Case ID: ad_24/html/0410-01.html
Source: Caselaw Access Project
Author: {"author": "Adams, J.: Ward, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

George H. Sears, Respondent, v. Grand Lodge of the Ancient Order of United Workmen of the State of New York, Appellant.
    
      A compromise agreement, made under a mutual mistaken belief that an insured, person was dead — it is not enforcible against the insurer.
    
    An agreement was made between a beneficiary named in a life insurance policy and the company, compromising an action brought by the beneficiary upon the policy which insured the life of a person who had mysteriously disappeared and had not been heard from for several years, by the terms of which agreement, which was entered into under the belief of both parties that the insured was dead, one-third of the amount of the policy was to be paid by the insurer “promptly” and was "not to be returned in any event,” while the remainder of the amount of the policy was to be deposited with a trustee and was to be paid by him to the plaintiff unless the insurer, within a specified time, established the existence of the insured. Before such payment of the one-third was made it was ascertained that the insured was alive.
    
      Held, that the agreement could not be enforced by the beneficiary.
    A compromise, which is founded upon a mutual mistake of fact, will not be upheld unless it is made to appear that it was speculative in its character and that the mistake was one of the chances assumed.
    Ward, J., dissented.
    Appeal by the defendant, the Grand Lodge of the Ancient Order of United Workmen of the State of New York from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Onondaga on the lath day of March, 1897, upon the decision of the court rendered after a trial at the Onondaga Trial Term before the court without a jury.
    On the 13th day of July, 1886, the defendant issued to one Charles R. Baumgras a certificate of membership, by the terms of which he was entitled to all the privileges of the order, including the right to participate in its beneficiary fund to the extent of $2,000, which sum was made payable at his death to his wife, Mary Baumgras.
    In the month of September, following, Charles R. Baumgras suddenly and mysteriously disappeared from his home. His wife, hearing nothing from her husband for several years after his disappearance, insisted that he was dead and that the defendant should pay the amount named in the certificate. This claim was resisted bv the defendant, and thereupon, and in the month of September, 1895, an action was commenced in the Supreme Court by Mrs. Baumgras to enforce the payment of her claim.
    The defendant appeared and answered in the action, denying the death of Baumgras and its liability under the certificate. Thereafter, and while that action was at issue, a compromise and settlement was effected between the parties which resulted in a written agreement, by the terms of which the sum of $666. was to be paid to Mrs. Baumgras “ promptly,” and the further sum of $1,334 was. to be paid to a trustee therein named, and retained by him until July 1, 1897, upon the condition that in case the defendant should discover at any time before the date' mentioned that Charles R. Baumgras was alive, and should produce proper and reasonable proof of that fact, and fix his identity with certainty, so that his wife could verify the fact, the sum last mentioned should be returned to the defendant, otherwise it was to be paid over to Mrs. Baumgras.
    The agreement further provided “ that said $666.00 is not to be returned in any event.”
    Within a fortnight after this agreement was entered into, and before any of the moneys therein mentioned had been paid over by the defendant either to Mrs. Baumgras or to the trustee named, it was ascertained to the satisfaction of all parties that Charles R. Baumgras was living. Mrs. Baumgras, nevertheless, insisted that she was entitled to the $666, and the defendant, refusing to pay the same, she transferred her claim to the plaintiff, who thereupon brought this action to recover the amount thereof.
    
      Raymond Cobb, for the appellant.
    
      George H. Sears, respondent, in person.
   Adams, J.:

It is an elementary principle that a court of equity will grant such relief, either affirmative or defensive, as the circumstances of the case may require, when it is made to appear that a contract has been entered into upon the mistaken assumption of a material fact. Such an assumption arises when some fact really exists which is unknown, or some fact is supposed to exist which really does not exist (Mowatt v. Wright, 1 Wend. 355, 360) ; and all forms of error which fall under either of these conditions are mistakes of fact which furnish an occasion for equitable relief. (Pom. Eq. Juris. §§ 852-854.)

We do not suppose that the law of the case, as thus stated, will be controverted; and, if the contract in question were simply an undertaking upon the part of the defendant to pay a sum of money, it probably would not be contended that the plaintiff could maintain his action, inasmuch, as upon the trial thereof, it was conceded in open court, and the learned trial justice thereafter found, in accordance with such concession, that the contract between the plaintiffs assignor and the defendant was the result of a mutual mistake of fact, it having been entered into upon the assumption by each of them that Charles R. Baumgras was dead, whereas, in fact, he was alive.

