A., a member of the firm of A., B., & Co., who were the
owners of cotton, communicated the facts touching its ownership,
situation, value, and risk, so far as he knew them, to C., a duly
accredited agent of an insurance, company, and thereupon the
company, through C., 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 C. that the entire interest of the
firm in the cotton would be thereby 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 his 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.,
B., & 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., B., & 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.
This was a suit in equity instituted by Thomas Snell, Samuel L.
Keith, and Abner Taylor, partners under the firm name of Snell,
Taylor, & Co., to reform a certain policy issued by the
Atlantic Fire and Marine Insurance Company of Providence, insuring
Samuel L. Keith, from Dec. 6, 1865, at noon, to Jan. 7, 1866, at
noon, against loss or damage by fire, on two hundred and twenty
bales of cotton, described as "stored in open
Page 98 U. S. 86
shed at West Point, Miss.; loss, if any, payable to Messrs.
Keith, Snell, & Taylor."
The material allegations in the bill are as follows:
That said firm, on Dec. 6, 1865, were the owners of two hundred
and twenty bales of cotton, worth more than $50,000, stored at West
Point, Miss., awaiting transportation to some northern market; that
Keith applied in behalf of his firm to Holmes & Bro., general
insurance agents at Chicago, representing several companies,
including the defendant, to procure insurance upon all the cotton,
for the benefit of the firm, in the sum of $49,500, during such
time as it remained at West Point, which time was uncertain in view
of the difficulties of transportation; that Holmes & Bro., the
duly accredited and authorized agents, among others, of the
defendant, did agree with Keith, acting for and in behalf of his
firm, to make, grant, and secure insurance in the companies by them
represented on this cotton in the sum of $49,500, while it was
stored at West Point and until shipped to a northern market, and to
receive a premium of one percent on the total amount insured,
to-wit, $495, which sum Keith agreed to pay Holmes & Bro.,
provided the time for the insurance did not exceed one month, but
to have a decreased rate if the time exceeded one month, the agreed
rate to be paid by Keith when the cotton was removed from West
Point, when the extent of the insurance could be definitely fixed;
that on Dec. 6, 1865, Holmes & Bro., with intent to carry this
agreement into effect, caused to be made several policies in
different companies, among them the policy sued on, making an
aggregate insurance of $49,500, and after the loss occurred
notified Keith to pay, and he did pay, the sum of $495, the premium
on the whole amount insured, $80 of which was paid to and received
by the defendant for and on account of his firm and in pursuance of
the agreement with Holmes & Bro.; that the policy sued on
remained in the possession of Holmes & Bro. until some time
after the loss; that after the loss, and before any application to
adjust the same was made, Holmes & Bro., with the intent to
carry out the agreement that the cotton should be insured until its
shipment from West Point, filled up the policy so that by the terms
thereof the insurance extended from Dec. 6, 1865, until Jan. 7,
1866, at noon; that Keith was assured by
Page 98 U. S. 87
Holmes & Bro., when the insurance was taken, that it was not
necessary that the policy should state in terms that the insurance
was for and on account of Snell, Taylor, & Co., and that the
firm would be as fully protected, and the loss would be as promptly
paid, as if the policy had expressly stated that the insurance was
for and on its account; that relying upon those assurances, and
ignorant that, by the terms and legal effect of the terms employed,
no other interest in the cotton was insured except his, Keith took
the policy into his possession in the full belief that it covered
the entire interest of the firm; that soon thereafter, upon being
advised to the contrary by his attorney, he demanded of the
insurance agents that the policy be corrected so as to conform to
the real contract and agreement, but Holmes & Bro. refused to
correct or alter the same in any way.
The prayer of the bill is that the company be decreed and
ordered to correct and reform the policy by inserting therein the
stipulation that the insurance was made for the benefit or for the
account of Snell, Taylor, & Co., and that the firm have a
decree for the sum so intended to be insured on the cotton.
The company filed an answer traversing the allegations of the
bill, and setting up sundry matters in defense. The court, upon a
final hearing on the pleadings and proofs, dismissed the bill, and
the complainants appealed to this Court.
Mr. Leonard Swett, for the appellants, contended that the error
committed by inserting the name of Keith instead of that of the
firm as the party assured, when the contract was reduced to
writing, would not defeat their rights; but that the policy would
be reformed so as to effectuate the intention of the parties, and
be enforced by a court of equity.
Ellis v. Towsley, 1
Paige (N.Y.) 278, 279;
Franklin Fire Insurance Co. v.
