Washington Standard Life Insurance v. Agee

George Rose Smith, J. The principal question is whether the circuit court erred in denying the motion of the appellant, the defendant below, to transfer this case to the chancery court. In 1958 the appellant issued to the appellee a “Nine-payment Twenty-Five Year Endowment Policy” by which the life of the appellee’s infant daughter was insured for $5,000. The child died a month later, at the age of less than three months, and this action at law was brought by the appellee to recover the face amount of the policy. By its combined answer and motion to transfer the defendant admitted the issuance of the policy, the death of the insured, and the plaintiff’s identity as the beneficiary. As its defense the insurer asserted that by mutual mistake the contract failed to provide that the face amount of the policy would be only $1,250 during the first year. The defendant admitted its liability in that amount and asked that the case be transferred to equity for a reformation of the contract. The plaintiff filed a response to the motion to transfer, denying that the mistake, if one occurred, was common to both parties. The insurance contract contains at least an ambiguity, if not some indication of the asserted mistake. The face amount of the policy is plainly declared to be $5,-000, but farther on, beneath a statement that premiums are payable for nine years, there' is this typewritten insertion: “($1,250.00 First year).” Inasmuch as the first annual premium was only $442.50, instead of $1,-250.00, the appellant insists that the typewritten notation was put in the wrong place and should have been inserted as a limitation upon the face amount of the policy. At the hearing upon the motion to transfer to equity the defendant contended that the circuit court should grant the motion upon the pleadings alone, without taking proof. Having thus preserved its objection to the evidence the defendant stipulated with the plaintiff what the testimony, if competent, would have been. The circuit court considered the stipulated evidence to be admissible and upon that basis denied the motion to transfer. The defendant in effect refused to proceed further, and the court awarded the plaintiff a judgment for $5,000, together with the statutory penalty and attorney’s fee. The stipulated testimony is, very briefly, to this effect: Both the plaintiff and the insurance salesman with whom he dealt would testify that in their negotiations the matter of reducing the amount of protection during the first year was not mentioned. It is evident that neither of them understood that such a provision would be in the policy. When the contract was delivered the plaintiff inquired about the typewritten notation, and the salesman said it meant that Mr. Agee would receive $1,250 at the end of the first year after the nine-year premium paying period. Officers of the insurance company would testify that most life insurers reduce the coverage to one fourth of the. face amount during the first year of a child’s life, that the defendant intended to insert such a limitation in this policy, and that the premium was actuarially computed on that basis. Counsel for the appellee suggest (and the circuit court apparently believed) that had the stipulated facts been presented to a court of equity a reformation of the contract would not have been justified; consequently the motion for a transfer was properly denied. This reasoning rests upon a mistaken conception of the circuit court’s function in a case of this kind. If the motion alleges facts which, if proved, entitle the movant to relief obtainable only in chancery, it is not the province of the circuit court to explore the equitable issue in its entirety with a view to transferring the case only if a preponderance of the evidence establishes the right to an equitable remedy. Such a holding would mean that many equitable issues would actually be heard in a court of law, that a transfer could be won only if the applicant was fairly certain to eventually obtain equitable relief, and that even in the event of a transfer the equitable issue would be tried in both courts, needlessly. The power to reform a contract lies exclusively in the chancery court. Soderman v. Bell, 102 Ark. 83, 143 S. W. 595. Here the appellant’s assertion of equitable jurisdiction is not frivolous or fraudulent. In that situation our statement in Merchants Bank of Vandervoort v. Affholter, 140 Ark. 480, 215 S. W. 648, would be apropos: “The test of jurisdiction must be found in the allegations of the complaint [motion to transfer], but if those allegations are made merely for the purpose of giving jurisdiction in fraud of the rights of the parties, it may be reached by a special plea setting up the fraud.” Ñor is the case at bar like Haggart v. Banney, 73 Ark. 344, 84 S. W. 703, where the jurisdiction of equity hinged upon the single, narrow, essential question of fact, disputed in the pleadings, of whether the plaintiff was in possession of the property. Here the right to reformation is a mixed question of law and fact, to be fully developed and finally decided only in a court of equity. The appellee does not, as we read his brief, seriously contend that the circuit court’s procedure was theoretically sound. Instead, the argument for an affirmance is largely a practical one, that it would be useless to remand the case merely to enable the chancellor to reach the same result that was attained in the law court. The merits of the case, as far as they can be determined from the stipulation alone, are fully argued in the briefs, and it is true that a mutual mistake has not been established by the quantum of proof necessary for a reformation. McGuigan v. Gaines, 71 Ark. 614, 77 S. W. 52; Cherry v. Brizzolara, 89 Ark. 309, 116 S. W. 668, 21 L. R. A. N. S. 508. But there are two sufficient answers to the appellee’s contention. First, to sustain the circuit court merely because its decision is not against the weight of the evidence would establish a precedent approving the very thing the law seeks to prevent — the trial of equitable issues in a court of law. Secondly, the stipulation of fact is not a complete development of the issue, for it recites that it is entered into solely for the hearing upon the motion and for no other purpose. There is thus the possibility that the appellant may adduce additional evidence when the case is heard on its merits in the chancery court. Reversed and remanded with instructions that the cause be transferred to equity. MoFaddin, Ward, and Johnson, JJ., dissent.