National Life Ins. Co. of United States v. Eggleston

This is an action to recover upon a policy of insurance in the sum of $5,000, which plaintiff, appellee, claims the defendant, appellant, was obligated to issue upon the life of his father, John W. Eggleston, and in his favor, in lieu of a policy of $10,000 theretofore issued. Judgment in favor of the plaintiff for the amount of the policy, with interest, attorney's fees, and damages was rendered upon a directed verdict.

The first assignment of error reads:

"The court erred in rendering judgment in favor of the plaintiff, for that the undisputed evidence showed that no policy of insurance in the sum of $5,000 upon the life of John W. Eggleston ever had been issued by the defendant, and that the negotiations for such policy were abandoned before completion, and that no contract for insurance in the sum of $5,000 ever became effective."

The material facts in the case, pertinent to a consideration of this assignment, are as follows: Under date of January 17, 1910, the defendant issued to John W. Eggleston its policy of insurance, No. 118637, in the sum of $10,000 upon his life in favor of his son, John W. Eggleston, Jr., the plaintiff herein. The beneficiary was a minor. The policy provided that the first premium of $425.20 was the premium for one year's term insurance, ending January 17, 1911, and that, after the expiration of such year of term insurance, the policy would be continued as a policy of insurance for the whole life upon the payment of a premium of $425.20 on or before January 17, 1911, and annually thereafter on or before the 17th day of each January, so long as the policy should be in force. The insured was given the right to pay the premiums in semiannual installments or quarterly installments at his option, instead of paying them annually as primarily provided. A grace period of one month was allowed for the payment of each premium after the first during which month the insurance should continue in force. The insurance was conditioned upon the prompt payment of all premiums when due, and it was expressly stipulated that failure to pay any premium or any part thereof when due or to pay, at maturity, any note given for any premium or any part of a premium, should forfeit and cancel the contract and terminate all obligations on the part of the company under the policy, except as therein otherwise provided. There was no contrary provision, except a clause reading as follows:

"This policy may be reinstated at any time within one year from date of default of payment of premium when due, on written application therefor, subject to evidence of insurability satisfactory to the company, by the payment of premiums to date of reinstatement, with interest at the rate of 5 per cent. per annum."

The policy contained no provisions of any kind relative to its exchange for another policy of less amount. It was payable to John W. Eggleston, Jr., if living, and, if not living, then to the insured's executors, administrators, or assigns, or to such other beneficiaries as might be designated by the insured as in the policy provided. The policy provided that the insured should have the right, if the policy was not then assigned, to change the beneficiary at any time during its continuance in accordance with the rules of the company, by filing with the company a written request therefor; such action to take effect upon the indorsement of the same upon the policy by the company. Neither the annual premium due January 17, 1911, nor any semiannual or quarterly installment thereof, was ever paid. Instead of paying the premium on the policy, the insured instituted negotiations for its surrender and the issuance of a new policy of $5,000 in its stead. These negotiations took place chiefly through correspondence.

S. H. Chiles, of Dallas, Tex., was state agent for defendant, and on January 25, 1911, the Insured wrote Mr. Chiles, requesting that his representative call on him as he desired to see him in regard to the policy. It seems that, very shortly thereafter, Mr. Chiles conferred with Mr. Eggleston, personally, in Ft. Worth, for on January 28, 1911, Mr. Chiles wrote to the secretary of the defendant at Chicago advising that Mr. Eggleston desired to have the policy reduced to $5,000 and indicated the manner in which the insured desired to make the payment of the premium on the new policy. Chiles requested the secretary, if he was willing to make the change, to send the necessary papers and he would give the matter attention. On January 30, 1911, the assistant secretary of defendant advised Chiles that defendant was willing to reduce the policy "upon surrender of the original policy and receipt of proper application for reduction duly completed by the insured and beneficiary, which application is herein inclosed. The settlement of premium suggested by you is entirely satisfactory to the company, and I inclose you herewith six notes of $25.00 each and one of $12.60, to which obtain signature, collect the $50.00 referred to in your communication, when the matter will have our further consideration." On February 10th, Chiles forwarded the application for reduction of policy and the premium notes to Toy Bros., at Ft. Worth, subagents of Chiles, with request that they close the matter up with the insured. In this letter to Toy Bros., they were instructed to collect the cash which was to be paid by the insured, viz. $50, and have him to sign the premium notes and deliver the old policy of $10,000 and execute the application for reduction of insurance. They were further advised that if the beneficiary, John W. Eggleston, Jr., was a minor, the request must be signed by a legally appointed guardian before a notary public. On February 14, 1911, Toy Bros. forwarded to Chiles check for $50 and the seven notes to cover the premiums and advised that Eggleston would deliver the old policy and reduction slip that afternoon, which would be promptly forwarded upon its receipt. Eggleston failed to deliver the old policy and execute the reduction slip for some time thereafter, and on March 2d the assistant secretary of the company wrote to Chiles that it was essential that the matter of reduction of the policy have immediate attention and that Eggleston be advised accordingly, and that unless the application, accompanied by the policy, was received within the next 10 days, the notes and cash payment of $50 would be returned. On March 4th, Chiles again wrote Toy Bros., requesting that they get the insured to close the matter up at once. About March 6th, the insured delivered to Toy Bros. the old policy, together with the reduction application, and the same was forwarded to Chiles. The signed reduction application is as follows:

