Rishel v. Pacific Mut. Life Ins. Co. of California

• Citation: 78 F.2d 881
• Decision Date: 05 September 1935
• Docket Number: No. 1217-1222.,1217-1222.
• Parties: RISHEL v. PACIFIC MUT. LIFE INS. CO. OF CALIFORNIA, and five other cases.
• Court: U.S. Court of Appeals — Tenth Circuit

78 F.2d 881 (1935)

RISHEL v. PACIFIC MUT. LIFE INS. CO. OF CALIFORNIA, and five other cases.

Nos. 1217-1222.

Circuit Court of Appeals, Tenth Circuit.

September 5, 1935.

Harold D. Roberts, of Denver, Colo. (James H. Ball, Burton W. Musser, and Thomas L. Mitchell, all of Salt Lake City, Utah, and Peter H. Holme and Milton J. Keegan, both of Denver, Colo., on the brief), for appellant.

Cass M. Herrington, of Denver, Colo., for appellee Pacific Mut. Life Ins. Co. of California.

Norman A. Hutchinson, of Denver, Colo. (Pershing, Nye, Bosworth & Dick, of Denver, Colo., on the brief), for appellee Penn Mut. Life Ins. Co. of Philadelphia.

Percy A. Robinson and Carl C. Hearnsberger, both of Denver, Colo., for appellee Equitable Life Assur. Soc. of United States.

Horace Phelps, of Denver, Colo. (James D. Benedict and Horace F. Phelps, both of Denver, Colo., on the brief), for appellee Prudential Ins. Co. of America.

Before LEWIS, PHILLIPS, and McDERMOTT, Circuit Judges.

McDERMOTT, Circuit Judge.

These are actions at law to recover the sums paid by way of single premiums for six annuity contracts. Plaintiff declares generally upon the common counts of moneys had and received for the use and benefit of his testate, but does not stop there. Instead, plaintiff sets out the annuity contracts granted for the sums paid, with other facts thought to justify rescission of the contracts and the recoveries prayed for notwithstanding, thereby anticipating the defense and alleging facts in avoidance thereof. The general allegations of the common counts are controlled and limited by the specific allegations on the same subject matter. United States v. Union Pac. R. Co. (C. C. A. 8) 169 F. 65, 67; Patrick v. Colorado Smelting Co., 20 Colo. 268, 38 P. 236, 238. Defendants severally demurred; the trial court sustained the demurrers and the plaintiff electing not to plead further, judgments were entered for the defendants. We take the cases as they were presented below and here, and determine whether on the whole case as alleged, causes of action are stated. While an action on the common count is legal in form, it is for money which, ex aequo et bono, the defendant ought to refund, and is governed by equitable considerations. Moses v. Macferlan, 2 Burr. 1005, per Mansfield, C. J.; United States v. Jefferson Electric Co., 291 U. S. 386, 402, 54 S. Ct. 443, 78 L. Ed. 859; Sanford v. First Nat. Bank (C. C. A. 8) 238 F. 298, 301; Howbert v. Norris (C. C. A. 10) 72 F.(2d) 753.

1. For the moneys received, the defendants issued their several contracts agreeing to pay sums certain at fixed intervals during the lifetime of Mrs. Tew. Annuity contracts are valid on their face, Greevy, Adm'r, v. Massachusetts Mutual Life Ins. Co. (Neb.) 259 N. W. 656, and have been recognized and enforced by the courts for more than a century. The Colorado statute expressly authorizes insurance companies to grant annuities. Colo. L. 1921, § 2500.

2. They are not wagering contracts except in the rough sense that insurance is a wager. If a house burns down the day after a fire policy is issued thereon, the insured receives more than he has paid; yet he has not wagered; he has simply shared his risk with others. An annuitant, for a sum certain, shares the risk of outliving his expectancy with others, as well as distributing the risk of losing his capital by diversification of investment made possible by pooling his capital with others. In a sense, if he lives longer than the average of his age, he wins; not so long, he loses; but in the broader and truer sense, he has substituted certainty for uncertainty, which is the function of insurance. In any event, courts may not declare illegal a contract specifically authorized by the legislature of Colorado.

3. Nor were the contracts impossible of performance when made. An annuity contract is not rendered impossible of performance because the annuitant, alive when the contract was made, is killed or dies before payments are due thereon. Three of the contracts expressly contemplate such contingency by providing for the first payment only if the annuitant "be then living"; it is implied in all by the agreement to pay "during the lifetime of the annuitant." Aside from these provisions, the contracts must be read in the light of the knowledge of all mankind, that death may come tomorrow. One who positively agrees to perform a lawful act is not absolved from liability because of a subsequent impossibility of performance. Day v. United States, 245 U. S. 159, 38 S. Ct. 57, 62 L. Ed. 219; Jacksonville, etc., Ry. Co. v. Hooper, 160 U. S. 514, 527, 16 S. Ct. 379, 40 L. Ed. 515; Berg v. Erickson (C. C. A. 8) 234 F. 817, 820, per Sanborn J.; Summers v. Midland Co., 167 Minn. 453, 456, 209 N. W. 323, 46 A. L. R. 816; Coyne, Adm'r v. Pacific Mutual Life Insurance Co. (Cal. App.) 47 P.(2d) 1079 (where annuitant died before any payments made); Restatement, Contracts, c. 14.

