Farmers Bank & Trust Co. v. Public Service Co. of Indiana

• Decision Date: 05 February 1936
• Docket Number: No. 1041.,1041.
• Citation: 13 F. Supp. 548
• Parties: FARMERS BANK & TRUST CO. v. PUBLIC SERVICE CO. OF INDIANA.
• Court: U.S. District Court — Western District of Kentucky

13 F. Supp. 548

FARMERS BANK & TRUST CO. v. PUBLIC SERVICE CO. OF INDIANA.

No. 1041.

District Court, W. D. Kentucky.

February 5, 1936.

Morton K. Yonts and John H. Chandler, both of Louisville, Ky., for plaintiff.

Gordon, Laurent, Ogden & Galphin, of Louisville, Ky., for defendant.

HAMILTON, District Judge.

This case is pending before me on a motion to dismiss under Equity Rule 29 (28 U.S.C.A. following section 723).

On December 3, 1927, Lillian B. Everett, ward of the plaintiff, while a passenger on a train of the defendant, was severely injured in a derailment, and on November 21, 1928, instituted an action in her own name in the Jefferson county, Ky., circuit court, seeking to recover from the defendant $65,000 damages for personal injuries received in the accident. That action was removed to this court, and an answer filed by the defendant. On June 25, 1929, the following order was entered dismissing settled:

"On motion of the parties hereto, it is ordered that this case be and it is hereby dismissed settled at defendant's cost."

On the same date, Lillian B. Everett executed to the defendant the following release:

"Hot Springs, Arkansas.

"This is to acknowledge receipt from Interstate Public Service Company of the sum of Twenty Thousand Dollars ($20,000.00), which is accepted by me in full settlement and satisfaction of any and all claims which I may have against said Company, arising out of an accident in which I received injuries while a passenger on one of the Company's cars on December 3, 1927, near Speeds, Indiana. My claim for damages arising out of that accident is now being asserted in a suit by me against said Company, which suit was originally brought in the Jefferson Circuit Court at Louisville, Kentucky, and was removed by the defendant to the United States District Court for the Western District of Kentucky at Louisville, Kentucky, and is now pending in said latter Court.

"Said suit may now be dismissed settled upon the condition that the defendant pays all of the Court costs.

"This receipt and release is executed in duplicate. Witness my hand this 29 day of June, 1929.

"Lillian B. Everett Signed "Witness: Dewell Jackson Signed"

On January 23, 1935, the Nelson county court of Nelson county, Ky., after a hearing duly had, adjudged Lillian B. Everett to be a person of unsound mind and a lunatic, and pursuant to the statutory laws of the commonwealth of Kentucky appointed the Farmers Bank & Trust Company, a corporation incorporated under the laws of the commonwealth of Kentucky and authorized under its charter to act as trustee, a committee for her, and ever since that time the trust company has continued to act as such.

On February 11, 1935, the committee instituted in the Jefferson circuit court, common pleas branch, Fourth Division, this action against the defendant seeking to recover from it $75,000 on identically the same ground as her former action, and for which she had received $20,000 in full settlement. The defendant removed the action to this court, and after it had filed an answer pleading the former action as a bar, the plaintiff filed an amended petition in equity in which it admitted that its ward had instituted the former action and had executed the release heretofore referred to and had received the $20,000. In avoidance thereof it pleaded that Lillian B. Everett was, and had been ever since the accident, an insane person; that her mind, memory, mental faculties, and nervous system were so permanently injured and destroyed that she was incapable of exercising sound or any judgment, or making a rational determination of the contents of any settlement or contract; that she was wholly incapable by reason of her mental condition to know the nature, quality, or effect of any act, and for that reason, the compromise settlement and order entered in the previous action was absolutely void and of no effect.

There was no offer made to return any part of the $20,000 and no allegation of fact as to whether she had any part of the sum in her possession.

It is further alleged that the defendant, its officers, and agents knew, or had reason to suspect, the mental condition of Lillian B. Everett at the time they made the settlement, and knowing that fact, they falsely and fraudulently induced and caused her to release her claim against it. It is further alleged that the order dismissing the former action settled did not have the force and effect of a judgment, and prayed that the settlement and order of dismissal, be held for naught and that it recover the amount prayed for in the original petition.

