Donnelly v. Northwestern Life Ins. Co., 6279.

• Decision Date: 01 June 1932
• Docket Number: No. 6279.,6279.
• Citation: 59 F.2d 46
• Parties: DONNELLY v. NORTHWESTERN LIFE INS. CO.
• Court: U.S. Court of Appeals — Fifth Circuit

59 F.2d 46 (1932)

DONNELLY v.NORTHWESTERN LIFE INS. CO.^*

No. 6279.

Circuit Court of Appeals, Fifth Circuit.

June 1, 1932.

Clay Cooke, of Fort Worth, Tex., Wm. Ervin Terrell, of Waco, Tex., and Wm. J. Berne, of Fort Worth, Tex., for appellant.

W. T. Henry and Frank W. Wozencraft, both of Dallas, Tex., for appellee.

Before BRYAN, FOSTER, and SIBLEY, Circuit Judges.

FOSTER, Circuit Judge.

Appellant, as beneficiary, brought a suit at law to recover on two policies of life insurance, each for $10,000, issued upon the life of her husband, Walter W. Donnelly, by appellee.The policies were for a ten-year term and contained the usual provisions for a change of beneficiary, for grace of one month for the payment of premiums, for reinstatement upon evidence of insurability satisfactory to the company, and for incontestability after one year from date of issue, except for nonpayment of premiums.Each policy on its face contained the following provision as to the payment of premiums: "This policy is issued in consideration of the application therefor, a copy of which is attached hereto or endorsed hereon, and is a part of this Contract, and the payment in advance of the premium of Forty and 30/100 Dollars, being the Premium for one year's Term Insurance from the date hereof and the advance reserve, if any, required by law, and of the payment of a like amount upon each 6th day of February, May, August, November in every year hereafter during the continuance of this Policy, and until premiums have been paid for Ten full years from the date hereof."

The policies were issued February 6, 1929.The insured died on December 11, 1929, within in the year.On January 19, 1931, more than a year after the date of the policies, the suit was brought, on the theory that, as each policy on its face showed the receipt of an advance premium of $40.30 for one year's insurance, the policies were in force at the time of the insured's death.

Appellee defended on the ground that, on a reasonable construction of the policies as written, the premiums paid, $40.30, were only for three months and the policies had lapsed for nonpayment of premiums.In the alternative, appellee set up that by mutual mistake and through clerical error the policies as written did not express the true contract and prayed for reformation.

The court treated the alternative plea as an equitable defense filed under the provisions of section 274b, Jud. Code(28 USCA § 398).A jury was impaneled, evidence was taken, and the court submitted to the jury the question as to whether under the contract $40.30 was to be a quarterly premium.The jury answered in the affirmative, and the court then directed a verdict on the whole case for appellee.

Appellee could have filed a bill in equity to reform the contract on the ground of mutual mistake.The rule is clearly stated in Hearne v. New England Mut. Marine Insurance Co., 20 Wall. 488, 22 L. Ed. 395, as follows: "Where the agreement as reduced to writing omits or contains terms or stipulations contrary to the common intention of the parties, the instrument will be corrected so as to make it conform to their real intent.The parties will be placed as they would have stood if the mistake had not occurred."

Under the provisions of section 274b, Jud. Code(28 USCA § 398), a plea for the reformation of the contract could properly be interposed as an equitable defense without the necessity of filing a bill separately.While a jury was impaneled, this could be done in a suit in equity, in the discretion of the court.It is evident that the judge considered the verdict as advisory.So far as the equitable plea is concerned, we may review the case as an appeal in a case in equity.Jud. Code § 269, as amended(28 USCA § 391);Liberty Oil Co. v. Condon National Bank, 260 U. S. 235, 43 S. Ct. 118, 67 L. Ed. 232.

The following facts appear without dispute: Donnelly applied for five policies of insurance on his life, each for $10,000.Three of them are not involved in this suit and require no discussion.He was accepted as a good risk, and the policies were issued on the annual payment of premiums basis.He then returned the policies and asked, as he had the right to do, that they be changed to the quarterly premium basis.In endeavoring to correct the policies, purely through a mistake of a clerk in the home office of the company, the statement was left showing the payment of $40.30 as the premium for one year instead...