Hewitt, 3 B.Mon. (Ky.) 231;
Harris v. The Columbian
Insurance Co., 18 Ohio, 121;
New York Ice Co. v.
Northwestern Insurance Co., 23 N.Y. 359;
Woodbury Savings
Bank v. Charter Oak Insurance Co., 31 Conn. 526;
The
Malleable Iron Works v. Phoenix Insurance Co., 25
id.
465.
Page 98 U. S. 88
MR. JUSTICE HARLAN delivered the opinion of the Court.
The elaborate answer of the insurance company comprehends, in
the form of express denials and affirmative statements, almost
every defense which the ingenuity and skill of able counsel could
suggest. But in view of the points to which the evidence seems to
have been mainly directed, it is only necessary to consider certain
grounds of defense, which will sufficiently appear in this
opinion.
We are satisfied that a valid contract of insurance was entered
into on the 6th of December, 1865, between Keith, representing
Snell, Taylor, & Co., and Holmes & Bro., representing the
defendant and other insurance companies, and we entertain no
serious doubt as to its terms or scope. Although there is some
conflict in the testimony as to what occurred at the time the
contract was concluded, it is shown to our entire satisfaction not
only that the agreed insurance covered the two hundred and twenty
bales of cotton, but that Holmes & Bro., with knowledge or
information that the cotton was owned by Snell, Taylor, & Co.,
and not by Keith individually, intended to insure, and, by direct
statements, induced him to believe that they were insuring in his
name the interest of the firm. He assented to the insurance's being
taken in his name because of the distinct representation and
agreement that the interest of the firm would be thereby fully
protected against loss by fire so long as the cotton remained at
West Point. But according to the technical import of the words used
in the policy which the company subsequently issued and delivered,
only Keith's interest in the cotton is insured. Such is the
construction which the company now insists should be put upon the
policy if the court decides that there was a binding contract of
insurance. The fundamental inquiry, therefore, is whether Snell,
Taylor, & Co. are entitled to have the policy reformed so as to
cover their interest.
We have before us a contract from which, by mistake, material
stipulations have been omitted whereby the true intent and meaning
of the parties are not fully or accurately expressed. A definite
concluded agreement as to insurance which, in point of time,
preceded the preparation and delivery of the policy, is established
by legal and exact evidence which removes all
Page 98 U. S. 89
doubt as to the understanding of the parties. In the attempt to
reduce the contract to writing, there has been a mutual mistake,
caused chiefly by that party who now seeks to limit the insurance
to an interest in the property less than that agreed to be insured.
The written agreement did not effect that which the parties
intended. That a court of equity can afford relief in such a case,
is, we think, well settled by the authorities. In
Simpson v.
Vaughan, 2 Atk. 33, Lord Hardwicke said that a mistake was "a
head of equity on which the court always relieves." In
Henkle
v. Royal Exchange, 1 Ves.Sen. 318, the bill sought to reform a
written policy after loss had actually happened upon the ground
that it did not express the intent of the contracting parties. The
same eminent judge said:
"No doubt but this court has jurisdiction to relieve in respect
of a plain mistake in contracts in writing as well as against
frauds in contracts, so that if reduced to writing contrary to the
intent of the parties, on proper proof, would be rectified."
In
Gillespie v. Moon, 2 Johns. (N.Y.) Ch. 585,
Chancellor Kent examined the question both upon principle and
authority, and said:
"I have looked into most, if not all, of the cases in this
branch of equity jurisdiction, and it appears to me established,
and on great and essential grounds of justice, that relief can be
had against any deed or contract in writing founded in mistake or
fraud. The mistake may be shown by parol proof, and the relief
granted to the injured party, whether he sets up the mistake,
affirmatively by bill, or as a defense."
In the same case he said:
"It appears to be the steady language of the English chancery
for the last seventy years, and of all the compilers of the
doctrines of that court, that a party may be admitted to show by
parol proof a mistake as well as fraud in the execution of a deed
or other writing."
And such is the settled law of this court.
Graves v.
Boston Marine Insurance Co., 2 Cranch 419;
Insurance Company v.
Wilkinson, 13 Wall. 222;
Bradford v.
