Phœnix Fire Insurance v. Hoffheimer, Bros. & Co.

1. REFORMATION OS' POLICY OE INSURANCE — JURISDICTION"'OE CHANCERY — case in judgment. — Where a merchant, doing business as agent, applied for a policy of insurance against fire, paying the premium, and desiring the policy to be made in his favor as agent, but by accident or mistake the policy was filled up in his name, without the addition of words, “as agent,” or other words of like import: SCeld, on the bill exhibited by the persons for whom the party was agent, that a court of chancery had power to reform the policy, and to decree its payment to those for whom it should have been made a security, by its terms, at the time of issuance. 2. Same — caution to be exercised. — A court should be extremely cautious in the exercise of its undoubted power to reform a contract. It should withhold its aid, where the mistake is not made out by the clearest evidence. 3. Evidence —.test op swepiciency. — The test of the sufficiency of evidence in such case is its capacity to satisfy the mind of the court. 4. Parol evidence admissible to show mistake. — Parol evidence is admissible to show mistake in an instrument of writing, even where the fact of mistake is denied by the answer.

Appeal from chancery court of Warren county. Hill, Chancellor. The sole questions are those presented on the assignment of errors: 1st. Under the issue thus made and the evidence responsive to that issue, could the court below decree a reformation of the policy ? 2d. Could the court below decree a payment of the amount insured by the policy % In considering the first error assigned, it may be well to notice the right given by law, and recognized by all the courts, to insurance companies to restrict and limit their contracts and liabilities by provisions annexed to their policies like those exhibited in the policy in this case. The great questions of public policy underlying these contracts of insurance have controlled the courts, in permitting a limitation to be fixed to the person insured, to the property insured, to the nature of the suit, the ownership, legal title, and possession of the property insured. 1 Bell’s Comm. 540 ; 3 Kent, 371; Shelton v. Mutual Fire Insurance Company, 4 Mass. 230 ; 4 Denio (FT. Y.), 301. Such restrictions are allowed generally in policies of insurance, “especially policies against fire, as such policies would become extremely hazardous by reasons of the temptation they hold out to the nefarious commission of willful fire or arson, which is necessarily attended with peril of the most deplorable kind to a whole community.” This bill now proposes to take fiom the appellants a most vital and important right necessary to their own protection and the protection of the whole community; a right most jealously given them ; by changing the entire nature and character of the policy upon the- testimony of Saftorius alone. While it is undeniable that courts of equity can reform policies of insurance as they may other contracts, yet such reformation can only be made upon the most clear and positive evidence. Angelí on Insurance, 61, 62, and notes. “A court of equity ought to withhold its aid when the mistake is not made out by the clearest evidence according to the understanding of both of the parties and upon testimony entirely -exact and satisfactory.” United States v. Monroe, 5 Mason, 522 ; Kennedy v. Umbraugh, Wright, 327 ; Lyman v. Little, 15 Yt. 526 ; Preston. v. Whitcomb, 17 ib. 183. “ Equity will not lend its aid to amend a written contract (policy of insurance) where the alleged mistake is denied by the answer, without the clearest and most satisfactory proof of the mistake and of the real agreement.” Lyman v. United Ins. Co., 2 Johns. Ch. 680. “For unless the contract be so amended as to conform to the understanding of both parties.” S. C., 17 Johns. Ch. 323. Also Watkins v. Stockell, 6 Har. & J. 435; 2 How. (Miss.) 201; J. J. Marsh. 432; Nabors v. Lock, 24 Miss. 44; Kilpatrick v. Lock, 23 ib. 124; Mosbey v.' Wall, ib. 81-; Cooper v. Farmers’ Mutual Ins. Co., 50 Denio, 299 ; Teason v. Atlantic Mutual Ins. Co., 40 Miss. 33 ; Story’s Eq. Jur., § 153. The statement Sartorius makes in the hill is entirely covered with suspicion. It is not free from doubt, uncertainty ; it is not clear, accurate, positive. His testimony is accompanied by the same characteristics. It is not, in fact, the case required to be made by the authorities we have just cited. It is not, in the language of those eminent judges, Story and Kent, in the cases cited, a case of ‘ ‘ the clearest and most satisfactory proof of mistake and of the real agreement.” The witnesses, except Sartorius and Fairchild, know nothing of any agreement between the parties different from what the policy itself contains. The policy itself speaks with Fairchild, the circumstances testify with Fairchild and against Sartorius, and we invoke the well-established rules on this subject requiring the mistake to be made out in the most clear and decided manner. 