Connecticut Mutual Life Ins., Co. v. Merritt-Chapman & Scott Corp.

• Decision Date: 12 December 1932
• Citation: 19 Del.Ch. 103,163 A. 646
• Parties: THE CONNECTICUT MUTUAL LIFE INSURANCE COMPANY, a corporation of the State of Connecticut, v. MERRITT-CHAPMAN & SCOTT CORPORATION, a corporation of the State of Delaware
• Court: Court of Chancery of Delaware

163 A. 646

19 Del.Ch. 103

THE CONNECTICUT MUTUAL LIFE INSURANCE COMPANY, a corporation of the State of Connecticut, v. MERRITT-CHAPMAN & SCOTT CORPORATION, a corporation of the State of Delaware

Court of Chancery of Delaware, New Castle

December 12, 1932

INJUNCTION BILL: Rule to show cause why a preliminary injunction should not issue restraining the defendant from prosecuting an action at law upon an insurance policy issued by the complainant in the sum of $ 50,000 in favor of the defendant upon the life of William H. Baker, who was president of the defendant. Application for the policy was made by the defendant on September 29, 1931. It was duly issued on October 9, 1931. The initial premium of six hundred and sixty-four dollars was paid when the policy was issued. Baker died on May 13, 1932.

The complainant claims that it was induced to issue the policy by false representations made in writing by Baker in response to certain questions put to him concerning the past state of his health and his freedom from specific complaints, which answers are alleged to have been material to the risk assumed by the complainant as insurer. The answers made by Baker were certified by him to be true and the complainant, as the applicant for the insurance, declared the answers to be full and true and agreed that its declaration in that behalf together with the said answers should be the basis of the policy.

The bill charges that the answers were false in certain material particulars which are specifically pointed out, and that Baker knew them to be so.

After Baker died, the complainant made investigation into the truth of the answers, and, upon discovering their alleged falsity tendered to the defendant a return of the premium paid and demanded a return of the policy for cancellation on the ground that it was void for fraud.

The defendant refused to accept the tender of the premium and insisted on recognition of the policy as validly binding on the complainant.

The bill alleges that unless the court decrees the policy to be void and orders the same to be delivered up for cancellation the complainant will suffer irreparable injury in that if the policy remain outstanding, there is grave danger of the loss by death of witnesses of the evidence now available to the complainant showing the misrepresentation and falsity of the answers upon the strength of which the policy was procured that, so long as the policy is outstanding, certain special reserves will be required to be set up by the complainant in such way as to affect seriously its business; and that the complainant will be constantly threatened with litigation in this and other jurisdictions under circumstances where it will not be able to avail itself of the defenses to said policy set forth in the bill.

The prayers are that the policy be decreed to be void and, upon repayment by the complainant of the premium, that it be surrendered for cancellation; and that an injunction issue perpetually and preliminary pending suit enjoining the defendant from assigning, etc., the policy and from instituting or prosecuting any action at law thereon.

The bill was filed June 28, 1932, and service of subpoena was had on June 29, 1932. The return on the subpoena does not show the hour of service. The defendant's answer avers the hour to have been at 3.15 p. m.

When the bill was filed, the defendant had not instituted suit at law on the policy. On the next day, however, viz., on June 29, 1932, the defendant after having received notice of the complainant's repudiation of the contract on the ground of alleged fraud in its procurement, instituted an action at law thereon in the Supreme Court of New York. Summons in that action was served on the defendant therein, the complainant here, the answer avers on June 29, 1932, at 9.00 a. m.

The defendant filed its answer in this cause on September 26 1932, denying the allegations of fraud alleged in the bill and setting up certain affirmative defenses.

The question which the pending rule presents for decision is whether or not the defendant should be enjoined pending this cause from prosecuting the New York action (which has since been removed to the United States District Court for the Southern District of New York).

Heard on bill, answer, and affidavits.

Preliminary injunction issued as prayed.

E. Ennalls Berl, of the firm of Ward & Gray, for complainant.

Hugh M. Morris and Edwin D. Steel, Jr., and Stephen P. Anderson, of New York City, for defendant.

OPINION

THE CHANCELLOR:

The jurisdiction of this court to entertain a bill of the pending sort is for the present purpose conceded by the defendant. The concession, however, is only temporary, the point being reserved for final hearing. See upon the question, Prudential Ins. Co. v. Merritt-Chapman & Scott Corp., 111 N.J.Eq. 166, 162 A. 139.

The argument upon the pending motion has, principally, narrowed the question to this--Was the suit in this court commenced before the law action in the Supreme Court of New York, and, if so, should this court, in support of its own prior jurisdiction, restrain further proceedings in the New York action pending determination of the controversy here?

The bill was filed here on June 28, 1932. Subpoena issued on that day and was served on June 29, 1932, in the afternoon. The defendant's law action was filed in New York on June 29, 1932, and summons was served in the morning of that day.

The complainant contends that the suit was instituted here and jurisdiction acquired before the defendant commenced its action in New York. The defendant on the other hand contends that the suit here was not commenced and jurisdiction acquired until the subpoena was served, and as that was subsequent to the service of the summons in the New York action, the suit here was not instituted prior to the New York action.

These contentions make it necessary to determine the time when a suit in Chancery in this jurisdiction may be said to have been instituted. It appears to be well settled that a lis pendens, is of itself notice to a bona fide purchaser, but that there must be service of the subpoena before the lis can be said to be pending. Lockwood v. Bates, et al., 1 Del.Ch. 435, 12 Am Dec. 121; Murray v. Ballou, 1 Johns. Ch. (N. Y.) 577. The question before the court, however, is not one of that kind. Here the question is--When as between the parties to this cause did the court take jurisdiction of it? When that is the question, considerations different from those applicable to lis pendens as notice to a stranger are to be taken into account. This is evident from the remarks made by Judge Houston, speaking for the Court of Errors and Appeals, in Rice v. McCaulley, 12 Del. 226, 7 Houst. 226, 31 A. 240. The difference between the two cases is also noted by the Supreme Court of the United States in Farmers' Loan, etc., Co. v. Lake Street Elevated R. R. Co., 177 U.S. 51, 20 S.Ct. 564, 44...