*941 Traill v Baring

Ct of Chancery
15 March 1864
(1864) 4 De Gex, Jones & Smith 318
46 E.R. 941
1864
[318] Before the Lords Justices. March 14, 15, 1864.
[S. C. 4 Giff. 485; 33 L. J. Ch. 521; 10 L. T. 215; 3 N. R. 681; 10 Jur. (N. S.), 377; 12 W. R.
678. Followed, British Equitable Insurance Company v. Great Western Railway Company ,
1868, 38 L. J. Ch. 135. Distinguished, In re Scottish Petroleum Company , 1883, 23 Ch. D.
435.]
A life assurance society reassured a portion of its risk on one of its policies with
a *942 second society, stating that a third society had reassured part of the risk, and that
the remainder beyond what it was proposed that the second society should take would be
retained by itself the first society. This was the intention of the first society at the time, but in
the interval between the proposal to the second society and the completion of the
reassurance with it, the first society, for reasons connected with its own business, but
without the intervention of any new fact, or new information, or change of opinion as to the
value of the life ultimately assured, changed its prior intention and reassured the whole of
the risk beyond what was to be taken by the second society with the third society. The first
society however did not communicate its change of intention to the second society, but
allowed them to complete their reassurance. The life having dropped and the risk having
become a claim, and the second society having learnt the above facts and having declined to
pay the amount of their own reassurance, the first society brought an action at law against
them on the policy. Upon a bill filed by the second society against the first, alleging, as by
evidence was proved to be the fact, that the retention by the first society of a portion of the
risk was a material element in inducing the second society to take a share in it without
further investigation than they actually made, and praying to have it declared that the policy
had been “fraudulently” obtained, and ought to be delivered up to be cancelled, and seeking
an injunction to restrain the action and any other proceedings: Held,—
1. That the second society was entitled to the relief it sought.
2. That the case made by the bill was one for equitable relief, and that there was
consequently jurisdiction in equity to deal with it, even if it might have been dealt with at law
also.
3. That the word “fraudulently” in the prayer of the bill was properly used in its technical
sense, and that consequently failure of proof of fraud in fact was immaterial.
4. That even although where a bill alleges a case of fraud only, and the fraud is not proved,
the bill will be dismissed; yet if the case alleged is not one of fraud only, relief may be given
on the alternative case made by the bill. Observations on Wilde v. Gibson (1 H. L. Ca. 605)
on this head.
Per the Lord Justice Turner. If a person makes a representation by which he induces another
to take a particular course and the circumstances are afterwards altered to the knowledge of
the party making the representation but not to the knowledge of the party to whom the
representation is made, and are so altered that the alteration of the circumstances may affect
the course of conduct which may be pursued by the party to whom the representation is
made, it is the imperative duty of the party who has made the representation to
communicate to the party to whom the representation has been made the alteration of those
circumstances: and the Court will not hold the party to whom the representation has been
made bound unless such communication has been made.
This was an appeal by the Defendants from a decree of the Vice-Chancellor Sir John Stuart,
whereby His Honour directed a certain policy of reassurance for [319] £1000, granted by the
Reliance Mutual Life Assurance Society to the Provident Clerks Mutual Life Assurance
Association on the life of one Mrs. Lydia Taylor, to be delivered up to be cancelled with
ancillary relief, and ordered the Appellants to pay the costs of the suit.
The case in the Court below is reported in the 4th Volume of Mr. Giffard's Reports (page
485).
The facts were as follows:—In 1838 the International Life Assurance Society assured the life
of Lydia Taylor for a very large sum of money.
In May 1861 they, in accordance with a common practice of the London assurance offices,
reassured her life with the Provident Clerks Mutual Life Assurance Association, hereinafter
called the association, for £3000, so as thereby to diminish their own risk. The risk of the
association to the International Life Assurance Society commenced on the 9th of May 1861.
