Case Name: New York Life Insurance Company v. Nashville Trust Company et al.
Court: Tennessee Supreme Court
Jurisdiction: Tennessee
Decision Date: 1956-04-27
Citations: 200 Tenn. 513
Docket Number: 
Parties: New York Life Insurance Company v. Nashville Trust Company et al.
Judges: Prewitt and Swepston, Justices, dissented.
Reporter: Tennessee Reports
Volume: 200
Pages: 513–552

Head Matter:
New York Life Insurance Company v. Nashville Trust Company et al.
(Nashville,
December Term, 1955.)
Opinion filed April 27, 1956.
Rehearing Denied July 20, 1956.
J. C. Edwards, Nashville, Chambliss, Chambliss & Brown, Chattanooga, for appellant.
Hooker, Keeble, Dodson & Harris, Howard, Davis, Boult & Hunt, James A. Newman and Noevbll & Min-iok, Nashville, for appellees.
Prewitt and Swepston, Justices, dissented.

Opinion:
Mr. Justice Burnett
delivered the opinion of the Court.
The bill in this cause was filed by the Insurance Company against the Trust Company and others, as defendants, seeking to recover of the Trust Company certain funds which it holds as successor trustee to the Nashville Trust Company, which was the beneficiary under two life insurance policies, as described in the bill, issued on the life of Thomas C. Buntin and payable to the Nashville Trust Company as trustee under a trust instrument dated February 16, 1928.
The beneficiaries under the trust agreement are made individual defendants to this suit and are the former wife of Thomas C. Buntin and their three children.
Thomas C. Buntin, the insured, who was likewise an insurance man, disappeared from his home in Nashville, Tennessee, and subsequently a suit was brought by the Nashville Trust Company against the complainant Insurance Company, appellant, in which a judgment was rendered against the Company for the full amount of the policies. This case is reported in 178 Tenn. 437, 159 S.W. 2d 81, and is styled, New York Life Insurance Company v. Nashville Trust Company. As a result of this suit, on March 10, 1942, the Insurance Company paid to the trustee $59,438.40, from which certain expenses and costs were paid and the net balance paid to the trustee and later turned over to the successor trustee, defendant in the present suit.
Thomas C. Buntin, the insured upon which that money was paid, was found alive on June 3, 1953, and his identity verified June 12, 1953. This suit was brought immediately thereafter and is for the purpose of recovering the net balance of the funds in the hands of the successor trustee.
The relief sought in this suit is based on five grounds: (1) mistake, (2) fraud, (3) that the defendants have been unjustly enriched, (4) newly discovered evidence and (5) that the defendant trustee holds the funds in its hands as constructive trustee for the Insurance Company.
To this bill the defendants demurred which with the original and amended demurrers substantially raised these points, to wit:
1. That whatever right of action the complainant has is barred either by the six or ten year statute of limitations ;
2. That the judgment in the Circuit Court action between the same parties is res judicata on the merits;
3. That no actionable mistake has been made;
4. That all facts as to fraud were in the original proceeding and cannot be attacked in this proceeding;
5. That there are not sufficient allegations of fraud pleaded;
6. That no facts are pleaded which show a mistake;
7. That there is no charge of fraud against either the trustee or beneficiary.
The Chancellor sustained the defendant's demurrers and dismissed the bill. He kept in force an injunction to enjoin the successor trustee from paying out the 'money pending this litigation. An appeal has been seasonably perfected, able and excellent briefs have been filed and arguments heard. We now have the matter for determination.
In this case, after much study and thought, we think the demurrers should have been overruled. We think that the fraud committed here by Buntin is extrinsic. True, it is very closely allied to what is known as intrinsic fraud wherein all the courts, insofar as we have been able to find, have followed U. S. v. Throckmorton, 98 U.S. 61, 25 L.Ed. 93; Pico v. Cohn, 91 Cal. 129, 25 P. 970, 27 P. 537, 13 L.R.A. 336. We are committed to this rule if the fraud is intrinsic as is shown by Keith v. Alger 114 Tenn. 1, 85 S.W. 71. We feel though that fraud in the instant case, for the reasons hereinafter stated, more or less brings it within the rule of Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 64 S.Ct. 997, 88 L.Ed. 1250, wherein the well-recognized rnle of the Throckmorton case and others was recognized again by the Supreme Court of the United States.
