Columbian Nat. Life Ins. Co. v. Black

• Citation: 35 F.2d 571,71 ALR 128
• Decision Date: 16 October 1929
• Docket Number: No. 3.,3.
• Parties: COLUMBIAN NAT. LIFE INS. CO. v. BLACK.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

71 ALR 128, 35 F.2d 571 (1929)

COLUMBIAN NAT. LIFE INS. CO. v. BLACK.

No. 3.

Circuit Court of Appeals, Tenth Circuit.

October 16, 1929.

Clarence A. Brandenburg, of Denver, Colo. (Stanley C. Brandenburg, of Denver, Colo., on the brief), for appellant.

Alva B. Adams, of Pueblo, Colo. (Robert S. Gast, of Pueblo, Colo., on the brief), for appellee.

Before LEWIS, COTTERAL, and McDERMOTT, Circuit Judges.

McDERMOTT, Circuit Judge.

In 1906 the appellee (defendant below) applied to the predecessor of appellant for a $10,000 policy of life insurance on the ordinary life plan, the annual premium for which was $266.90. The application was approved and a policy issued and accepted and the premium paid. Two months later the company discovered that a peculiar mistake had occurred in the policy issued. The printer had used the form for an ordinary life policy for the first page, but on the reverse side had erroneously used the form for an endowment policy. There were but a few words difference in the printed matter, but, as will be seen, they were of vital import. Each of them had a table of values, setting out the options given the assured at the end of each year, which must be filled in before issue. This table was filled out, in the policy issued, correctly, and under it the assured had the option, at the end of 20 years, of $3,040 in cash or paid up assurance for $5,110. But in the printed form of endowment policy issued, one of the later clauses provided that, at the end of 20 years, "the divisible profits may be added to the full amount assured and the total sum drawn in cash, the policy being surrendered." The result was that the assured, by the written in table, was given the option of $3,040 in cash, and in a later clause the option of $10,000 in cash. This was a patent and manifest absurdity. The plaintiff offered to prove that the premium for an endowment policy was $508.90 instead of $266.90, the amount paid.

Upon discovery of this error the company called the defendant's attention to the error and asked to take the policy up and issue one that was in accord with the application. There was some trouble getting a reply from the defendant, but he finally wrote and said that the agent who took his application had stated that the policy applied for "would be more liberal and extend greater privileges than I could secure through the policy of any other company," and declined to surrender the policy for correction. The company wrote back insisting that the error should be corrected. The defendant is a doctor of intelligence and education, and had been a medical examiner for an insurance company, and knew what an ordinary life policy was. The record leaves no shadow of doubt as to his understanding of the mistake and his determination to enrich himself by it if possible.

Shortly thereafter the company issuing the policy sold out to the plaintiff, which did not in fact know of the error, although it was charged with the knowledge of its predecessor. The premium for an ordinary life policy was tendered each year, and accepted. The rights of the parties during the first 20 years of the policy were the same under either form of policy; that is, upon death during that period the beneficiary would be entitled to $10,000; and upon surrender of the policy during that 20 years the assured was entitled to surrender values as set out in the table, which were correct for an ordinary life policy. But at the end of 20 years, under the policy issued, the assured then, for the first time, had his option of $3,040 in cash or $10,000 in cash. He demanded the $10,000. Immediately thereafter this bill in equity to reform the policy was filed. The defenses were absence of mutual mistake or fraud; no antecedent agreement; acquiescence; negligence; laches; and the incontestable clause. The trial court denied the relief sought, holding that the mistake had not been established by the character and amount of proof required to reform an instrument; and, even so, that by letting the matter go for 20 years, the relief was barred by laches. This appeal follows. There is no substantial dispute as to the facts.

