Metro. Life Ins. Co. v. Stern

• Decision Date: 02 November 1938
• Citation: 2 A.2d 51,124 N.J.Eq. 391
• Parties: METROPOLITAN LIFE INS. CO. v. STERN.
• Court: New Jersey Court of Chancery

2 A.2d 51

124 N.J.Eq. 391

METROPOLITAN LIFE INS. CO.

v. STERN.

Court of Chancery of New Jersey.

Nov. 2, 1938.

Syllabus by the Court.

1. Equity has jurisdiction to entertain all cases of fraud, notwithstanding the jurisdiction of the courts of law in such cases.

2. Whether or not equity should determine to exercise that jurisdiction in a particular case rests in the sound discretion of the court, on the application of established principles to the circumstances of the particular case.

3. Even though the bill be retained, further proceedings thereon may be stayed pending the outcome of a suit at law.

4. Where objection is made in limine, equity will not exercise its jurisdiction unless it appears by the bill of complaint that complainant is, or may well be, entitled to the aid of equity in order to obtain rights which he could not obtain at law or fuller and more complete relief than that which would be afforded by judgment at law.

5. In view of the Declaratory Judgments Act (R.S. 2:26-66 to 2:26-79), an insurance company claiming policy void for intentional fraud in its procurement does not need the aid of equity to protect it against prejudice of its rights and interests by possible delays by beneficiary in bringing or prosecuting suit on the policy; and especially is this true where such suit has already been brought by beneficiary and is still pending.

6. Rescission or cancellation of a contract may be had in equity, upon proof of reliance on material representations untrue in fact, without proof of conscious or intentional fraud which must be proven at law,— even if the bill alleges conscious fraud. Metropolitan Life Ins. Co. v. Lodzinski, 124 N.J.Eq. 357, 1 A.2d 859, explained.

7. It is sufficient ground for equity to exercise jurisdiction, at least to the extent of retaining the bill, if it appears by the bill that complainant may be able to prove only equitable fraud and not legal fraud; but the bill must at least make such allegation or averment.

S. Where, in a bill for cancellation on the ground of conscious fraud, the only ground set forth therein as reason for the exercise of equitable jurisdiction is clearly insufficient, defendant (on objection in limine) is entitled to dismissal of the bill.

Suit by the Metropolitan Life Insurance Company against Herman Stern for cancellation of a life policy and for restraint against further prosecution of an action at law on the policy. On complainant's application for restraint of further prosecution of the law action pendente lite and on defendant's counter motion to strike the bill.

Bill dismissed.

Clifford I. Voorhees, of New Brunswick, for complainant.

Arthur Brown, of Woodbridge, and Edward Gaulkin, of Newark, for defendant.

BUCHANAN, Vice Chancellor.

Complainant insurance company issued a policy of insurance on September 1, 1936, on the life of Charles Stern, with Herman Stern (the present defendant) as the named beneficiary.

The insured, Charles Stern, died on February 13, 1938. Claim was duly made by the beneficiary; payment was refused by the company on the ground that the policy had been obtained by fraud. Thereupon suit at law was brought by the beneficiary against the company for recovery under the policy.

Instead of filing answer in that suit at law, the company filed its present bill, in which it prays decree for the cancellation and surrender of the life insurance policy in question, on the ground that the issuance of the policy was procured by the intentional fraud of the insured in giving false answers to material questions in the application for the policy; and further prays restraint against the further prosecution of that suit at law by the present defendant. The matter is now before this court on complainant's application for such restraint pendente lite; and it is also before this court on defendant's counter-motion to strike the bill on the ground that complainant has an adequate remedy at law.

[I] Concededly the bill sets forth a cause of action cognizable in equity, and this court has the jurisdiction and power to entertain and determine it. Prudential Ins. Co. v. Merritt-Chapman & Scott Corp., 111 N.J.Eq. 166, 162 A. 139, and cases there cited. "The enlargement of the powers of the common-law courts to include cognizance of such cases" (i. e., fraud) "did not displace that equitable jurisdiction." Pridmore v. Steneck, 122 N. J.Eq. 35, at page 37, 191 A. 861, at page 862.

However, "when the remedy at law is plainly adequate and complete, the Court of Chancery is reluctant to exercise its jurisdiction, and will not do so unless the administration of justice will be thereby plainly facilitated." Dawson v. Leschziner, 72 N.J.Eq. 1, 65 A. 449; quoted and reiterated by the court of errors and appeals in Pridmore v. Steneck, supra. See, also, New Amsterdam Casualty Co. v. Mandel, 115 N.J.Eq. 198, at page 202, 170 A. 19, and cases there cited.