2 Johns. Ch. 630. But the answer of Fairchild is conclusive as to the real agreement; and even if Sartorius appears free from suspicion in this case of so peculiar and tender a nature, Fair-child’s answer and deposition must outweigh Sartorius’ bill and deposition. In view, then, of these authorities and the circumstances surrounding the case, and in view of the issue under the evidence responsive to that issue, could the court below decree a reformation of the policy ? If so, what safeguard would ever be thrown Ground written contracts? If so, what safety would there be to insurance agents in restricting the limit of their liability to persons, property and character? If so, what protection would policies of insurance afford to the insurer and insured, or to the community, the property-holders? Of what earthly value could such a contract be made, as a matter of safety and protection ? On the contrary, if without the clearest and most satisfactory, undeniable and unimpeachable testimony, thoroughly and accurately establishing the mistake, policies of insurance, after fire, can be readily altered, changed or “ reformed,” Row wide would tire door of temptation to crime be thrown open, and of how little value would be the protection which well-established decisions have thrown around insured and insurer ? The scope of the bill is the reformation of the policy; the specific object and purpose of the bill is to reform the policy; the tenor and effect, the allegations of the bill are directed to a reformation of the policy; the issue made by the pleading is that of a reformation of the policy; the proof has alone been responsive to that issue; the complainants in the bill have summoned the appellants to answer alone upon the reformation of the policy, and the answer has been made to that end. In rendering its decree, therefore, for the payment of the amount named, the court has declared a fact which is not in issue by the bill and answer. It is manifest that the bill was filed to keep certain causes on the docket of the circuit court of Warren county until the policies had been reformed in such a manner that the appellees could be made parties thereto, and upon the issue of reformation of the policy alone ought the court below to have passed a decree for the payment of money ? Such a decree was outside the issue made, and, of course, was a decree the appellants were not prepared to meet. It was, therefore, error for the court below to decree what was not within the general scope of the bill. Livingston v. Van Rensselaer, 1 Wend. 63 ; Crockett v. Lee, 2 Wheat. 522 ; Stuart v. Meeh. & Farmers’ Bank, 19 Johns. 496 ; Smith v. Smith, 1 Ired. Ch. 83; Langdon v. Roane, 6 Ala. 518 ; Dickinson v. Morgan, 8 Dana, 130 ; Handly v. Young, 4 Bibb, 876 ; Bulard v. Phillips, 3 Ala. 218 ; 2 Led. Ch. 113, 216 ; 1 B. Monr. 216. The prayer of the bill is for the specific reformation of the policy and the payment of the amount insured, and for general relief. And in such case no other relief could be granted inconsistent with the specific relief prayed. Pleas-ants v. Grlasscock, 1 Smed.es & Marsh. Ch. 17 ; Peck v. Peck, 9 Yerg. 301; Rhodes v. Halleday, 6 Murf. 251; Wilkin, v. Wilkin, 1 Johns. Ch. Ill ; Drover v. Drover, 5 Porter, 9. The decree thus rendered for the payment of money, not in issue-by the bill, cuts the appellants off from any ground of defense they have against the appellee. On the policy, if reformed, they may have ever so perfect a defense against the questions of loss or no loss, against the questions of damages, against the issues involved in the suits at law, yet by this decree the defense is barred. This bill prays that the suit at law may be kept open. Although manifestly on the face of the bill itself, it seems the appellees could never recover at law; yet although the appellants could recover in these suits, still they are debarred, virtually debarred, from the recovery until a court of equity shall decree the policy reformed; would it be just and equitable, under this state of facts, to close the court of law ? to decree the payment of the amount now actually in controversy in a court of law, and cut off the appellants from defenses on the questions involved in these suits % But, upon this point, see the conclusion arrived at in Oliver v. Mut. Com. Ins. Co., 2 Curtis, 277. There, although the policy was declared reformed, still the court refused to decree the payment of the amount insured, as the defendant in that case had the same defenses the defendants here have; and the court declined to out them off from their defense in a court of law. 7 Yes. 211; 15 ib. 516; 4 Bro. Ch. 514; 3 Jeremy’s Eq. Juris. 