1. As to mutual mistake or fraud. The power of a court of equity to reform an instrument so that it will express the actual agreement of the parties, in case of mutual mistake, or mistake upon the part of one and fraud or inequitable conduct on the part of the other, is well recognized. Hunt v. Rhodes, 1 Pet. 1, 7 L. Ed. 27; Allen v. Hammond, 11 Pet. 63, 9 L. Ed. 633; Ivinson v. Hutton, 98 U. S. 79, 25 L. Ed. 66; Walden v. Skinner, 101 U. S. 577, 583, 25 L. Ed. 963; Thompson v. Phenix Ins. Co., 136 U. S. 287, 10 S. Ct. 1019, 34 L. Ed. 408; Philippine Sugar, etc., Co. v. Government of Philippine Islands, 247 U. S. 385, 38 S. Ct. 513, 515, 62 L. Ed. 1177. As to the proof required to accomplish such reformation, the Supreme Court of the United States, in the case last cited, held: "The burden of proof resting upon the appellant cannot be satisfied by mere preponderance of the evidence. It is settled that relief by way of reformation will not be granted, unless the proof of mutual mistake be `of the clearest and most satisfactory character.' Snell v. Insurance Co., 98 U. S. 85, 89, 90, 25 L. Ed. 52; Baltzer v. Raleigh & Augusta Railroad, 115 U. S. 634, 645, 6 S. Ct. 216, 29 L. Ed. 505; Maxwell Land-Grant Case, 121 U. S. 325, 381, 7 S. Ct. 1015, 30 L. Ed. 949; Simmons Creek Coal Co. v. Doran, 142 U. S. 417, 435, 12 S. Ct. 239, 35 L. Ed. 1063; Campbell v. Northwest Eckington Co., 229 U. S. 561, 584, 33 S. Ct. 796, 57 L. Ed. 1330." Page 391 of 247 U. S., 38 S. Ct. 515, 62 L. Ed. 1177. See, also, Firemen's Ins. Co. v. Lasker, 18 F.(2d) 375 (8 C. C. A.); Skelton v. Federal Surety Co., 15 F.(2d) 756 (8 C. C. A.).

While, in an action at law, a party is bound by the terms of his contract, whether he has read it or not (New York Life Insurance Co. v. Fletcher, 117 U. S. 519, 6 S. Ct. 837, 29 L. Ed. 934; Lumber Underwriters v. Rife, 237 U. S. 605, 35 S. Ct. 717, 718, 59 L. Ed. 1140), in an action in equity to reform, failure to read the agreement is not itself a complete defense. In the case last cited, the Supreme Court of the United States said: "No rational theory of contract can be made that does not hold the assured to know the contents of the instrument to which he seeks to hold the other party. The assured also knows better than the insurers the condition of his premises, even if the insurers have been notified of the facts. * * * Of course, if the insured can prove that he made a different contract from that expressed in the writing, he may have it reformed in equity. What he cannot do is to take a policy without reading it, and then, when he comes to sue at law upon the instrument, ask to have it enforced otherwise than according to its terms. The court is not at liberty to introduce a short cut to reformation by letting the jury strike out a clause." Pages 609, 610 of 237 U. S., 35 S. Ct. 718, 59 L. Ed. 1140.

Chancellor Kent expressed the rule as follows: "But equity has a broader jurisdiction, and will open the written contract to let in an equity arising from facts perfectly distinct from the sense and construction of the instrument itself." Gillespie v. Moon, 2 Johns. Ch. (N. Y.) 585, 7 Am. Dec. 559.

In speaking of mutual mistake, Williston in his work on Contracts (vol. III, p. 2745) says that "knowledge by one party of the other's mistake regarding the expression of the contract is equivalent to mutual mistake."

While courts are properly reluctant to alter the terms of a written engagement, even in equity, and do not do so unless the proof is clear and convincing, we are of the opinion that the uncontradicted and indisputable facts in this case require the interposition of equity. It is true the defendant on the stand and in his letters denies any mistake on his part. But his actions speak louder than his words. He applied for an ordinary life policy; without any quibble, and in response to his application, he received a policy that manifestly was in error. He only paid for an ordinary life policy. When he received the policy he either did or did not notice the error. If he did not notice it, the mistake was mutual. If he did notice it and said nothing, he was guilty of such inequitable conduct as to amount to fraud. A man presents a check for $100 to a bank teller; he gets two $100 bills. No matter how loudly he asserts the lack of mistake on his part, the fact still remains that he was either mistaken or was trying to benefit by the teller's mistake. Without resorting to any oral evidence, the papers in this case on their face bear conclusive proof of a mistake that can be and should be corrected in equity.

2. Lack of antecedent agreement. It is quite true that before a writing may be reformed to express the real agreement of the parties, the parties must have agreed. Rescission may sometimes be had because there is no agreement; but reformation necessarily implies an agreement. Travelers' Ins. Co. v. Henderson, 69 F. 762 (8 C. C. A.); Southern Surety Co. v. United States Cast Iron Pipe & F. Co., 13 F.(2d) 833 (8 C. C. A.). From this premise, counsel argues that, since the policy issued did not conform to the application, the policy was only a counter offer, and there was therefore no antecedent contract. This ingenious argument, if sound, means there never can be a reformation of a policy of insurance issued on an application. The wilderness of cases in the books reforming policies so as to make them conform to the application is sufficient answer to the argument. In the early case of Ivinson v. Hutton, 98 U. S. 79, 25 L. Ed. 66, the court said, speaking of reformation of instruments generally: "Controversies of the kind often arise in respect to policies of insurance; and the rule is, when once the contract is agreed to, the underwriters are bound to insert it in the policy, and if they omit to do it, the insured have...