On the other hand, this court will" exercise its jurisdiction in such a case, where it is satisfied that under the particular circumstances of that case complainant is, or may well be, entitled to the aid of equity in order to obtain rights which he could not obtain in a court of law or fuller and more complete relief than that which would accrue to him by virtue of a judgment at law. So in New York Life Ins. Co. v. Steinman, 103 N.J.Eq. 403, 143 A. 529, motion to dismiss the bill, on the ground that complainant had an adequate remedy at law, was denied; likewise in Smith-Austermuhl Co. v. Jersey Rys. Adv. Co., 89 N.J.Eq. 12, 103 A. 388; Prudential Ins. Co. v. Merritt-Chapman Corp., supra, and the many cases therein cited at page 169, 162 A. 139.

Whether this court will or will not exercise its undoubted jurisdiction in any particular case of this kind, "rests in the sound discretion of the court, guided by these principles, and depends upon the special circumstances of the individual case." Pridmore v. Steneck, supra.

Furthermore, it is of course true that where there may be doubt in the mind of the court as to whether or not complainant is presently, or may later, need and be entitled to the aid of this court in the premises, it is quite within the province of the court to entertain the bill but to stay further proceedings on it pending the outcome of an already pending suit at law or some other contingency.

In the present case the sole reason set forth in the bill as the basis for the exercise of the jurisdiction of equity, is that the company will be, or is likely to be, prejudiced by delay in the opportunity to avail itself of the testimony and evidence now available to it (but which may hereafter be lost by the death of witnesses or otherwise) to prove that the policy was fraudulently obtained; and particularly will be prejudiced by such delay beyond the two-year limitation period in the "incontestability clause" in the policy. Such a ground has sometimes been favorably considered, inter alia, as a basis for the exercise of jurisdiction by this court,—where no suit at law has been brought by the (chancery) defendant in which the question of fraud could be determined; as in New York Life Ins. Co. v. Steinman, supra. In the present case, however, it seems apparent on the face of the bill (and the copy of the policy annexed) that the company can suffer no prejudice in regard to the incontestability clause, for under that clause the policy becomes incontestable only after it has been in force, during the lifetime of the insured, for a period of two years from its date; whereas the insured lived only a year and a half after the date of the policy.

In any event, however, it is not apparent in the instant case how the company can possibly need the intervention of this court to protect it against the consequences of any suggested delay. Defendant's suit at law had already been brought, and the company could have commenced its "contest" of the policy by filing answer in that suit, just as well and just as quickly as by filing the present bill. It is no answer to say that defendant (plaintiff at law) may delay and discontinue his law suit, or take a voluntary nonsuit; the company could, and can, protect itself, against any possibility of delay or discontinuance of the suit at law (and hence against any prejudice which might accrue from such delay) by filing together with its answer in the suit at law, a counterclaim for a declaratory judgment, under the provisions of the statute, R.S. 2:26-66 to 2:26-79 (formerly P.L.1924, c. 140, p. 312).

The prior pendency of a suit at law increases the reluctance of this court to assert its jurisdiction. See New Amsterdam Casualty Co. v. Mandel, 115 N.J.Eq. 198, at page 203, et seq., 170 A. 19. And in Pridmore v. Steneck, supra, the court of errors and appeals again calls attention to the fact that "the substantial right of trial by jury is involved" and is to be borne in mind as an important factor in any determination by this court as to whether or not it should exercise its jurisdiction. See, also, Ellicott v. Chamberlin, 38 N.J.Eq. 604, at page 612, 48 Am. Rep. 327, where the appellate court affirmed decree dismissing bill and held that chancery should not take jurisdiction superseding a pending action at law, where complainant had adequate protection by judgment at law; and Chase's Ex'r v. Chase, 50 N.J.Eq. 143, at page 147, 24 A. 914.

A situation which may well lead equity to assume jurisdiction, at least to the extent of retaining the bill pending the action at law, is where a judgment in favor of defendant at law (complainant in equity) will not afford him all of the relief to which he is, or may be, equitably entitled. Sweeney v. Williams, 36 N.J.Eq. 627, at page 630; Chase's Ex'r v. Chase, supra; Smith-Austermuhl Co. v. Jersey Rys. Adv....