"Application for Reduction of Insurance.

"To the National Life Insurance Company of the U.S. of A., Chicago, Ill.

"Application is hereby made for the reduction of the insurance under policy No. 118637 upon the life of John W. Eggleston, from $10,000.00 to $5,000.00, such reduction to date from January 17, 1911.

"The conditions of the policy are to remain unchanged except for this modification.

"Dated at Ft. Worth, Texas, this 6th day of March, 1911. [Signed] J. W. Eggleston, Insured. [Signed] Mrs. J. B. Eggleston, Guardian, Beneficiary or Assignee.

"Witness: [Signed] J. C. Toy.

"To be signed by the person on whose life the policy is written and by the beneficiary or assignee. If the beneficiary or assignee is a minor, the above request must be signed by a legally appointed guardian.

"State of Texas. County of Tarrant — ss:

"On this 6th day of March, in the year of our Lord, 1911, before me personally came John W. Eggleston and John W. Eggleston, Jr., to me known to be the individuals described in and who executed the foregoing assignment and acknowledged that they executed the same for the purposes therein mentioned. J. E. Eggleston, Notary Public Tarrant County, Texas."

The old policy and application for reduction was promptly forwarded by Chiles to the assistant secretary at Chicago, and on March 10th same was returned to Chiles with the following letter:

"We are compelled to return this application, as, you will observe, it is not properly completed. It is signed by J. W. Eggleston and also by Mrs. J. B. Eggleston, Guardian. Mrs. Eggleston should have added the words ``for John W. Eggleston, Jr., Minor.' Also the notarial acknowledgment is not correct, as it recites that the instrument was acknowledged by John W. Eggleston and John W. Eggleston, Jr. We are, therefore, inclosing another form, which please have completed, as we have added the proper words in the blank.

"We will hold the policy awaiting return of corrected application."

On March 13th, Chiles returned the application for reduction to Toy Bros., for correction in the particulars indicated in the previous letter; and, the papers not being corrected and returned, the assistant secretary of the company on March 20th returned to Chiles the premium notes with instructions to return same to the insured and refund the $50 cash payment. In this letter it was stated that:

"The proposition for reduction or renewal of the policy is still open, subject to his furnishing the company satisfactory evidence of good health."

On March 23d, Chiles wrote Eggleston, advising that, since the application sent in was not properly signed and had not been returned in corrected form, he was instructed to return the notes and cash payment, which he did.

The beneficiary had no legal guardian. Mrs. J. B. Eggleston, who signed same as his guardian, was his mother. J. B. Eggleston became insane while the negotiations were pending, and the corrected application blank signed by him and a legally appointed guardian of the beneficiary was never returned to the defendant.

The legal effect of Eggleston's negotiations for a reduction of the policy was an application for a new contract of insurance in the sum of $5,000, to which his old contract gave him no right. There was no mention whatever in the old policy of any such matter as a modification of the contract by reducing the amount of Insurance and the amount of premiums payable. If anything of this kind were desired, it would have to be accomplished by the making of a new contract entirely independent of the old, or by the making of a new contract which could be ingrafted upon the old as an amendment thereof. An amendment of a contract is, in itself, a contract, to which are essential all of the elements required in any other contract. From the amendment there results a new and substituted contract, consisting of the amendment and the retained portions of the old contract. Hence, if the minds of the parties do not meet on the amendment, the new contract contemplated by the modification does not become effective. As summarily stated by Mr. Page in section 1341 of his book on Contracts:

"The proposition that a prior contract may be modified or abrogated by a subsequent contract implies that such subsequent contract must have the elements necessary to the formation of a valid original contract."