On the 10th of May 1861 Mr. Linford, the secretary of the association, called on the secretary
of the Reliance Mutual Life Assurance Society, hereinafter called the society, at the office of
the society, and proposed on behalf of the association that the *943 society should take part
of their risk in Lydia Taylor's life by way of reassurance, alleging that another office, the
Victoria office, had agreed to undertake that risk to the extent of £1000 or more, but that the
association would themselves retain £1000 of it; and proposing that the society should take
the remaining £1000. He further stated [320] that Lydia Taylor was alleged to be in her
sixty-second year; that no fresh medical examination could be had, but that from information
which he had obtained the directors of the association were satisfied that the life was a first-
class life, and that they had accepted the proposal and granted the assurance for £3000 upon
that footing.
This verbal proposal of the secretary of the association was entertained and accepted on the
same 10th of May 1861 by the secretary of the society in these words: “This office will join
you in the risk on the life of Mrs. Lydia Taylor to the extent of £1000.”
This acceptance was confirmed on the 14th of May, and notice given to the association on the
following day.
It was alleged that it was in reliance on the representations made by the secretary of the
association that the association had confidence in the goodness of the life, and that they
would retain £1000 as their proportion of the risk under the assurance for £3000 which they
had granted on her life, that the proposal was accepted as a partnership risk by the society,
who dispensed with the usual investigation or inquiry into the age, health or habits of Lydia
Taylor.
On the 18th of May 1861 the society issued the policy in question in the suit as of that date
to the association, and the association paid to the society the sum of £79, 13s. 4d. for the
first year's premium on the reassurance. This sum was merely the amount of one-third of the
premium charged by the association to the International Life Assurance Society for that
society's £3000 policy, and was not the sum which under ordinary circumstances would have
been the society's premium on a £1000 assurance of a first-class life of sixty- [321] -two.
The risk on this policy commenced on the 18th of May 1861.
On the 30th of January 1862 Lydia Taylor died suddenly. Notice of her death was not given to
the society by the association until the 21st of May following.
After her death the society discovered that the association, instead of retaining the £1000
risk on her life which they had represented to the society they would retain, and in
contravention of that representation, had on the 15th of May 1871, assured by way of
reassurance with the Victoria office the further sum of £1000 in addition to the £1000 in
which they had already reassured in that office; thus by reassurance getting rid of the whole
of their liability in respect of the policy granted by them to the International office. No notice
of this fact was given by the association to the society prior to the 18th of May 1861.
The reason alleged by the Defendants for this departure from the earlier representations of
the secretary of the association was, that at a meeting of directors, held on the 15th of May
1861, remark was made upon the large amount of reassurance business transacted with the
International Life Assurance Society during the week, and it was resolved to retain no part of
the risk of the present reassurance, the case happening, as was remarked by a director
present, to be the only one then before the meeting where no fresh medical evidence could
be obtained, and the Victoria being willing to take £2000 of the risk instead of £1000. It was
also alleged that the resolution was in no sense dependent on any want of confidence in the
goodness of Lydia [322]Taylor's life existing on the part of either the individual director or
the meeting.
After a correspondence between the secretaries and solicitors of the society and the
association ensuing upon the announcement by the latter to the former of Lydia Taylor's
death, the society finally refused to pay the £1000 assured with them by the association; and
the association consequently, in October 1862, commenced an action on the policy against
the Plaintiffs in this suit.
The society was an unincorporated association, and the Plaintiffs in this suit were those three
of its directors who had signed the policy in question. The Defendants in the suit were the
trustees and secretary of the association, a body registered by the registrar of friendly
societies.
The bill was filed in November 1862, stating the facts of the case, alleging in *944 effect that
it was the custom and understanding with London assurance offices upon such reassurances
as the present (in the absence of a special stipulation or statement to the contrary) that the
office effecting the reassurance should itself retain a substantial portion of the risk covered
by the original assurance, and for the office with which the reassurance was effected to
dispense with the usual medical examination on their own behalf of the person whose life was
assured, and with the usual inquiries as to his or her health and habits, and to rely on the
retention by the office granting the original assurance of their fair portion of the risk as a
guarantee of their good faith in reassuring; and alleging further, that the society would not
have effected the reassurance if it had not been that the association were to retain £1000 of
the £3000 risk themselves; and praying a declaration that the £1000 policy of
assurance [323] of the 18th of May 1861 was fraudulently obtained and ought to be set
aside and delivered up to be cancelled; and for an injunction to restrain the action and any
other proceedings.
