Sloss-Sheffield Steel & Iron Co. v. Ætna Life Insurance , 74 N.J. Eq. 635 ( 1908 )

Howell, V. C.

From the circumstances above detailed I do not hesitate to declare that the insurance company held out the persons whom it designated as its general agents as agents qualified not only to solicit business, but also- to make'contracts which would be binding on it. The 1904 policies were negotiated for, written and delivered bv these general agents who had apparent authority; and secret instructions from the principal, not communicated to the other party, are entirely overriden by the apparent authority deducible from the circumstances. Again, these agents were not denominated special agents; the appellation given to them was of much broader significance. Anyone dealing with them, knowing that they were general agents and - seeing the manner in which they transacted the business,.would be naturally led to the belief that they had full authority to transact each and every part of the business in hand. This view is confirmed by the exhibition to the insured of the letter and telegram of June 12th, 1905, which had a tendency to confirm the opinion that the assured had previously derived from their manner of dealing that they had full and ample authority to make original contracts. The case is within the rule laid down by Mr. Justice Van Syckel in the court of errors and appeals in the ease of Millville Mutual Co. v. Building and Loan Association, 43 N. J. Law (14 Vr.) 653. He quotes from Story Ag. § 10:

“On the other hand (although this is not the ordinary commercial sense) a person is sometimes said to be a special agent, whose authority, although it extends to do acts generally in a particular business or employment. is yet qualified and restrained by limitations, conditions and instructions of a special nature. In such a case the agent is deemed, as to persons dealing with him in ignorance of such special limitations to be a general agent; although as between himself and his principal, he may be deemed a special agent. In short, the true distinction (as generally recognized) between a general and special agent is this: A general agency does not import an unqualified authority, but that which is derived from a multitude of instances, or in the general course of an employment or business; whereas a special agency is confined to an individual transaction.

“Such genera] authority enables the agent to bind the principal, without orders, in dealing with those who, acting in good faith, have- no notice of the want of lawful power in the agent.

“One who entrusts authority to another is bound by all that is done by the agent within the scope of his apparent power, and ca'nnot screen himself from the consequences thereof upon the ground that no authority was given to do the particular act.”

A case similar to the one in hand is Smith & Wallace v. Prussian National Insurance Co., 68 N. J. Law (39 Vr.) 674, where the question was as to the authority of an agent to make an original contract of insurance. The insured applied to one Yanderveer, an agent, for insurance on its warehouse. The agent, who appears to have been as between him and his employer, a special agent, wrote wha.t is known in insurance circles as a binder, and delivered it to the insured. A question arose about the rate to be charged for the insurance, and this question was left in abeyance for a short time, during which the building burned. The question was whether the agent had made a contract of insurance or not. Mr. Justice Garretson says: “It is admitted that Yanderveer was the agent of the company appointed by a regular commiission and authority from them signed by the manager. As such agent lie had signed the binding slip in question, and did so within the limits of his authority as an agent to countersign and issue policies. His authority to enter into the contract in question for the insurance company will be inferred from his general agency.” Gulick v. Grover, 31 N. J. Law (2 Vr.) 182; Perkins v. Washington Insurance Co., 4 Cow. 645; Brown v. Franklin Insurance Co., 165 Mass. 565.

The Alabama eases are to the same effect. Piedmont Insurance Co. v. Young, 58 Ala. 476; Robinson v. Ætna Insurance Co., 30 So. Rep. 665; Triple Link Indemnity Alps v. Williams, 26 So. Rep. 19; Birmingham Mineral Railway Co. v. Tennessee Coal and Iron Co., 127 Ala. 137.

It is argued on behalf of the insurance company that clause N in the policy prevents the making of any contract by the general agent beyond and outside of the matters which are written and printed on the face of the policy itself. The clause in question reads as follows:

“No condition or provision of this policy shall be waived or altered except by written endorsement attached hereto and signed by the president and vice president, secretary or assistant secretary of the company, nor shall notice to any agent, nor shall knowledge possessed by an agent or by any other person be held to effect a waiver or change in any part of this contract.”