I take It that it is well settled that, since the company was under no legal obligation to insure Eggleston's life for $5,000 or to issue a new policy for that amount in lieu of the old one, the company had the right to condition in any way it chose its consent to do so, and, if the condition imposed by it was not made, there would be no binding agreement. Bishop on Contracts (2d Ed.) §§ 321, 323; Clark on Contracts (3d Ed.) § 21; 1 Page on Contracts, § 48; Eliason v. Henshaw, 4 Wheat. 225, 4 L. Ed. 556; Minneapolis St. Louis Ry. Co. v. Columbus Rolling Mill, 119 U.S. 149, 7 S. Ct. 168, 30 L. Ed. 376; Flomerfelt v. Hume, 11 Tex. Civ. App. 30,31 S.W. 679; Jackson v. Butler, 21 Tex. Civ. App. 379, 51 S.W. 1095; Washington v. Rosario Mining Milling Co., 28 Tex. Civ. App. 430,67 S.W. 459; Simpson v. Alexander, 149 S.W. 748; Wiswell v. Bresnahan,84 Me. 397, 24 A. 885; McCormick v. Bonfils, 9 Okla. 605, 60 P. 296; New York Life Ins. Co. v. Ireland, 17 S.W. 617, 14 L.R.A. 278.

As a condition of its obligation to issue the $5,000 policy, the company had stipulated that the application for said reduction should be signed by the insured and the legally appointed guardian of the minor beneficiary of the old policy. This stipulation was plainly disclosed by the clause appearing upon the face of the application immediately below the place for signature and which reads:

"If the beneficiary or assignee is a minor, the above request must be signed by a legally appointed guardian."

It is an admitted fact that no such application was signed and delivered by any such legally appointed guardian. This, in my judgment, absolutely precludes a recovery, unless the company waived the condition so imposed by an agent authorized to make such waiver. I think there is nothing in the evidence to show such a situation. The company, itself, at all times insisted upon such condition. If there was a waiver, it must have been made by the agents, Chiles or Toy. A "waiver" is a voluntary relinquishment of a known right. Mrs. Eggleston testified that the agent Toy came to the house where she and her husband were, and procured them to sign the application for reduction. She said:

"He took the paper out of his pocket, I got the ink, and Mr. Eggleston and I signed the paper. I don't know that I read the paper all through. I glanced over it. I think my husband read it. Mr. Toy read it all to us. He pointed out where to sign the paper and told my husband to sign it, and then told me to sign it. I signed it where he told me to. The word ``guardian' was not written under my name when I signed the instrument. I did not write it there. After the paper was signed by myself and my husband, Mr. Toy took it. We thought it was perfectly all right."

Continuing over the defendant's objection and duly reserved exception, she testified, in answer to a question as to what Mr. Toy said after the paper had been signed: "He said it was perfectly all right." Since the instrument, upon its face, disclosed that if the beneficiary was a minor it must be signed by a legally appointed guardian, it thus was made known to both Mr. Eggleston and his wife by their reading of the instrument and by Mr. Toy's reading it all to them that it was to be signed by a legally appointed guardian of the minor beneficiary. No deception is claimed to have been practiced. The only thing claimed is that, after the instrument had been signed, Mr. Toy said it was "perfectly all right."

Mr. Toy testified that he understood Mrs. Eggleston to be the legal guardian of the beneficiary, and that Mr. and Mrs. Eggleston had stated to him that she was such guardian, and that this was the only information he had on the subject, except that the instrument itself showed that she was his guardian. Mrs. Eggleston, testifying from the stand not only after this deposition had been filed but after it had been read in evidence, did not deny that she told Toy that she was the legal guardian of her son. Toy's testimony on this subject was uncontradicted, except that part of it which says that the application for reduction itself showed on its face that she was such guardian. She contradicts that statement by saying that she did not write in the word "guardian" appearing as a part of her signature, and that it was not written there at the time that she signed the paper. As to this particular matter, her statement stands against the statement of Mr. Toy and the appearance of the instrument itself.

If Mrs. Eggleston had been in fact the legally appointed guardian for her son, and if Toy had had authority to waive the irregularities in her signature and the acknowledgment pointed out by the company in letter of March 10th to Chiles, above quoted, possibly the court might be justified in holding that what he did and said amounted to a waiver of such irregularities. Certainly he did not do anything which by any possibility could be construed as a waiver of the fact, unknown to him, that Mrs. Eggleston's signature was not that of a legally appointed guardian.