It appeared that the Victoria office had reassured the whole of the £2000 with knowledge
that the association was retaining no part of the risk, and had paid the full £2000 so assured
by them.
The general effect of the evidence in other respects sufficiently appear from the judgments of
the Lords Justices and from Mr. Giffard's report of the case in the Court below.
Mr. Bacon and Mr. Dauney, for the Respondents, the Plaintiffs in the suit, relied
upon Reynell v.Sprye (1 De G. M. & G. 660).
Mr. Malins and Mr. E. K. Karslake, for the Appellants. The bill is wholly founded on fraud. No
fraud has been made out or is even suggested at the Bar. The bill, therefore, is
unsustainable;Wilde v. Gibson (1 H. L. Ca. 605). [ THE LORD JUSTICE TURNER . The doctrine to
which you refer merely amounts to this, that if a bill be founded upon fraud the allegations of
fraud must be proved; but there is no doubt that if the bill makes an alternative case, if it
does not rest upon fraud alone, the failure to prove the allegations of fraud alone is not
enough to dismiss the bill.] The facts of the case shew that equitable fraud is out of the
question; Jeremy's Equity Jurisdiction (pages 385 et seq. , ed. 1828). The association
did bonâ fide on the 10th of May 1861 intend to retain to themselves [324] £1000 of their
risk on the £3000 policy. The representation made by their secretary to the secretary of the
society to that effect was therefore true. It is true that on the 15th of May the association
changed its prior intention. But it did not do so by reason of any newlyacquired information,
or the existence of any new fact or any change of opinion with reference to the goodness of
the assured life. Nor had they any such newly-acquired information, nor had any new fact
any existence, nor was there any change of opinion as to the goodness of the life, on the
18th, on which day the policy in question in this suit was signed on behalf of the society.
There was, therefore, nothing for them to communicate to the society. The law of this Court
as to the binding nature of representations upon the person making them has been discussed
at large in Hammersley v. De Biel (12 Cl. & Fin. 45); Jorden v.Money (5 H. L. Ca.
185); Piggott v. Stratton (1 De G. F. & J. 33); Loffus v. Maw (3 Giff.
592);Hutton v. Rossiter (7 De G. M. & G. 9). But that question does not arise here. The
present Plaintiffs are not seeking to make the association make good their representation. In
point of fact the representation has been made good by the Victoria office. And if the
Plaintiffs' case rested upon the facts of the case, those facts would have equally afforded
them a defence at law. The same would have been the effect of their case resting—which,
however, we deny that it does—upon implied contract. Their defence would equally have
been at law, and there was no necessity for them to come into equity to have the policy
delivered up to be cancelled. [ THE LORD JUSTICE KNIGHT BRUCE referred to Threlfall v. Lunt (7
Sim. 627).] That case is referred to in Story's Equity Jurisdiction (vol. 2, p. 11, ss. 700 a.,
701, 2d ed.), and we adopt the statements there made [325] as part of our argument. It
cannot be seriously pretended that the retention by the association of a portion of their
liability on the £3000 policy acted as a material inducement to the society to take £1000 of
the risk. For the evidence of Mr. Ratray, the secretary of the Victoria office, shews that he
thought so little of the change of intention on the part of the association, of which he was
fully cognizant when that office took the second £1000 risk from the association, that he
made no scruples in so doing.
*945 They also referred, on the frame of the bill, to Burdett v. Hay (4 De G. J. & S. 41).
A reply was not heard.
THE LORD JUSTICE KNIGHT BRUCE . It is in my judgment a just inference from the evidence in this
cause that the society represented by the Plaintiffs was induced to agree to grant, did agree
to grant, and did grant the reassurance policy in question, dated the 18th of May 1861, on
the faith and in consequence of a representation made to them on the part of the assured,
the society represented by the Defendants, that the Defendants' society would retain and
remain subject, to the extent of £1000, to the liability upon the assurance of £3000, as to
£1000, other part of which, the assurance in question was granted.