In further support of this contention defendant cites the time-honored rule that parol evidence shall not be admitted to vary or contradict the written instrument, with a long line of eases from our own courts and elsewhere as authority for the proposition that an agent without express authority may not waive or alter the provisions of the contract. I think that the clause itself and tire cases referred to are not applicable to the conditions of the case in hand. Clause N is directed against the waiver of provisions or the alterations of contract which is in existence and which has become a binding obligation between the parties. If this action were to recover on the established or admitted contract the .clause and the rule of evidence and the cases cited by the defendant would be pertinent and applicable as to matters which arose after the delivery of the policies, but such is not the case here. Here the inquiry is not as to what the contract means or how it should be interpreted, or what remedy should lie had on it, or how broad and deep its provisions are, but the question is far more fundamental. It is what is the contract? The bill alleged that the parties agreed upon the terms of a contract and that these terms were not inserted in the document that was delivered. This is denied by the answer, and thus is made an issue as to what the contract is. Parol evidence is admissiblc on this class of issues for the plain reason that in most cases no other evidence exists. To deprive the court of the benefit of parol evidence on an issue as to what the contract is, would be to destroy its jurisdiction to reform contracts and to avoid them for fraud or mistake. Vice-Chancellor Pitney says, in O’Brien v. The Paterson Brewing and Malting Co., 69 N. J. Eq. (3 Robb.) 117, concerning the rule against admitting parol evidence: “Without stopping at this moment to enumerate and classify the numerous exceptions to that rule, especially in a court 'of equity, it is sufficient to say that the evidence here relied upon does not tend to vary the terms of the contract. There is no contention that the complainant did not understand that he was signing an absolute promissory note in favor of the defendant, payable one day after date, and negotiable in its terms. What he does contend is that it never had any binding effect upon him in equity. To show this by p’arol is no more a breach of the rule invoked than it is to prove that an absolute deed is given as a mortgage, or that a promissory note is given by the maker to the payee without consideration and as an accommodation to the latter.”

In .other words, the rule does not apply when the inquiry before the court is what are the terms of the contract, what did both parties agree to, what were their respective rights, duties and liabilities to be when the agreement was formally committed to writing. Continental Insurance Co. v. Ruckman, 20 N. E. Rep. 77 (Illinois Supreme Court); State Insurance Co. v. Hale (Neb.), 95 N. W. Rep. 473; Mutual Benefit Life Insurance Co. v. Robison, 58 Fed. Rep. 723 (Judge Caldwell); Wood v. American Fire Insurance Co., 149 N. Y. 382.

The next question that arises is whether this contract of insurance can now be reformed and made to accord with the real agreement entered into between the vice-president of the insured and the general agent of the insurance company. This inquiry must he answered in the affirmative. Contracts inter partes may be reformed by this court whenever by reason of a mutual mistake the written instrument fails to express the agreement on which the minds of the parties met, or where there is a mistake by one of the parties and fraud or other inequity attempted on the part of the other. Pomeroy says:

“Reformation is appropriate when an agreement has been made or a transaction has been entered into or determined upon as intended by all the parties interested, but in reducing such agreement or transaction to writing either through the mistake common to both parties or through the mistake of the plaintiff accompanied by the fraudulent knowledge and procurement of the defendant the written instrument fails to express the real agreement or transaction. In such case the instrument may be corrected so that it shall truly represent the agreement or transaction actually made or determined upon according to the real purpose and intention of the parties.” Pom. Spec. Perf. § 870.

In Bryce v. Lorillard Fire Insurance Co., 55 N. Y. 240, Judge Folgor says: “The mistake which w-ill warrant a court of equity to reform a contract in writing must be one made by both parties to the agreement so that the intentions of neither are expressed in it, or it must be the mistake of one party by which his intentions have failed of correct expression, and there must he fraud in the other party in taking advantage of that mistake and obtaining a contract with the knowledge that the one dealing with him is in error in regard to what are its terms.” Beach Eq. Jur. § 544, and following.

In Lloyd v. Hulick, 69 N. J. Eq. (3 Robb.) 784, the same rule was applied, in the opinion of Chief-Justice Gummere, but to a quite different state of facts. Here the written contract is not the one that the parties made. It is true that the insured knew that the policies as actually written did not accord with the agreement as actually made, because this fact was stated at the time the policies were delivered, but the same course had been taken the year before and the complainant had a right to' rely upon the representations made by the general agent and was led to. believe that the misstatement of the premium rate was a merely formal matter, and as such the statement cannot now be taken advantage of by the insurance company.

Vice-Chancellor Van Fleet, in Cummins v. Bulgin, 37 N. J. Eq. (10 Stew.) 477, defined mistake to be “The doing of an act under an erroneous conviction, which act, but for such conviction, would not have been done.” Story defines it as “Some unintentional act or omission or error arising from ignorance, surprise, imposition, or misplaced confidence.” Story Eq. Jur. § 110.

It must be conceded, I think, that the insured acted under an erroneous conviction in accepting the policies containing terms which had not been agreed upon. The more invidious view would be that it was imposed upon or became a victim of misplaced confidence. Under either view it is entitled to a decree. There is a common law action pending to recover $5,400, which is claimed as the excess of premium earned over the premium paid. The insured admit an indebtedness of $3,300. In order .to save further litigation the decree may provide for an adjustment of the difference, the amount of which I suppose counsel can readily agree upon.