It is insisted, however, .that the case is not to be governed by the principles to which we have adverted, for the reason that the agreement upon which it is founded is one of compromise and settlement ; that the defense to the claim which was thereby settled was a questionable or a doubtful one; that such settlement was based upon uncertain and contingent events, and that, in short, it was speculative in its character, and was entered into after a calculation of the chances and upon the assumption of all the risks incurred. It becomes necessary, therefore, to consider it from the point of view just indicated; and, in doing so, the fact may as well be recognized that the agreement in question does represent the settlement of a disputed claim. For that reason it is one which the courts would naturally be inclined to favor and sustain as far as possible; but, nevertheless, if it is one which resulted from the misapprehension of a material fact, we see no reason why it should not be governed by precisely the same principles of law and equity as would be applicable if it were a simple contract for the payment of money; for it must be borne in mind that there was no compromise between the parties as to the effect of Baumgras’ death. They both supposed and acted upon the assumption that he was dead, and it now appears that in this respect they were both in error.

If, in these circumstances, the defendant had paid over the $2,000, or any portion of that sum, without being sued, unquestionably it could have recovered the same back upon discovering the mistake, because, in good conscience, the plaintiff would not be entitled to the money. (Kingston Bank v. Eltinge, 40 N. Y. 391; Masonic Life Assn. v. Crandall, 9 App. Div. 400.) And, for the same reason, the fact that the money was paid, or agreed to be paid, in settlement of a litigation, should give her no better title to the same, where the settlement was induced by erroneous assumptions.

In a case which came before the Privy Council of England, as recently as 1863, the question which we - are considering was most elaborately discussed by Lord Kingsdown, who thus stated the rule applicable to compromises founded upon mistakes of fact: “ If the error relied on be in a matter of fact, and the fact be one not included in the compromise, and of such a character that it must be considered the determining motive of either of the parties entering into the agreement, its existence is regarded as a condition implied, though not expressed; and then, if the fact fail, the foundation of the agreement fails. This seems to be the meaning of the language used by Toullier, B. III, tit. 3, sec. 1, art. 42, and following articles. The instances which he puts are: If a compromise be found in the genuineness of instruments which turn out to be forged, or if a suit, which it is the object of a compromise to determine, turns out to have been already decided in favour of one of the parties, or if a compromise be founded upon a will which turns out to have been revoked by another will, of which the parties are ignorant,” the foundation of the agreement fails. (Trigge v. Lavallée, 15 Moore’s P. C. Cas. 270-298")

This case, it is fair to state, arose in Lower Canada. The questions which it involved were consequently determined by the French law, but in the concluding paragraph of the judgment delivered by Lord Kingsdown, and from which the above quotation is taken, he observes that, while the case had been decided by the French law, the principles which had been applied to its determination had, doubtless, been adopted into the law of England. That the same may be said as respects the law of this State is, we think, not to be doubted.

A similar question to the one here presented arose in a case where a person charged with the paternity of an unborn bastard, after having been arrested on proceedings under the statute, entered into' a settlement with a superintendent of the poor, upon the mistaken assumption that he was the father of the child. It was held by the Court of Appeals of this State that he could recover back the moneys paid in satisfaction of the compromise, upon it appearing that the supposed mother was not in fact pregnant. (Rheel v. Hicks, 25 N. Y. 289.)

This, together with the other authorities which have been cited, is ample, we think, to sustain the proposition that, generally speaking, a compromise which is founded upon a mutual mistake of fact will not be upheld unless it is made to appear that it was speculative in its character, and that the mistake was one of the chances assumed.

It is insisted that such was clearly the intention of the parties to the contract in question; and in support of this position we are asked to consider and give effect to the provision thereof which contains these words, viz.: “ It being agreed that said $666.00 is not to be returned in any event.”

It is not to be denied that there is some reason for claiming that, taken in connection with its context, the language quoted does indicate the existence of some doubt in the minds of the parties as to whether Baumgras was dead or alive, as well as an intention upon the part of the defendant that, whatever developed on further investigation, the sum named was to be paid absolutely and unqualifiedly to the plaintiff’s assignor. But the fact must not be overlooked that it was established upon the trial, by express concession of the parties, that the entire agreement was entered into upon the belief that Charles R. Baumgras was dead; and this concession, in our opinion, characterizes the agreement in such a manner as to relieve it of all ambiguity.

In this view of the case the clause above referred to may be .regarded as the fruit of a mistaken belief with as much propriety as any other portion of the contract, and we, therefore, have the right to conclude that the obligation with reference to the $666 would not have been assumed had not this erroneous belief been •entertained. In other words, the foundation of whatever risk was assumed by the defendant was the same mistake that was responsible for the contract in its entirety; and the same principle which corrects the one mistake will correct the other.” (Calkins v. Griswold, 11 Hun, 208; Wheadon v. Olds, 20 Wend. 174; Roberts v. Ellwood, 2 Silv. Ct. App. 410.)

