Court Opinion

ID: 6544495
Source: CourtListenerOpinion
Date Created: 2022-07-19 22:18:28.766455+00
Date Added: 2024-06-11T15:55:55.721178
License: Public Domain

ON REHEARING. Opinion delivered December 7, 1901. Battle, J. The appellees ask for a rehearing on the following among other grounds, to-wit: “Appellees believe the court overlooked the fact that the question of admissibility of parol testimony was brought into this case, not as a direct defense to the note, but by their cross-complaint against appellant seeking a reformation of the note sued on to accord with mutual intent of the appellant and appellees at the time of the execution of said note, and that the failure to express the words showing on the face of the note that it was the obligation of the Walnut Ridge Manufacturing Company was a clerical mistake of the appellant, as well as of the appellees; that such mistake was induced by, and was the fault of, the appellant; that appellant’s officers and agents induced appellees to sign said note by expressly representing to them at the time that it was the obligation of the Walnut Ridge Manufacturing Company, and not the obligation of appellees individually; that the note has always been in the hands of the original payee, and nothing has intervened to prejudice the rights of appellant by reason of such note being reformed to express the mutual intent; that the evidence in the record, as well as the cross-complaint, shows the foregoing facts.” Appellees, in their answer filed in this cause in the circuit court, alleged that the note sued on was given in satisfaction of the indebtedness of the Walnut Ridge Manufacturing Company, and for the purpose of evidencing such indebtedness, and that they wore not personally liable for the same. After answering in this manner, they filed an amended answer, making the same a cross-complaint, “alleging that, at the time of the execution of the note, it was agreed and understood between the plaintiff and the defendants, as the officers of the Walnut Ridge Manufacturing Company, that the note should be executed as the obligation of the company, and not as the obligation of the defendants individually, and at the time it was so understood by all the parties, and the note was executed by the defendants in their capacity as such officers, and as the obligation of said company, the word as between each individual name of the signer and the name designating his official capacity, and the words Walnut Ridge Manufacturing Company after the designation of the official, capacity of each signer, being omitted by clerical error and mutual mistake of all the parties to the instrument.” The cross-complaint prayed that the cause be transferred to equity, that the Walnut Ridge Manufacturing Company be made a party, and that the note be reformed so as to express the meaning and intent of the parties at the time of its execution. The cause was.transferred, without objection, and the Walnut Ridge Manufacturing Company entéred its appearance. The evidence adduced at the hearing “showed that the note was drawn in its present form by the officers of the bant, or at their instance, before presentation for signing, and was carried by J. M. Phelps, as president of the bank, and by Dolph Sloan, as its cashier, to the makers of the note, and that the bank officers directed the makers to sign for the Walnut Ridge Manufacturing Company with simply the official designation after each name, in form as the same now appears, representing to the signers at the time that they were not personally liable for it, but that it was the obligation of the company.” The court found that the note sued on was given for the indebtedness of the Walnut Ridge Manufacturing Company to the bank, that appellees did not assume the indebtedness, it being the understanding of appellant and appellees that the signing of the note by appellees was in their official capacity, and that the makers were not individually or personally liable; and rendered a decree in favor of appellees, and a decree in favor of appellant against the Manufacturing Company for the balance due on the note. The question presented by the motion for rehearing is, was it the duty of the circuit court to reform the note? Authors and courts have found it difficult to formulate a rule according to which courts of equity relieve against mistakes of law. Chief Justice Marshall; in Hunt v. Rousmanier, 8 Wheat. 174, 215, said: “Although we do not find the naked principle that relief may be granted on account of ignorance of law asserted in the books, we find no case in which it has been decided that a plain and acknowledged mistake in law is beyond the reach of equity.” After a review of the cases, Judge Story says: “We have thus gone over the principal cases which are-supposed to contain contradictions or exceptions to the general rule that ignorance of law with a full knowledge of the facts furnishes no ground to rescind agreements or to set aside solemn acts of the parties. Without undertaking to assert that there are none of these cases which are inconsistent with the rule, it may be affirmed that the real exceptions to it are very few, and generally stand upon some very urgent pressure of circumstances. The rule prevails in England in all cases of compromises of doubtful and perhaps in all cases of doubted rights, and especially in all cases of family arrangements. It is relaxed in cases where there is a total ignorance of title, founded in the mistake of a plain and settled principle of law, and in cases of imposition, misrepresentation, undue influence, misplaced confidence, and surprise. In America the general rule has been recognized as founded in sound wisdom and policy, and fit to be upheld with a steady confidence. And hitherto the exceptions to it (if any) will be found not to rest upon the mere foundation of a naked mistake of law, however plain and settled the principle may be, nor upon mere ignorance of title founded upon such mistake. It is matter of regret that in the present state of the law it is not practicable to present in any more definite form the doctrine respecting the effect of mistakes of law, or to.clear the subject from some obscurities and uncertainties which still surround it. But it may be safely affirmed upon the highest authority, as a well established doctrine, that a mere naked mistake of law, unattended with any special circumstances as have been above suggested, will furnish no ground for the interposition of a court of equity; and the present disposition of courts of equity is to narrow, rather than to enlarge, the operation of exceptions.” 