4. Section 2520, Colo. L. 1921, provides that "no policy of insurance" shall be delivered until the form of the same has been filed with the Commissioner of Insurance, and authorizes a suspension of the certificate of authority of any company violating such provision. In five of the cases, it is averred that the forms of the annuity contracts were not so filed, from which plaintiff concludes the contracts are void. We disagree. It is very doubtful whether annuity contracts are insurance policies within the meaning of this section. Respectable courts have held they were not. Hall v. Metropolitan Life Ins. Co., 146 Or. 32, 28 P.(2d) 875, where the contention made here was denied; Carroll v. Equitable Life Assur. Soc. (D. C.) 9 F. Supp. 223; People v. Knapp, 193 App. Div. 413, 184 N. Y. S. 345, affirmed 231 N. Y. 630, 132 N. E. 916; Commonwealth v. Metropolitan Life Ins. Co., 254 Pa. 510, 98 A. 1072. Until the Colorado Supreme Court so rules, we are not prepared to hold that an annuity contract is an insurance policy as used in this statute. In many respects it is the exact converse, and in common parlance the word insurance does not embrace annuities. There is an even stronger reason. The statute does not purport to void insurance policies which have been issued without complying with the statute, and such drastic remedy is not lightly to be implied. The statute specifically providing one penalty, it would be pure legislation for the courts to superimpose thereon the additional penalty of avoidance of the policies. It was so held in Walters v. Western Automobile Ins. Co., 116 Kan. 404, 226 P. 746; Southern Casualty Co. v. Hughes, 33 Ariz. 206, 263 P. 584. See, too, Couch on Insurance § 151.

5. For the moneys had and received by defendants, plaintiff's testate accepted these contracts. Unless the facts surrounding their execution are such as to justify equity in declining to recognize them, no cause of action is stated.

Annuity contracts, like other contracts, may be avoided if the annuitant is of unsound mind, or if they are procured by duress or through fraud or misrepresentation of material facts. If there is a fiduciary relationship between the contracting parties, a strong and affirmative burden rests upon the fiduciary to show beyond a reasonable doubt that the contract made was as favorable to his cestui as could have been made. Inadequacy of consideration is evidence of mental incapacity, duress, or fraud; if the consideration is so grossly inadequate as to repel the conscience of the Chancellor, equity may refuse its aid in enforcement. Restatement, Contracts § 367.¹

Although the proof may be insufficient to support any specific ground of attack, if it stood alone, equity may decline to enforce a contract if all of the evidence leads to the conclusion that there was an imposition or overreaching in its procurement. In Allore v. Jewell, 94 U. S. 506, 510, 24 L. Ed. 260, an aged and bedfast woman, of feeble intellect, living in degradation, conveyed her property to a business man who knew her condition for a pitifully inadequate annuity. The transfer was set aside, the court saying:

"It is not necessary, in order to secure the aid of equity, to prove that the deceased was at the time insane, or in such a state of mental imbecility as to render her entirely incapable of executing a valid deed. It is sufficient to show that, from her sickness and infirmities, she was at the time in a condition of great mental weakness, and that there was gross inadequacy of consideration for the conveyance. From these circumstances, imposition or undue influence will be inferred."

The diligence of counsel has brought to our attention numerous cases dealing with annuity contracts.² In Holman v. Loynes, D. G. M. & G. 4, page 270, an attorney granted an annuity to his client, computed on a good life; his client was in rapidly failing health, as the attorney well knew. The contract was set aside, the attorney failing affirmatively to show that no industry on his part could have secured a better bargain for his client. The same conclusion was reached in Davies v. Cooper, 41 Eng. Rep. 373, where the defendant granted an annuity to his brother-in-law whom he knew to be a dying dipsomaniac "in the last stages of debility and disease, with no chance of recovery or of living many months." In Gibson v. Jeyes (1801) Ves. Ch. 6, page 266, an attorney granted an annuity of 50 pounds a year to his client, an aged woman on the border line of imbecility; he could have procured for her an annuity of 60 pounds for the same consideration. In Green v. Roworth, 113 N. Y. 462, 21 N. E. 165, two sons procured from their father, old and feeble in mind, a conveyance of his property for a totally inadequate consideration. In Barnes v. Waterman, 54 Misc. 392, 104 N. Y. S. 685, an annuity granted by a confidential adviser was procured by undue influence with fraudulent intent. These contracts likewise were avoided. In each of these cases, a fiduciary relationship existed. In Clarkson v....