Mutual Life Ins. Co. v. Pearson

• Decision Date: 28 March 1902
• Docket Number: 1,486.
• Citation: Mutual Life Ins. Co. v. Pearson, 114 F. 395 (D. Mass. 1902)
• Parties: MUTUAL LIFE INS. CO. OF NEW YORK v. PEARSON.
• Court: U.S. District Court — District of Massachusetts

114 F. 395

MUTUAL LIFE INS. CO. OF NEW YORK v. PEARSON.

No. 1,486.

United States Circuit Court, D. Massachusetts.

March 28, 1902

Lewis S. Dabney, Edward Lyman Short, and Reginald Foster, for complainant.

Alfred Hemenway and Charles T. Gallagher, for defendant.

COLT Circuit Judge.

This bill in equity seeks the delivery and cancellation of a life insurance policy on the ground of fraud and conspiracy, and an injunction against bringing any suit upon the policy. The defendant has demurred to the bill. The principal grounds of demurrer are that the bill does not state such a cause of action as entitles the complainant to relief in equity, and that it appears from the bill that the complainant has a plain, adequate, and complete remedy at law.

The inherent power of a court of equity to set aside a contract obtained by fraud is ancient, familiar, and elementary; and the only serious question raised by the demurrer is whether upon the state of facts set forth in the bill, the complainant has an adequate and complete remedy at law.

The material facts disclosed by the bill are as follows: On December 27, 1900, James C. Pearson applied to the Mutual Life Insurance Company of New York, complainant, for a contract of insurance. The application contained the provision that this contract 'shall not take effect until the first premium shall have been paid, during my continuance in good health ' A few days later, after Pearson had been examined by the medical examiner of the company, the application was approved. A contract of insurance was then made out for 240 bonds, of $1,000 each, payable in 35 years from their date bearing interest at the rate of 4 per cent. per annum, payable semiannually. On January 8, 1901, the policy was handed to Fowler & Streich, agents for the company, to be delivered to Pearson upon the payment by him of the first annual premium of $15,594.90. On January 6, 1901, Pearson, while on his way from New York to Boston, suddenly became ill with appendicitis, and on arrival in Boston was taken to a private hospital. On January 8th an operation was performed, and he died about noon the next day. On January 7th, Oliver H. Story, the private secretary of Pearson, after an interview with him at the hospital, and with full knowledge of his illness, went to New York, and on January 8th obtained possession of the policy from Fowler & Streich by the payment of the first premium. Story fraudulently concealed from Fowler & Streich the fact that Pearson was in the hospital and dangerously ill. This fact was not known to the company, or to any of its officers or agents. If known, the premium would not have been received, or the policy delivered. Pearson died before Story could deliver the policy to him, and before Fowler & Streich had paid over to the company the premium. The company, upon learning of Pearson's sickness, refused to receive the premium, and demanded the return of the policy, which was refused. Upon the probate of the will of Pearson, and the appointment of the executrix, the company again tendered the premium, and demanded a return of the contract, which was again refused.

The application of the rule that equity jurisdiction cannot be invoked where there is an adequate remedy at law depends upon the circumstances of each case. Watson v. Sutherland, 5 Wall. 74, 79, 18 L.Ed. 580. In a broad sense, the application of the rule rests upon the sound discretion of the court, where there are any circumstances which show that the remedy at law may not be perfect and complete. Boyce V Grundy, 2 Pet. 210, 215, 7 L.Ed. 655; Sullivan v. Railroad Co., 94 U.S. 806, 811, 24 L.Ed. 324. In view of the circumstances under which the defendant gained possession of the policy, the complainant is clearly entitled to a prompt and complete remedy. It appears from the bill that, pending negotiations, or before the contract had been perfected by the payment of the first premium, the assured had become suddenly ill of appendicitis, and that this fact was fraudulently concealed from the complainant; in other words, that the delivery of the policy was procured by the fraudulent concealment of a material fact affecting the subject-matter of the contract. It may be said, therefore, that the minds of the parties never met with relation to the subject-matter of the contract, for the reason that, before the completion of the contract, the subject-matter had changed; and it follows that the contract is absolutely void ab initio. The bill is not founded upon breach of warranty, but states a case in which the possession of the policy was obtained by fraud of a character which goes to the very essence of the contract, and prevents the existence of any contract except in form. The case presented would not have differed in principle had the bill alleged that the assured had died before the completion of the contract, and that this fact had been fraudulently concealed from the company at the time the first...