Union Bank of Tennessee, 13 How. 57;
Hearne v. Marine Insurance
Co., 20 Wall. 488;
Equitable
Insurance Co. v. Hearne, 20 Wall. 494. It would be
a serious defect in the jurisdiction of courts of equity if they
were without the power to grant relief against fraud or mutual
mistakes in the execution of written instruments. Of course, parol
proof,
Page 98 U. S. 90
in all such cases, is to be received with great caution, and
where the mistake is denied, should never be made the foundation of
a decree, variant from the written contract, except it be of the
clearest and most satisfactory character. Nor should relief be
granted where the party seeking it has unreasonably delayed
application for redress, or where the circumstances raise the
presumption that he acquiesced in the written agreement after
becoming aware of the mistake. Hence, in
Graves v. Boston
Marine Insurance Co., supra, this Court declined to grant
relief against an alleged mistake in the execution of a policy,
partly because the complainant's agent had possession of the policy
long enough to ascertain its contents, and retained it several
months before alleging any mistake in its reduction to writing. But
no such state of case exists here. The policy in question was
retained for Keith by the insurance agents. It was not surrendered
to him, nor did he see it, until after the loss had happened.
Immediately upon being advised by his attorney that the policy, in
terms, covered only his individual interest, he promptly avowed the
mistake, and asked that it be corrected in conformity with the
original agreement. There was no such acceptance by him of the
written policy as would justify the inference that he had either
waived any rights existing under the original agreement, or
conceded that the instrument correctly set forth the contract.
It may be said that the mistake made out was a mistake of law,
and therefore not relievable in equity. It was stated in
Hunt v. Rousmaniere's
Administrators, 1 Pet. 1, as a general rule, that
mistake of law is not a ground for reforming a deed, and that the
exceptions to the rule were not only few in number, but had
something peculiar in their character. The Court, however, was
careful to say that it was not its intention "to lay it down that
there may not be cases in which a court of equity will relieve
against a plain mistake arising from ignorance of law." In the same
case, 8 Wheat.
21 U. S. 174, Mr.
Chief Justice Marshall said that he had found no case in the books
in which it has been decided that a plain and acknowledged mistake
of law was beyond the reach of equity. In 1 Story, Eq., Jr., sec.
138
e and
f (Redf. ed.), the author, after
stating certain qualifications be observed in granting relief upon
the ground of
Page 98 U. S. 91
mistake of law, says that
"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 the point, both English and American."
The same author says:
"We trust the principle that cases may and do occur where courts
of equity feel compelled to grant relief, upon the mere ground of
the misapprehension of a clear rule of law, which has so long
maintained its standing among the fundamental rules of equity
jurisprudence, is yet destined to afford the basis of many wise and
just decrees, without infringing the general rule that mistake of
law is presumptively no sufficient ground of equitable
interference."
In the case under consideration, the alleged mistake is proven
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 that
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 consummating, by written
agreement, contracts of insurance according to the understanding of
the parties. He 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
Page 98 U. S. 92
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 deciding, therefore, as we do, that the complainants are
entitled to have the policy reformed in accordance with the
original agreement, it is not perceived that we enlarge or depart
in any just sense from the general and salutary rule that a mere
mistake of law, stripped of all other circumstances, constitutes no
ground for the reformation of written contracts.
We have not overlooked in this connection that portion of the
evidence which shows that Holmes & Bro., when, by letter,
advising the company of the contract, stated in a postscript that
the insurance would be for a few days only. The officers of the
company testify that they would not have permitted the contract to
stand and would have promptly cancelled the policy had they not
supposed the insurance would last but a few days. It was doubtless
the belief of Keith, which he expressed to the insurance agents,
that the cotton would not remain at West Point beyond a few days.
The evidence shows that he had reasonable ground for such belief.
But he seems to have guarded against disappointment in that regard
by having it distinctly agreed that the insurance should last until
transportation could be obtained, and the cotton shipped from West
Point. That Holmes & Bro. so understood the agreement is
evident from their letter of Dec. 6, 1865, to the secretary of the
company, in which they state that they had taken insurance "on two
hundred and twenty bales of cotton stored in open shed at West
Point, Miss., said cotton to remain insured from above date till
time of shipment." It is true that the response of the secretary
shows that the company did not approve of such risks. But the
contract was not repudiated or cancelled, and they only enjoined
upon their agents to "decline such business in future." The act of
the agents in filling up the blanks in the policy after the loss
had occurred was manifestly in consummation of the original
contract of insurance.
But independently of the issue in the pleadings as to the
mistake in reducing the contract to writing, the company
defends
Page 98 U. S. 93
the action, and denies its liability upon other grounds, which
must now be considered.