The defendant has moved to dismiss this action; first, because the plaintiff has not offered to restore the parties to statu quo by returning the $20,000; second, because no fact is set out in the petition constituting false or fraudulent inducement to make the settlement; third, that there is no allegation that plaintiff's ward has sustained any damage; fourth, it is not alleged that counsel for its ward, who consented to the entry of the order of dismissal, lacked authority to act for her; and, fifth, that there is no fact alleged in the petition which would support a judgment holding void the order entered in the former action and the release in compromise executed by plaintiff's ward.

The language of the release in this case is sufficiently broad to cover all damages suffered by the plaintiff's ward in consequence of the derailment and wreckage of the train and to preclude the plaintiff from maintaining this action. Its execution is admitted, and its legal construction as constituting a bar to this action is not denied, but it is argued that it was entered into by plaintiff's ward at a time when she was wholly destitute of reason and without mental capacity to execute any sort of an agreement. It is further contended that the order dismissing settled entered in the former action is a nullity because the mental condition of its ward, at the time of entry, was such that she could not confer authority on her counsel to agree to it.

Agreements, compromises, and releases for personal injuries are subject to the rules of construction of contracts generally, and unless ordinary contracts entered into by a lunatic are void, by the same rules, a release or compromise would not be void.

A person non compos mentis ordinarily does not possess mental capacity to make a contract. Until about the year 1330, the common law, without deviation, recognized the right of a party to rely upon and prove his own insanity as a means of avoiding any contract made during his mental incapacity. This right was later limited in decisions rendered during the time of Edward III and Henry VI, and these decisions came to be regarded as the common law on the subject. Lord Coke stated that no man of full age shall in any plea set up his own insanity as a defense to his acts, as such proceeding would stultify him and hold him up to ridicule, and that if such defense were permitted, it would open up an avenue for fraud and injustice. The jurist held that it was exceedingly easy to counterfeit madness without being detected and that of those who deceitfully pretend to be insane, the far greater number escape detection; and consequently, but for this maxim, the appearance of lunacy would be very frequently put on for the purpose of practicing imposition and fraud.

The English common-law rule has been severely criticized by many writers as being contrary to natural justice and the practice of all civilized nations of the world. The doctrine that a person shall not be allowed to stultify himself by setting up such a plea is now exploded, and under modern decisions the right of an alleged insane person to avoid his contracts generally depends upon the degree of his mental incapacity.

In the case of Dexter v. Hall, 82 U.S. (15 Wall.) 9, 28, 21 L.Ed. 73, coming from the state of California, it was held that an insane person, while in such condition, was incapable of executing a contract, deed, power of attorney, or other instrument requiring volition and understanding, and that a power of attorney executed by an insane person, or one of unsound mind, was absolutely void. The court said, in looking at the subject, in light of reason, it is difficult to perceive how one incapable of understanding, and of acting in the ordinary affairs of life, can make an instrument the efficacy of which consists in the fact that it expresses his intention, or, more properly, his mental conclusions. It is said in the opinion that a lunatic has nothing which the law recognizes as a mind, and as a contract requires a meeting of minds, if one of the parties lacks a mind there can be no meeting on the subject.

In the case of Johnson v. Harmon, 94 U.S. (4 Otto) 371, 382, 24 L.Ed. 271, the court held that confirmed insanity which deprives a person of mental capacity to distinguish between right and wrong in respect to the act in question renders the person irresponsible for such an act, though criminal, and disqualifies him from entering into a contract, or to execute a valid instrument to convey real estate or personal estate. The basis of the opinion is that insanity prevents a meeting of minds necessary to execute an instrument or to do any act requiring mental volition or an exercise of mental power.

In the case of Plaster v. Rigney (C.C. A.) 97 F. 12, the court held void a power of attorney given by a lunatic, and a deed executed pursuant thereto. It would seem that one whose mental faculties were unbalanced, "in whose chambers of thought chaos reigned supreme, confusion worse confounded," would require the court to exercise care that such a person did not fritter away his rights and become a charge on the commonwealth. See the cases of Parker v. Marco (C.C.) 76 F. 510; Edwards v. Davenport (C.C.) 20 F. 756. The case of Kevan v. John Hancock Mutual Life Insurance Company (D.C.) 3 F.Supp. 288, is contrary to the above-cited cases,...