In the first place it is conceded by all that the money now sought by the appellant is money being held by a successor trustee growing out of a lawsuit of New York Life Insurance Company v. Nashville Trust Company as reported in 178 Tenn. 437, 159 S.W.2d 81. This money was paid on a contract that Thomas C. Buntin had with the Life Insurance Company wherein they agreed to pay the principal amount of these policies "upon receipt of due proof of the death of Thomas C. Buntin". As is shown by the reported opinion, which was prepared by the late Chief Justice G-rafton Green, the proof in that lawsuit and the inferences there along with the seven-year presumption statute, (which is simply the common-law rule of evidence and has no more force than any other evidence which might turn out to be untrue, D'Arusment v. Jones, 72 Tenn. 251) warranted this Court, in that case, in finding under such circumstantial evidence that the insured died prior to March 8, 1933, the expiration date of the insurance. In that case great weight and great store was put on the fact of the wills being sent home from St. Louis to two of his relatives; the unstability of Buntin himself; the suicide of Buntin's father and things of that kind which clearly convinced this Court, in that lawsuit, that Buntin was dead.
It now, twenty years after the policies had matured in 1933, turns out that Buntin is alive, is married again and is raising another family. The trial court in the reported case did not consider that Buntin was committing any fraud on them. The question there was whether or not Buntin was dead. Under tlie facts and circumstances introduced in that case the court and jury, affirmed by the appellate courts as was shown by the reported opinion, concluded that he was dead. It is true that the Insurance Company offered certain proof to the effect that he had been seen here and there (all of which later turned out to be incorrect), but this was not a showing of fraud, it was merely a showing or an attempt to show, that subsequent to the time that the policies lapsed, Buntin was seen alive. It now turns out that he has committed a gross fraud upon the Court as well as upon the Insurance Company. By his acts then, which no one knew anything of until twenty years later and after this judgment became final, he fooled this Court and caused it to reach a mistake of fact (that Buntin was dead) when as a matter of fact he was alive.
In 31 Am.Jur., Sec. 654, page 232, it is said:
"Fraud which induces an adversary to withdraw his defense, or prevents him from presenting an available defense or cause of action in the action in which the judgment is obtained, has been regarded as a proper ground for equitable relief against the judgment." (Emphasis ours.)
There are then cited a number of cases from many jurisdictions in the United States. In this instant case Buntin by hiding out committed a fraud on this Court and by his action prevented the available defense to the Insurance Company that he was actually alive. This was not discovered until 1953.
The United States Supreme Court has very recently, in Hazel-Atlas Class Co. v. Hartford-Empire Co., supra [322 U.S. 238, 64 S.Ct. 1000], said:
"But where the occasion has demanded, where enforcement of the judgment is 'manifestly unconscionable', Pickford v. Talbott, 225 U.S. 651, 657, 32 S.Ct. 687, 689, 56 L.Ed. 1240, they have wielded the power without hesitation. [This statement in the opinion which is now quoted follows a recognition of the rule of the Throckmorton case and other related cases.]
"Every element of the fraud here disclosed demands the exercise of the historic power of equity to set aside fraudulently begotten judgments. This is not simply a case of a judgment obtained with the aid of a witness who, on the basis of after-discovered evidence, is believed possibly to have been guilty of perjury. Here, even if we consider nothing but Hartford's sworn admissions, we find a deliberately planned and carefully executed scheme to defraud not only the Patent Office but the Circuit Court of Appeals. Cf. Marshall v. Holmes, [141 U.S. 589, 12 S.Ct. 62, 35 L.Ed. 870] supra. Proof of the scheme, and of its complete success up to date, is conclusive. Cf. United States v. Throckmorton, supra. And no equities have intervened through transfer of the fraudulently procured patent or judgment to an innocent purchaser. Cf. Ibid; Hopkins v. Hebard, 235 U.S. 287, 35 S.Ct. 26, 59 L.Ed. 232.