1 Story’s Eq. Jurisprudence (13th Ed.), §§ 137, 138. Professor Bispham says: “The true conclusion, as to the general rule, would seem to be that equitjr will not interfere in the ease of a pure mistake of law; but that any additional circumstances will readily be laid hold of by the court, as constituting sufficient grounds for interposition. Thus, where ignorance of the law exists on one side, and that ignorance is known and taken advantage of by the other party, the former mil be relieved. More particularly will this be so if the mistake was encouraged or induced by misrepresentation of the other party.” Bispham, Equity (5th Ed.), § 188, and cases cited. In Pomeroy’s Equity Jurisprudence it is said: “Whatever be the effect of a mistake, pure and simple, there is no doubt that equitable relief, affirmative or defensive, will be granted when the ignorance or misapprehension of a party concerning the legal effect of a transaction in which he engages, or concerning his own legal rights which are to be affected; is induced, procured, aided, or accompanied by inequitable conduct of the other parties. It is not necessary that such inequitable conduct should be intentionally misleading, much less that it should be actual fraud; it is enough that the misconception of the law was the result of, or even aided or accompanied by, incorrect or misleading statements or acts of the other party. When the mistake of law is pure and simple, the balance held by justice hangs even; but when the error is accompanied by any inequitable conduct of the other party, it inclines in favor of the one who is mistaken. The scope and limitations of this doctrine may be summed up in the proposition that a misapprehension of the law by one party, of which the others are aware at the time of entering into the transaction, but which they do not rectify, is a sufficient ground for equitable relief. A court of equity will not permit one party to take advantage and enjoy the benefit of any ignorance or mistake of law by the other, which he knew of and did not correct. While equity interposes under such circumstances, it follows a fortiori that when the mistake of law by one party is induced, aided, or accompanied by conduct of the other more positively inequitable, and containing elements of wrongful intent, such as misrepresentation, imposition, concealment, undue influence, breach of confidence reposed, mental weakness, or surprise, a court of equity will lend its aid and relieve from the consequences of the error. The decisions illustrating this general rule are numerous, and it will be found that many of the cases in which relief has been granted contained, either openly or implicitly, some elements of such inequitable conduct.” 2 Pomeroy, Eq. Jur. (2d Ed.), § 847, and cases cited. In Snell v. Insurance Company, 98 U. S. 85, the syllabus is as follows: “A., a member of the firm of A., B. & Co., who were owners of cotton, communicated the facts touching its ownership, situation, value, and risks, so far as he knew them, to C., a duly accredited agent of an insurance company; and thereupon the company, through 0., entered into a verbal agreement with A., acting for and on behalf of the firm, to insure for a certain period the cotton for its whole value against loss by fire, at a premium which was subsequently paid to the company. A. assented that the insurance should be made in his name, upon the representation and agreement of 0. that the entire interest of the firm in the cotton would thereby be fully protected. The cotton was burnt within the specified period. The policy was then issued and delivered. to A., who, being at once advised by bis attorneys that it in terms covered his interest, but not that of the firm, forthwith requested the company to correct it, so that it should conform to the agreement. The company having declined to do so, A., R. & Co. filed against it this bill, praying that the policy be reformed, and that the value of the cotton be awarded to them. Held, 1. That the acceptance of the policy was not such as waived any right of A., R. & Co. under the agreement covering their interest in the cotton, which A. in their behalf had made with the company, and that they are entitled to the relief prayed for. 2. That a mere mistake of law does not, in the absence of other circumstances, constitute any ground for the reformation of a written contract.” In that case the court said: “In the case under consideration, the alleged mistake is proved to- the entire satisfaction of the court. It is equally clear that the assent of Keith to the insurance being made in his name was superinduced by the representation of the company’s agent that insurance in that form would fully protect the interest of the firm in the cotton. We assume, as we must from the evidence, that this representation was not made with any intention to mislead or entrap the assured. It is, however, evident that Keith relied upon the representation, and, not unreasonably, relied also upon the larger experience and greater knowledge of the