We conclude, therefore, that the judgment appealed from was unwarranted by the facts of the case, and that it should consequently be reversed and a new trial granted.

All concurred, except Ward. J., dissenting.

Ward, J.

(dissenting) :

I dissent from the conclusions of the majority of the court.

Mary Baumgras was the beneficiary in a certificate of membership issued to Charles R. Baumgras, her husband, on the 13th of July, 1886. The certificate provided for the payment by the defendant of- $2,000 upon the husband’s death. In September, 1886, Charles R. Baumgras departed from his home and family, and nothing was heard of him, and in September, 1895, nine years after his disappearance, an action was commenced in the Supreme Court by his wife to collect the amount of the certificate upon the ground that Baumgras was dead.

The defendant defended the action and put in issue the fact of his death, and finally the action was compromised by the execution between the parties of an agreement in writing made the 20th day of March, 1896, which recites:

“ Whereas, said Charles R. Banrngrass has disappeared, and the party of the second part claims that he is dead, and
“Whereas, an action was brought by the said party of the second part (Mary) against the party of the first part (the defendant) in the Supreme Court of Onondaga county on or about the 25th day of September, 1895, to recover upon said certificate, and
“ Whereas, a settlement and adjustment of the said action has been agreed upon between the parties hereto, it is hereby agreed that the said action is to be discontinued and fully settled, without costs to either party against the other.
“ It is further agreed that said party of the first part shall pay to the party of the second part the sum of $666.00 in cash, promptly.”

It was further agreed that the balance due upon the certificate (81,334) should be left with a trustee, with certain provisions as to what should be done with the money, and the agreement continues:

“It is further agreed that in case the party of the first part shall, discover at any time between now and the said first day of July, 1897, and shall produce proper and reasonable proof that Charles R. Baumgrass is alive, and shall fix his identity with certainty, and shall locate just where he is, so that the party of the second part may verify the fact that he is alive, then in that case and event said fund * * * shall be returned by the said Frank B. Garrett (trustee) to the party of the first part, * * * it being agreed that said $666.00 is not to be returned in any event.”

A short time after this agreement was entered into, and before any money had been paid over by the defendant under the contract, it was ascertained that Charles R. Baumgras was living, and the defendant refused to pay the wife the $666, which she was to receive under the contract in any event. Whereupon this action was brought to recover this amount by her assignee (the respondent here), and a recovery was had in the trial court, and the question is here presented whether the contract thus made could be enforced, or whether the fact of the reappearance of Baumgras destroyed the right of his wife to recover the $666 upon the ground that the contract was entered into under a mutual mistake of facts between the parties to it.

The question of the existence of the husband was the disputed question in the first action. He had been gone so long that the law presumed him dead, the family and friends not having heard from him. • Had the action been pressed to a conclusion the wife would have recovered the whole amount, at least such were the probabilities. The defendant realizing that, consented to a compromise and settlement of the action, and had the benefit of it. There was ample consideration for the contract. It was not a mistake of fact. It was the case of a settlement of a disputed claim. It was to get rid of a law suit. One party claimed that the man was dead; the other claimed that he was alive. The money in controversy in that action depended upon the solution of that question, and the parties, without either of them surrendering their convictions upon the subject, settled tile case, the plaintiff to have one-third and the defendant to retain two-thirds of the amount in dispute — a fair, equitable adjustment, under the circumstances, without fraud or mistake. The parties contracted with reference to the contingency of Baumgras being . alive; here was no mistake of fact. The cases that relieve under those circumstances, and that have been cited, are cases where there was a mutual mistake of fact, that is, both parties supposed a fact to exist when it did not, but this is a case, as I have said, in which a law suit was pending, and the contingency of Baumgras being alive considered, discounted and settled; and upon familiar principles such au arrangement should be sustained.

Stress is laid by the appellant upon a finding of the trial court that both parties, at the time of entering into the contract in question, believed the said Charles R. Baumgras to be dead, but the trial court further found in that connection that, notwithstanding such belief, said parties, and especially the defendant, entered into and made the contract in question, which recognized, contemplated and provided for the possibility of said Baumgrass being alive.”

I do not think that the belief of these jwties one way or the other was material. As I have said, they contracted, not with reference to their belief, but with reference to the contingencies of the situation.

These views lead to the conclusion that the judgment appealed from should be affirmed, with costs.

Jndgment reversed and a new trial ordered, with costs to the appellant to abide the event.