The answer alleges that at the time of, and prior to, the
alleged verbal contract of insurance the cotton was guarded, night
and day, by soldiers of the United States, who occupied the shed in
which it was stored and who were in the habit of sleeping and
eating their meals upon it and smoking and otherwise using fire
upon it, or in its immediate vicinity; that those facts were
material to the risk, and would or might have influenced Holmes
& Bro. and the company in taking and continuing the insurance,
or in regard to the rate of premium; and that such facts, although
well known to Keith when he applied for insurance, were not
communicated by him to Holmes & Bro., or to the company, but
were concealed, whereby the contract of insurance, whether reduced
to writing correctly or not, became and was void.
The evidence does not authorize a defense upon such grounds. The
proof does not show that Keith, when applying for insurance,
withheld any fact known to him, and material to the risk. By the
terms of the policy, he was under an obligation to make a just,
full, and true exposition of all the facts and circumstances in
regard to the condition, situation, value, and risk of the property
insured, so far as the same were known to him, and were material to
the risk. The same clause of the policy provides that the risk
shall cease, and the policy become null and void, "if any material
fact or circumstance shall not have been fairly represented." This
language must, of course, be construed in connection with the
preceding words of the same clause. We find no evidence in the
record showing that Keith did not fairly represent every material
fact known to him. Rawley, who was within hearing of the
conversation between Keith and Edgar Holmes (the active manager of
the business of Holmes & Bro.), says that while he cannot
recall the language used, he is "positive that Keith explained the
character of the risk. . . . I know Keith described the character
of the risk fully." When Keith applied to Edgar Holmes for the
insurance, the latter asked him how the cotton was stored. He
replied, "In an open shed." Holmes then said that he did not like
the manner in which it was stored; and Keith replied, it
Page 98 U. S. 94
"was guarded day and night." Thus were Holmes & Bro.
notified of its condition and situation. The information that it
was guarded day and night indicated that there was something in the
attendant circumstances which made a guard necessary for its
safety. Indeed, if it was to remain, while under insurance, in an
open shed, and at a point remote from the company's place of
business, it was clearly in the interest of the insurer to have it
guarded day and night. But it is said that the habits of the guard
were such, at the time of the insurance, as to endanger its safety.
If this were clearly proven, the evidence furnishes no ground for
imputing to Keith or Snell or Taylor knowledge of any habitual
carelessness or misconduct upon the part of the guard which
increased the danger of the cotton being burned.
The answer further alleges that on the 8th of December, 1865,
whatever cotton there was in the shed at West Point belonging to
the complainants was seized by the United States government, or by
its officers, under its orders and direction, excluding
complainants thereafter from all possession and control over the
cotton, and that such seizure and exclusion from possession and
control were maintained until the cotton was burned; that after
such seizure, the shed passed to the exclusive possession of
soldiers of the United States, who were in the habit of using the
same for military defense, of sleeping and eating therein, and of
smoking and otherwise using fire upon it and in its immediate
vicinity; that at the time of the alleged verbal contract of
insurance, large quantities of loose cotton were lying under the
flooring of the shed, which consisted of loose boards, and
immediately under the cotton stored in the shed, whereby the risk
of fire was greatly increased; that these facts were, each and all
of them, material to the risk, and would or might have influenced
the judgment of Holmes & Co. and of the company in regard to
continuing the insurance, or to the rate of premium therefor; that
Taylor, one of the complainants, knew these facts on the 8th of
December, 1865, and in ample time before the fire to have
communicated them to the company's agents, and sufficiently long
before to have enabled the company to cancel the policy and give
complainants timely notice thereof; that by reason of his
concealing them
Page 98 U. S. 95
from the company and its agents, the policy became and was
wholly void.
This defense is doubtless based upon that clause in the policy
which declares that
"if the situation or circumstances affecting the risk thereupon
(the property) shall be so altered or changed, either by change of
occupancy in the premises insured, or containing property insured,
or from adjacent exposure, whereby the hazard is increased, and the
assured fail to notify the company, or if the title to said
property shall be in any way changed, . . . in every such case the
risk thereupon shall cease and determine, and the policy be null
and void."