It may be that until the 15th of May 1861 the society represented by the Defendants
continued to intend to abide by that representation, but on the 15th of [326] May 1861 that
intention was changed. The notion of retaining any portion of the liability to the £3000 was
abandoned and a different course was adopted.
If that change of intention, if that abandonment, if that different course, if that intention of
not retaining any portion of the risk, had been communicated to the society represented by
the Plaintiffs, as it ought to have been, without delay, all might have been well. But no such
thing was done, and three days after this uncommunicated change of intention the assurance
was allowed to be completed. That assurance should not have been allowed to be completed,
without a full and clear communication that the intention represented to exist of retaining the
liability under the £3000 policy to the extent of £1000 had been abandoned.
In my judgment the misrepresentation was material. The representation is proved to have
been an inducement, an important inducement, to the Plaintiffs' society to accept the
assurance, in the circumstances in which it was accepted, without more inquiry and more
investigation than was then made. It appears to me, I repeat, that the Plaintiffs are entitled
to assert, and to be believed in asserting, that they would not have acted as they have done
if they had known, as they ought to have been informed by the society represented by the
Defendants of, the real facts.
Accordingly, in my judgment the decree is right. The contract was obtained by means of an
untrue representation, a representation positively intended to be carried into effect at the
time, but abandoned afterwards, and the abandonment not communicated. The
decree, [327]therefore, as I say, is in my judgment plainly right, subject only to two
remarks.
One applies only as to costs:—I have felt some doubts whether the evidence on the part of
the Plaintiffs has not been more copious and profuse than it should have been.
The other remark is a very trifling one, considering the amount of premium directed to be
paid, viz.:—Whether the interest on the premium should have been at the rate of £5 per
cent. or £4 per cent. It involves so small an amount that it probably is hardly worth
considering or mentioning.
Objection has been taken to any decree being made in this suit on the ground that the word
“fraudulently” had been used in the prayer of the bill, while there has been no proof of fraud.
In my judgment the circumstance forms no objection at all. In one proper sense, the
technical sense, the word “fraudulently” is properly used where it is here used, and its use
does not in the slightest degree prejudicially affect the Plaintiffs' case.
It has been said, also, that the objection taken by the Plaintiffs to the policy is a mere legal
objection, and that this dispute, if not proper exclusively for a Court of law, is at least as
proper for a Court of law as for this jurisdiction.
My judgment is otherwise. That argument is against the established course of the Court for—
I had well nigh said—centuries. Whether the jurisdiction in such a case as this is exclusively
here I give no opinion; but [328] assuming the jurisdiction to be not exclusively here, it is in
my judgment at least as proper here as in a Court of law.
Subject only to the very small matters which I have mentioned, the decree is in my judgment
manifestly right.
THE LORD JUSTICE TURNER . I agree.
In disposing of the case I desire, in the first place, to absolve the Defendants from all
imputation of any intention of actual fraud; actual fraud has not been *946 imputed at the
Bar, and the circumstances of the case in my judgment entirely exclude that consideration.
But that by no means disposes of the case; for there are many states of circumstances in
which there is technical fraud, in which transactions are fraudulent in the eyes of this Court,
or characterized by the designation of fraud, although there may be no actual moral fraud.
The question really here is, whether this case does or does not fall within the range of those
cases in which this Court holds a transaction to be fraudulent, although it may not be morally
so.
The case has been dealt with by the Defendants as if it were one of implied contract.
I give no opinion whether or not that view of the case would be right if the question
depended wholly on the custom of assurance offices. But the case does not in my view of it in
any way depend upon that question. It depends in my judgment entirely upon the
represen- [329] -tations which were made and which induced the Plaintiffs to accept the
burthen of the reassurance in question.