432; 2 Madd. 106 ; 1 Young & Coll. 559. It is not apparent from the evidence that Sartorius was agent for IToffheimer Brothers & Co., in effecting this insurance. It is not apparent from any agreement between Fair-child and Sartorius, that Sartorius, as agent, had a right to the policy ; and there is such a conflict in this case as will preclude a court of equity, under all the decisions, from touching the policy. The circumstances surrounding Sartorius are almost overwhelming. He renews the policies; he keeps them on hand ; he pays the premiums; he proves the loss by fire; lie makes three different affidavits as to amount, loss and damage, and claims damages in Ms own name ; he employs his counsel, institutes suits in his own name, and not until he is a bankrupt does he begin to assert his assumed-character of agent. Besides this, Fairchild, a disinterested witness, answers and deposes fully and fairly, and renders a direct and positive conflict in the evidence upon the point at issue, viz.: the policy itself, entirely unanswerable, so positive and direct that the decision in 2 Curtis could not be made to apply to this case under any view of it, unless we took detached and unconnected sentences, without a general view of the harmony of the whole case. But should a different view of that case be had from the one presented by us, and if it should be now held that the case in 2 Curtis is in conflict with the great authorities we have cited, we can only point to the current of opinion throughout the United States on this subject, and say it is overwhelmed by the weight of opinion and authority. Ex’rs. of Getman v. Beardsley, 2 Johns. Ch. 272; Hinkle v. Boyal Ins. Co., 1 Yes. 312; Davis v. Simonds, 1 Cox, 404; Townsend v. Stargrown, 6 Yes. 212; Woolman v. Hearn, 2 ib; Graves v. Boston Ins. Co., 2 Cranch, 442; Langley v. Brown, 2 Atk. 203 ; Adams v. Bobertson, 32 Ill. 45; Nevens v. Dunlap, 33 H. Y. 626; Shay v. Pettes, 35 Ill. 306 ; Bartle v. Yosbury, 3 Grant (Penn.), 277; Hewton v. Bilyew, 30 Ill. 228; Gelpeke v. Blake, 15 Iowa, 387; Jack v. Haber, ib. 450; Sawyer v. Hovey, 3 All. (Mass.) 331; 6 B. I. 386; 23 H. Y. (9 Smith) 357; 17 Md. 361; 13 Wis. 355, 458. Thus throughout the union and without exception, as far as we have been able to continue the inquiry, all the authorities hold that a court of equity will not touch a written contract, “unless the evidence be clear, of the most convincing character, and wholly unimpeachable.” If the case in 2 Curtis can be used in any other way than authorities generally go, it can only be by doubtful construction of the text, by detached and unconnected sentences, without a view of the whole case. For, when we attempt to apply that decision here, we find there was no conflict in the evidence in that case, while the evidence is wholly of irreconcilable elements here. Before a court of equity will touch a case of this character, it must be obvious that the mistake complained of was a mutual mistake. It must not be a one sided mistake, but both parties must have made it. It cannot be otherwise. The case made by 2 Curtis is that case; the bill alleges the mutuality of the mistake, and that the insurance company there intended and designed to insure Oliver. Is that the case here ? Does the bill allege, that in this case there is any pretext anywhere that there was a mutual mistake? But such must be the case. Schelliger v. Hopple, 3 Grant (Penn.), 154. How this is the difference between this case and the case in 2 Curtis; there the bill alleges the mutual mistake, and there the evidence established it in the most conclusive manner. Here, therefore, the case in 2 Curtis is reconcilable with the opinions of the great chancellors; and the view assumed by the appellees is irreconcilable with the current of opinion. Oliver was justly entitled to have the policy reformed because the court was satisfied, from force of positive and uncontradictory evidence, and the natural deductions flowing therefrom, that there had been a mutual mistake. Here the appellees are not entitled to have the policy changed in one single line or mode, because the evidence is not clear, positive, uncontradicted, that there is a mutual mistake. For at the conclusion of the case, as at the beginning, the case is not clear, satisfactory, convincing, uncontradictory, that