As to Mr. Chiles, it is not claimed that he did anything in the way of waiver, except that by letter of March 7th he transmitted the old policy and application for reduction to the company with the statement that the application was "duly completed." This was a communication between Mr. Chiles and the company, not between Mr. Chiles and the insured or beneficiary; it was not known to the Insured or beneficiary, and consequently did not affect them in any way; and it was merely a chance expression outside the scope of Mr. Chiles' functions, and made without consideration upon his part, and made also without any knowledge upon his part that Mrs. Eggleston was not in fact the guardian of John W. Eggleston, Jr. In the one conversation which Mr. Chiles had with Mr. Eggleston regarding the matter of reducing his insurance, he informed Mr. Eggleston that he would submit the matter to the company; which, of course, was equivalent to informing him that the company, and not Chiles, would pass upon the questions involved. The facts detailed above are insufficient to show a waiver upon the part of Toy. But, if it could be construed as a waiver upon his part, he was without express authority to make same, and, in the absence of express authority, there must have been such a holding out upon the part of the defendant as would estop it from questioning his authority. The evidence, by means of which plaintiff endeavors to escape the effect of an entire absence of authority upon the part of the agents Chiles and Toy to modify in any way the company's requirement that the application for reduction of insurance be signed by the legally appointed guardian of the minor beneficiary, is the following testimony given by Mrs. Eggleston:

"I never at any time saw any of the letters or copies of letters from Mr. Currie or Mr. Stebbins (secretary and general counsel respectively of defendant) or Mr. Chiles. I never have seen the originals or copies of letters passing between Mr. Chiles and Mr. Toy with respect to my husband's policy. I never have seen any letters passing between any of the officers or agents of the defendant company restricting any authority that they had, or with regard to any matter concerning the business. I never have seen or been made familiar with any of the rules or regulations or any of the company's laws governing the authority of local agents, general agents, or special agents or officers of the company. They have never been communicated to me in any way. I do not know whether any of these letters or rules or regulations of the company were ever communicated to my husband."

This is insufficient. A principal is bound only by such acts of his agent as are within the real authority of the agent or within such authority as the principal, by his own word or act, has caused the agent to appear to have, in the eyes of one dealing with him prudently and sensibly. One cannot shut his eyes and deal with an agent on the assumption that he has unlimited authority, and then hold bound a principal who did not in fact or in appearance confer said authority. On the contrary, it is the duty of every one who deals with one assuming to act as an agent to ascertain both the fact and the extent of the agency. It is only after having used reasonable diligence to discover a want of authority and having failed to do so, by reason of acts or words traceable directly to the principal, that one is entitled to avail himself of the rule that secret limitations upon authority apparently conferred will not protect a principal against one dealing with his agent in good faith. It is a matter of estoppel.

In this case, we are not dealing with secret instructions contravening general authority, actually or apparently conferred. There was no general authority covering the transaction. The special authority consisted of a letter transmitting to Chiles (and by him in turn transmitted to Toy Bros.) a blank application to be duly executed in accordance with its terms. The requirement that the application be executed by a legal guardian of the beneficiary of the old policy was made upon this blank. This blank was read by Mr. Eggleston and by Mrs. Eggleston and was read over to them both by the agent, Toy. Nothing was said or done by any person derogating in any way from the effect of this requirement plainly printed on the blank itself. After it was executed, the agent Toy, who supposed that Mrs. Eggleston was in fact the legal guardian of the beneficiary, told her it was all right. It cannot be said that Mr. and Mrs. Eggleston were acting with reasonable prudence in relying upon this statement, and assuming that the agent had authority to waive an express requirement of his principal, when the principal had done nothing to indicate that he had such authority, but everything to put them upon notice that he had not. Especially is this true when they knew, and knew that he did not know, that Mrs. Eggleston was not the legally appointed guardian of John W. Eggleston, Jr., and knew that he could mean nothing more by such a statement than that, being such legal guardian, she had signed the instrument in a sufficient manner.

I am of the opinion that, the condition imposed by the company not having been either complied with or waived, the negotiations for a reduction of the amount of the policy and the issuance of a new one in lieu of the old one never ripened into a contract, and the company never became bound as an insurer for $5,000.

There is no contention that the company is liable upon the original policy, and I am of the opinion that the judgment should be reversed and here rendered for appellant.