The question really is, whether, representations having been made that a liability would be
retained on the part of the Defendants, and that intention having been changed before the
liability attached upon the Plaintiffs—for there is no evidence in support of the contention at
the Bar to the contrary—there ought not to have been a communication of that change of
intention to the Plaintiffs before they undertook the liability for the £1000 in question.
I take it to be quite clear, that if a person makes a representation by which he induces
another to take a particular course, and the circumstances are afterwards altered to the
knowledge of the party making the representation, but not to the knowledge of the party to
whom the representation is made, and are so altered that the alteration of the circumstances
may affect the course of conduct which may be pursued by the party to whom the
representation is made it is the imperative duty of the party who has made the
representation to communicate to the party to whom the representation has been made the
alteration of those circumstances; and that this Court will not hold the party to whom the
representation has been made bound unless such a communication has been made.
Thus, suppose a man agrees to execute a deed releasing his debtor upon certain terms on
the assurance that another person, also a creditor of the debtor, has agreed to do the same,
and the other creditor has in fact agreed to do so at the time but has afterwards withdrawn
from the agreement, and the withdrawal is not communicated to the person who has agreed
to give the release upon the [330] faith of another creditor having agreed to do the same,
although it is known to the person upon the faith of whose assurance he agreed to give the
release; and he executes the deed. This Court would not hold him bound by the deed he had
executed. Underhillv. Horwood (10 Ves. 225) is a case in point on such a state of
circumstances; but, independently of cases, I adhere entirely and literally to the opinion
expressed by Lord Cranworth in the case ofReynell v. Sprye (1 De G. M. & G. 660), and I
think that that opinion is perfectly decisive upon a question of this description.
It is said here that the change of circumstances was not such as could in any way have
changed the course of the Plaintiffs' conduct, and the evidence of witnesses has been relied
upon in support of that view. But the real question is not what the witnesses thought—not
whether Mr. Ratray thought that those were circumstances which were so material as that
they might change the intention of the Plaintiffs—but what the Plaintiffs themselves would
have thought if the change of intention on the part of the Defendants had been
communicated to them, the Plaintiffs. The argument, therefore, is entirely beside the
question. Had this representation of what had occurred and of the change of intention on the
part of the Defendants been communicated to the Plaintiffs, it is impossible to say what
course the Plaintiffs would have pursued—whether they would or would not have accepted
the policy. They might have done so: but it is equally clear that they might not; and we
cannot say whether they would or would not: but it was to them that the communication
should have been made, in order that they might exercise their option upon the subject.
[331] Some observations have been made upon the case of Wilde v. Gibson (1 H. L. Ca.
605), and other cases of that description.
The bearing of those cases was explained in the case of Archbold v. The
Com- *947 missioners of Charitable Bequests for Ireland (2 H. L. Ca. 440. See
also Hickson v. Lombard , L. R. 1 H. L. 324). But I do not think that those cases have any
bearing whatever upon the question in this suit. No doubt if a bill alleges a case of fraud, and
the Plaintiff rests his case upon that case of fraud only and fails in proving the case of fraud,
the bill must be dismissed; but if the Plaintiff puts a case not resting entirely upon the proof
of fraud and proves the case which he has so alleged, he is entitled to relief.
Questions have also been raised upon the jurisdiction of this Court in such a case as this.
But those questions in my judgment do but run into the original question of whether there is
an equitable case stated by the bill. If there be, there is a jurisdiction in this Court to
interfere by way of injunction if necessary, and also by way of ordering the instrument to be
delivered up to be cancelled.
In my judgment a case of equitable jurisdiction is well proved in this case; the decree is
right, and this appeal must be dismissed.
Neither party considering it worth while to argue the second of the two points referred to by
the Lord Justice [332] Knight Bruce in his judgment, viz., that as to the rate of interest to be
paid on the premium, his Lordship again referred to the point which he had previously
mentioned, viz., the profusion of evidence in support of the Plaintiff's case.
The Lord Justice Turner, however, intimated that in his judgment the amount of the evidence
in question was not excessive.
No alteration was made in the decree.
De Gex Jones & Smith
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