Fairchild and Sartorius made a mutual mistake in not having the policy speak differently from what it now speaks, yet both Fairchild and Sartorius mutually agreeing that it should speak as it is sought to be made to speak by this bill! To this point the court should be brought at the end of the case by the clearest and most satisfactory evidence beyond contradiction, or else written contracts are of little valne, and the courts have shielded them to little purpose. The evidence in the cause must make the court overwhelmingly satisfied that when the policy issued, that policy, Fairchild and Sartorius all agree as the bill would now have the policy speak. But the end is conclusive that Fairchild and Sartorius do not agree, and hence the policy, as it now stands, must speak its own terms. Contended that the policy issued by appellants does not express the previously concluded agreement between the parties to it, and is not the contract for insurance designed by both parties to be executed. 1. If the agreement for insurance does not properly express the contract previously made by Hoff heimer Brothers & Co., through their agent, P. Sartorius, and ¥m. A. Fair-child, agent for the Phoenix Insurance Company, equity will reform. 2. If an agreement of insurance be made with one known to the company to be merely an agent, and nothing is said as to whose account the insurance is to be stated,-the agent has a right to a policy insuring him as agent, or for whom it may concern, and this is true, whether the company knows the agent’s principal or not. If the company is advised that the party applying for insurance is agent (of no matter whom), and that he is himself not the real owner of the property insured, the principle is the same, and the agent is entitled to a policy as such agent, or for whom it may concern, although the names of the principals may never have been disclosed. 3. If an agent makes a mistake in declaring the interest, equity requires it to be corrected and the policy reformed. 4. There is a distinction between the correction of a mistake in a written contract, and in the execution of a power; in the latter case courts interfere more willingly. 5. If a party fails, through, mistake, to obtain such a policy as he is entitled to, by an existing, valid contract, equity will relieve, though the mistake arose from ignorance of law. In complete support of the theory stated, reference is asked to the case of Oliver v. the Mutual Commercial Marine Insurance Company, where the foregoing rules of insurance were observed and recognized in an able opinion delivered by Justice Curtis, then of the supreme court of the United States. 2 Curtis’ U. S. C. C. 277. If appellees would have had a right to correct the mistake immediately after made (of this there can be no doubt), then it is well settled that a court of equity will grant relief whenever the mistake is discovered. “ Equity relieves against a mistake, as well as against fraud, in a deed or contract in writing, and parol evidence is admissible to prove the mistake, though it is denied in the answer.” Gillespie v. Moon, 2 Johns. Ch. 585. “ A court of chancery has jurisdiction to correct mistakes in policies of insurance, as well as in all other written instruments.” Phcenix Fire Insurance Company v. Gurnee, 1 Paige’s Ch. 278. “Courts of equity will grant relief in cases of mistake in written contracts, not only when the fact of the mistake is expressly established, but also when it is fairly implied from the nature of the transaction.” 1 Story’s Eq. Jur. (9th ed.), § 162. Relief has been granted or refused, according to circumstances, in cases of asserted mistakes in policies of insurance, even after a loss has taken place.” 1 Story’s Eq. Jur. (9th ed.), § 158. There is no error in the decree of the court below, granting the relief sought by the bill. The court having acquired jurisdiction of this case, and having corrected the mistake in the policy of insurance, did not err in entertaining the bill, for the purpose of granting full relief/ It is a well-defined principle of equity, that, where a party comes into a court of chancery for relief in cases of fraud, account, accident or mistake, and tlie court takes jurisdiction, it will go on and give tke proper relief. “ Tke jurisdiction kaving once rightfully attacked, it shall Tbe made effectual for tke purpose of complete relief.” 1 Story’s Eq. Jur., § 64; 1 Fonblanque Eq., B. 1, ck. 1, § 3, note f; Middleton v, Russ, 3 Conn. 135; Jesus College v. Bloom, 3 Atk. 262, 263; Adley v. tke Wkitstable Co., 17 Yes. 329 ; Cooper’s Eq. PL 31. Tke reason for tke rule is to prevent expensive and unnecessary litigation.