" Furthermore, tampering with the administration of justice in the manner indisputably shown here involves far more than an injury to a single litigant. It is a wrong against the institutions set up to protect and safeguard the public, institutions in which frcmd cannot complacently be tolerated consistently with the good order of society. Surely it cannot be that preservation of the integrity of the judicial proc ess must always wait upon the diligence of litigants. The public welfare demands that the agencies of public justice be not so impotent that they must always be mute and helpless victims of deception and fraud." (Emphasis ours.)
This was a suit wherein the Supreme Court of the United States set aside a judgment, or authorized the Circuit Court of Appeals to or directed them to, which judgment had been entered by them some ten years prior thereto and the term had expired, etc., which brought the judgment as contended under the rules of the Throck-morton case and others. The bill was filed to set aside the judgment as having been obtained by fraud. The fraud consisted of a conspiracy entered into by the attorneys and officials of one of the companies to have published in a trade journal an article which would describe the process under consideration as a remarkable advance in the art of fashioning certain glass machinery. The Circuit Court on the strength of this article held that the patent was valid and the District Court was reversed. At the time the matter was tried in the District Court the Hazel-Atlas Glass attorneys received information that one Clark and one of Hartford's attorneys had several years previously admitted that the Hartford lawyer was the true author of the publication. Hazel-Atlas attorneys did not at that time attempt to verify the truth of the hearsay story but relied on and won the case on other grounds. After the Circuit Court opinion reversed the District Court on this ground, investigation was made which determined the true state of affairs. The mandate of the Circuit Court was entered in 1932. In 1941 the present suit, just quoted from above, was commenced with the result that due to the fraud therein committed the suit was reversed. Picture the related acts of Buntin in this case and the facts of the case just quoted from. We cannot see that the fraud in the case last above quoted from is as extrinsic as is the fraud in the instant case, Buntin case. The fraud- of Buntin was not discovered until many years after the money was paid and the judgment was rendered and it was this fraud which whs discovered later on that is now the question. That fraud was not before the Court and is not the basis of the opinion as heretofore reported. 178 Tenn. 437, 159 S.W.2d 81.
The rationale of these decisions, the Throckmorton and Pico, is that in the course of a trial the adversary has the opportunity by a cross-examination to show perjury or forgery and that in every case there is likely to be a difference of opinion among the witnesses which may be shown by rigid cross-examination. The rationale further is that where there has been a fair trail, the parties have had a fair opportunity to present the situation, then the final judgment is final and cannot be reopened for very good and obvious reasons. But in the instant case there was not a fair and honest opportunity to present things which were discovered twenty years later. No one would doubt certainly, if it could have been discovered at the time this case was originally tried, that Buntin was alive that there would have been any judgment rendered in it then. We would guess that if Buntin had been found then he would'have been held in contempt of Court to the limit of its severity. Is it right that he can now come in court, years later, and say: "Well, I've got your money, do what you want to about it, there is nothing you can do with me about it or anything else". Is it right then that someone else, that he has made bene ficiary under Ms policy, should keep this money1? It certainly seems to us that it should go back where it belongs, that part which is left and that those who are not entitled to it should not be allowed further to participate in it.