It will be observed that an alteration or a change in the
occupancy of the premises containing the insured property, unless
it increases the hazard, does not avoid the policy, although no
notice be given to the insurer. We have already seen that when the
contract was made the company's agents were informed that the
cotton was guarded by day and by night. There was no change in the
character of the guard, except that prior to Dec. 8, 1865, federal
soldiers guarded it as a personal favor to Taylor, while after that
date they did so under an order for its seizure. There is some
evidence that they were at times negligent and careless, but we are
not satisfied that their conduct was such as to increase the
hazard. In view of the peculiar condition of public sentiment at
West Point and in its vicinity against Taylor and others, who had
been officially connected with the seizure and collection of
cotton, under treasury regulations, the strong presumption is that
the presence of federal soldiers largely decreased, rather than
increased, the hazard, and was therefore for the benefit of all
parties interested in the preservation of the property. We attach
no weight to its seizure, under orders of federal officials, as, in
and of itself, affecting the rights of the assured. It had been
purchased by Taylor for his firm, and with its money, and it does
not appear that any of the cotton claimed by him for the firm did,
in fact, belong to the United States, or had become forfeited by
reason of his violation of the laws, or of the Treasury regulations
made in pursuance of them. Nor does it appear that he caused or
promoted its seizure. So far as the record shows, it was an
unauthorized seizure of the private
Page 98 U. S. 96
property of the citizen, caused by the personal hostility
towards Taylor of a former treasury agent, who had himself been
suspended from his position through the influence or machinations,
as he suspected or believed, of Taylor. If, as alleged, the cotton,
upon its seizure, passed from the control of the owner to the
exclusive temporary possession of federal officers, such change did
not, by the terms of the policy, impose upon the assured the duty
of communicating to the company that fact. It was only when the
change in the surrounding circumstances increased the hazard that
the assured was under an obligation to inform the company thereof.
If the seizure had involved a change of title, then the company
could have elected to avoid the policy, since it contains express
stipulations to that effect. But, as already said, the record
furnishes no evidence of any change of title, but only a charge of
possession and control, made without the assent of the owner, and
which he perhaps had no power to prevent, and it does not clearly
appear that the hazard was thereby increased.
We come now to the only remaining question which it seems
necessary to consider,
viz., the quantity of cotton in the
shed belonging to Snell, Taylor, & Co. at the time of the
fire.
Upon this point, a large amount of testimony was taken which is
of a very unsatisfactory nature. Witnesses who passed and repassed
the shed from time to time, and who had no special reason for
making an estimate of the cotton there stored, were asked to give
their best judgment as to the quantity.
If the record contained no other evidence than such opinions of
witnesses, the court would have great difficulty in reaching a
conclusion as to the quantity of the cotton burned. But there is
other and better evidence upon which to rest the determination of
this question. The officer commanding the federal troops stationed
at West Point, and who were in possession of the shed from a date
prior to Dec. 6, 1865, up to the time of the fire, states that
about the time he took possession, under orders from federal
officials, he examined its general condition and counted the bales
-- not every bale, but made such a count as satisfied him that
there were not less than two hundred and twenty bales, certainly
over two hundred bales. He
Page 98 U. S. 97
swears that none of the cotton claimed by Taylor was removed
after he took possession of the shed, and he was in such possession
up to the time of the fire, except for about two weeks in the
latter part of December, during which time Captain Pyle guarded it
under the same order. But the most important evidence upon this
point comes from the witness Freel. Under the authority of the
freight conductor of the Memphis and Charleston Railroad Company he
contracted with Taylor for the transportation of this cotton to
Memphis. He made a contract with Taylor for its shipment as soon as
the conductor could get to West Point with the necessary cars. In
order to ascertain the number of cars needed for the
transportation, he counted the bales in the shed, claimed by
Taylor, as well as it was possible for him to do. He found that the
front tier contained forty-five bales, and that there were five
tiers, and his calculation was that transportation was needed for
two hundred and twenty-two bales. At the time of this count, which
was in the last of December, he made a memorandum for the benefit
of the conductor, in a memorandum book which he produced when
giving his testimony. The memorandum was, "222 bales of Taylor's
cotton for you to get cars for."
The conductor expected to reach West Point with the cars by the
first day of January, but he failed to do so. The cars reached West
Point on the 7th, the day after the fire, for the purpose of
transporting the cotton to Memphis under the contract made by Freel
with Taylor. We see no escape, under the evidence, from the
conclusion that there were two hundred and twenty-two bales in the
shed, belonging to Taylor's firm, at the time of the fire, unless
some of it was stolen or fraudulently withheld after Freel's count.
Only one witness states any fact from which it may be inferred that
any portion of the cotton was stolen prior to the fire, and he only
speaks of eight or nine bales being taken off, with the consent of
the guard, during a certain night when Taylor was absent from the
shed. If that quantity be deducted, as we think it must be, there
will be left two hundred and thirteen bales of cotton, averaging,
according to the testimony, five hundred pounds per bale, and
worth, at the place of its destruction, forty cents per pound.
Page 98 U. S. 98
The decree of the court below will be reversed, with directions
to enter a final decree in conformity with this opinion, and it
is
So ordered.