insurance agents in all matters concerning the proper mode of coirsummating, by written agreement, contracts of insurance according to the understanding of the parties. Tie trusted the insurance agents with the preparation of a written agreement which should correctly express the meaning of the contracting parties. He is not chargeable with negligence, because he rested in the belief that the policy would be prepared in conformity with the contract. As soon as he had a reasonable opportunity to consult counsel, he discovered- the mistake, and promptly insisted upon the rights secured by the original agreement. A court of equity could not deny relief under such circumstances, without aiding the insurance company to obtain an unconscionable advantage through a mistake for which its agents were chiefly responsible. In all such cases, there being no laches on the part of the party, either in discovering and alleging the mistake, or in demanding relief therefrom, equity will lay hold of any additional circumstances, fully established, which will justify its interposition to prevent marked injustice being done. Wheeler v. Smith, 9 How. 55.” In Griswold v. Hazard,. 141 II. S. 260, “one Durant, a citizen and resident of New York, was arrested under a writ of ne exeat while temporarily at Newport, Rhode Island. To obtain a release from custody under the writ, he executed a bond, with Griswold and Bradford as sureties, the condition of which was that Durant should ‘abide and perform the orders and decrees of'the supreme court of the state of Rhode Island in the suit in equity of Isaac P. Hazard and others against the said Durant/ then pending in said court. In that suit a decree was, fourteen years afterwards, obtained for a very large sum; and thereupon an action at law was brought on the bond against Griswold, and a judgment recovered. Pending this common law action on the bond, bills in. equity were filed by Griswold for an injunction to restrain the proceedings at law. It was alleged in these bills that Griswold ‘had intended to sign, and believed at the time that he signed, a bond which simply bound him for the appearance of Durant, and that its execution in its actual form was the result of mistake. The supreme court held (reversing the decree below) that the alleged mistake was clearly established by the proofs, that under the circumstances Griswold was entitled to relief against the mistake of law, and that the action on the bond should be’perpetually enjoined.” The court said: “There was no mistake as to the mere words of the bond; for it was drawn by one of Hazard’s attorneys, and was read by Griswold before signing it. But according to the great weight of the evidence, there was a mistake, on both sides, as to the legal import of the terms employed to give effect to the mutual agreement. In short, the instrument does not express the thought and intention which the parties had at the time of its execution. And this mistake was attended by circumstances that render it inequitable for the obligees in the bond to take advantage of it. The instrument was drawn by one- of' Hazard’s attorneys, and was presented and accepted as embodying the agreement previously reached. Griswold was unskilled in the law, and took the word ‘perform’ as implying performance in the sense of D urant’s becoming amenable to the process of the court. He-had no reason, unless the recollection of Gray, Durant, Yan Zandt and himself as to what occurred is wholly at fault, to doubt that the-bond expressed the real agreement; especially if he heard Yan Zandt’s statement to Durant, when the latter was about to sign the-bond, that it ‘was, in effect, a bail bond.’ A court of equity ought not to allow that mistake, satisfactorily established and thus caused, to stand uneorrected, and thereby sutjjept a surety to liability he did not intend to assume, and whiqh, according to the decided preponderance of the, evidence, there was at the time nó purpose to impose upon him. While it is laid down that ca mere mistake of law, stripped of all other circumstances, constitutes no ground for the reformation of written contractsyet The rule that an admitted or. clearly established misapprehension of the law does create a basis for the interference of courts of equity, resting on discretion and to be exercised only in the most unquestionable and flagrant cases, is certainly more in consonance with the best considered and best reasoned cases upon this point, both English and American/ ” In the ease under consideration the note sued upon was prepared by the cashier of the bank, and was signed by the makers in the manner directed by him, upon the representation made by him to the effect that they would not be individually liable, and that the note as signed was the obligation of the Manufacturing Company. They relied upon such representation, and they did not act unreasonably in so doing, because his vocation and experience were such as to enable him to better understand how such paper should be drawn and executed to accomplish the desired result, and to express the obligation the makers thereof' thereby intended to assume. They and the bank believed that the note was not their individual obligation, but the note of the Manufacturing Company. As evidence of this fact, each appended to his signature the name of the office he held in the Manufacturing Company. The conduct of the agents of the bank superinduced this mistake, and they accepted the note as the obligation of the Manufacturing Company. Under such circumstances, a court of equity cannot deny relief without aiding the bank to take an unconscionable advantage of a mistake for which its agents were chiefly responsible: and it is the duty of the court to grant relief, the note still being the property of the bank. The' decree of the circuit court is affirmed.