It was argued here by the appellees that no fraud has been committed. We cannot imagine how acts could be more fraudulent. This Court, a long time ago, in Smith v. Harrison, 49 Tenn. 230 said:
"Fraud vitiates and avoids all human transactions, from the solemn judgment of a court to a private contract. It is as odious and as fatal in a court of law as in a court of equity. It is a thing indefinable by any fixed and arbitrary definition. In its multiform phases and subtle shapes, it baffles definition. It is said, indeed, that it is part of the equity doctrine of fraud not to define it, lest the craft of men should find ways of committing fraud which might evade such a definition. In its most general sense, it embraces all 'acts, omissions, or concealments which involve a breach of legal and equitable duty, trust or confidence justly reposed, and are injurious to another, or by which an undue and unconscientious advantage is taken 6f another.' 1 Bouv.L.D., page 613. A judicial proceeding in rem, while generally binding upon all persons, is no more free from the fatal taint of fraud than a proceeding in personam, or an individual contract. When once shown to exist, it poisons alike the contract of the citizen, the treaty of the diplomat, and the solemn judgment of the court."
Buntin hid out so he could not be found and stayed in this way for many years. It is obvious of course that he knew these insurance policies were in existence, he is certainly presumed to have known so. He had the right to change the beneficiaries on these policies' when he wanted to; he did change this shortly before he left, leaving them payable to a trust company for the benefit of his wife for life and then to her children. Then after twenty years or thereabouts his fraud was discovered. This was after-discovered fraud, when he was actually found alive, and it seems to us for this kind of fraud, %ohen there was no opportunity to show this in the trial nearly twenty years before, that clearly equity should grant relief agamst judgments obtained by such a fraud which are not really discovered until twenty years later. Our Courts, this very Court, toas imposed upon and fooled cmd defrauded by Buntin being hidden out into rendering an opinion upon which fifty-odd thousand dol-ías in money was paid. Under the circumstances here we go along with the Kentucky Court when it said:
" technicalities of interpretation or refinement of distinction should not and will not be permitted to embarrass the court in exercising its power to do justice. " Metropolitan Life Ins. Co. of New York v. Meyers, 270 Ky. 523, 109 S.W.2d 1194, 1198.
Clearly the plea of res judicata should have been overruled. The issue in the case now is whether or not Tom Buntin by active extrinsic fraud has defrauded the Courts and the Insurance Company, thereby causing the Courts to say that money should be paid to the beneficiaries of Buntin. And also that by his deliberately and wilfully keeping himself hidden out he has simulated death and has manufactured a chain of circumstances and. evidence which was calculated to and did persuade the Courts of this State that he had committed suicide. In the case heretofore tried the issue was whether or not under the facts there he was dead. The issue in the law ease decided twenty-odd years ago was "whether or not Bnntin had died prior to March 8, 1933, (the date the policy expired without value) was the issue in the previous trial". It certainly seems to us that this is an independent action and does not involve any retrial of the issues disposed of in the former case. We think this question is directly determined in Copeland v. Copeland, 180 Tenn. 609, 177 S.W.2d 555, wherein this Court, speaking through Mr. Chief Justice Creen, said:
"A plea of res judicata is not available merely because the subject matter of two suits is the same. The cause of action in the two suits must be the same. Mr. Freeman expresses the rule thus:
" 'As we have already seen, identity of subject matter is not essential to estoppel by judgment. So in determining whether causes of action are the same, the identity of the subject matter or of the transaction out of which they arise, is not a controlling factor. The subject matter of an action must be distinguished from the cause of action, since the subject matter of the two actions may be the same and yet the causes of action may be entirely different. New rights in the same subject matter may intervene between the two actions.' Freeman on Judgments, Fifth Edition, p. 1434."
And then too, it is well said:
' ' it is generally held that the principles of res judicata may not be invoked to sustain fraud, and that a judgment obtained by fraud or collusion may not be used as a basis for the application of the doctrine of res judicata." 30 Am. Jur. (Judgments) 202, p. 941.
We are satisfied that under the authorities in this State a constructive trust should be set up to take the money which is in the court and apply it where it rightfully belongs. The obligation under the insurance contract upon which the money was recovered was an obligation to pay upon the death of Buntin. Buntin is not dead, and the only reason the money was paid was because of the fraud committed by him against the Courts and against the Insurance Company. It seems to us therefore that the trustees now holding this fund now hold it due to the unconscionable conduct and active fraud on the part of Buntin. It seems to us that thus a constructive trust should he placed upon the fund.
