policy the policy may be canceled and premium liability stopped or unearned premium recovered. Though the word "canceled" would imply a physical act done to the policy, the decisions are that an unequivocal request for cancellation which reaches the company or some one authorized to represent it is generally sufficient without a physical delivery up of the policy. Stevenson v. Sun Insurance Office, 17 Cal. App. 280, 119 P. 529; Crown Point Iron Co. v. ?tna Insurance Co., 127 N. Y. 608, 28 N. E. 653, 14 L. R. A. 147; Home Insurance Co. v. Loflin, 41 Ga. App. 423, 153 S. E. 229; 32 C. J. Insurance, ß 454. So holding in this case, we must look both to what was done with the policy and to the communications made concerning it.

The option to take the surrender value was not closed by the bank's attorney's mental decision, nor by his putting it into writing, nor by merely mailing the letter or the policy to the company. The bank's acceptance of the continuing offer of the company made in the policy to pay the surrender value must have been communicated to the company. It could not otherwise know its outstanding risks. One of the offered options was to take a paid-up policy, which would require action by the company in issuing a new policy. The question is whether this is one of the instances in which posting a letter is a constructive communication and is operative at once so as to make a subsequent revocation ineffective, or the death of a party or the perishing of the subject-matter of the contract or the nondelivery of the letter immaterial. Tayloe v. Merchants' Fire Insurance Company, 9 How. 390, 13 L. Ed. 187; Patrick v. Bowman, 149 U. S. 411, 13 S. Ct. 811, 37 L. Ed. 790; Burton v. United States, 202 U. S. 344, 386, 26 S. Ct. 688, 50 L. Ed. 1057, 6 Ann. Cas. 362. We find the general rule well stated in Restatement of the Law of Contracts thus: "ß 64. An acceptance may be transmitted by any means which the offerer has authorized the offeree to use, and if so transmitted is operative and completes the contract as soon as put out of the offeree's possession without regard to whether it ever reaches the offerer, unless the offer otherwise provides." "ß 66. An acceptance is authorized to be sent by the means used by the offerer or customary in similar transactions at the time when and the place where the offer is received, unless the terms of the offer or surrounding circumstances known to the offeree indicate otherwise." In Williston on contracts,...