Under an analogous situation the Circuit Court of Appeals for the Ninth Circuit in the case of Brown v. New York Life, 152 F.2d 246, 250, said this:
"Appellant paid nothing for the insurance policies and as to her they were a gratuity. She is innocent of fraud perpetrated by herself, but as the lower court pointed out, even the widow of a trustee ex maleficio who has paid no consideration for the property purchased with misappropriated funds, or for their fruits, may not hold such property, or the fruits thereof, against the cestui que trust, who is the real owner. A third person, unless he or she has in good faith acquired for value without notice a subsequent interest, seeking any benefit resulting from the misappropriation, becomes a particeps criminis however innocent of the fraud in the beginning." Citing as authority therefor, Story's Equity Jurisprudence, 14th Ed., and Perry on Trusts and the case of Vorlander v. Keyes, 8 Cir., 1 F.2d 67.
This is sound. Our cases of Akers v. Gillentine, 191 Tenn. 35, 231 S.W.2d 369 and Fehn v. Schlickling, 26 Tenn.App. 608, 175 S.W.2d 37, will support such a constructive trust out of the funds here held.
We are likewise very confident that the statute of limitations did not run herein. The fraud of Buntin was not known until he was found in 1953.
"Most of the cases treating of the bearing of the statute of limitations upon the right to a constructive trust have recognized the soundness of the principles above stated and have applied the statute from the date of actual or imputed knowledge by the cestui of the wrongful holding." 4 Bogert on trusts, sec. 953, p. 213; Haynie v. Hall's Executor, 24 Tenn. 290, 42 Am. Dec. 427; Haynes v. Swann, 53 Tenn. 560 and in Akers v. Gillentine, supra.
The case relied on by the appellee of New York Life Ins. Co. v. Chittenden & Eastman, 134 Iowa 613, 112 N.W. 96, 99, 11 L.R.A.,N.S., 233, is not in point. We quote briefly from that case:
"In the case before us the question whether Jarvis was dead was distinctly within the contemplation of both parties for it was expressly recited in the proof of loss that he had been absent for more than seven years, and had not been heard of within that time. The only question of controversy between the parties in determining whether or not the insurance money should be paid was as to whether Jarvis was dead, and the plaintiff conceded its liability by voluntarily paying the claim. In the absence of fraud or concealment, the means of knoioledge as to the fact in controversy being equally accessible to each party, the payment is conclusive." Emphasis ours.
Thus it is seen that there was no fraud or concealment or anything of that kind in the Iowa case — it was merely a voluntary payment.
The case of Steele v. Metropolitan Life Ins. Co., 196 N.C. 408, 145 S.E. 787, 61 A.L.R. 821, is likewise cited as authority. This case, too, is no authority for the position of the appellee. The only thing involved in this case was whether or not the lower court had the power to impose upon the beneficiaries under a policy the giving of bond to get the money upon the presumptive proof of death of seven years. Otherwise the case is exactly the same as a reported case herein in 178 Tenn. It is not authority at all for the proposition now before us.
The case of Mays v. Sovereign Camp, etc., 151 Tenn. 604, 271 S.W. 34, 40 A.L.R. 1266, is likewise not in point here. The question involved in that case was whether or not when an insurance company has provided that the presumptive seven-year period of death shall not apply until the full expectancy has expired was against public policy. This Court held that the insurance company could so provide and it was not against public policy.
The Insurance Company did not have to provide in its contract against fraud being committed on it or fraud being committed on a court. That is what the courts are here for, if fraud is committed we are to protect the rights of those that are defrauded.
So, it is for these reasons that we think the demurrers should have been overruled. The case is reversed and remanded for further proceedings consistent with this opinion. The costs of the case are to be paid out of the funds in the hands of the trustee.
Peewitt and Swbpston, Justices, dissent.