Argued January 15, 1936
Decided March 3, 1936
Appeal from the Supreme Court, Appellate Division, First Department.
Joseph J. Corn and Arnold Le Bell for appellant. James S. Hays and Milton Kunen for Manufacturers Trust Company, as executor and trustee, respondent. Sidney R. Fleisher as guardian ad litem for Edward Rosenblum et al., infants, respondents.
Plaintiff was named as beneficiary in several policies of life insurance issued to her husband by the Mutual Life Insurance Company. He reserved the right to change the beneficiary and he did change from plaintiff to the Manufacturers Trust Company as trustee. After the husband's death, which occurred in December, 1932, this action was begun by the widow for the purpose of canceling the instruments by which the change of beneficiary was effected and for the purpose of obtaining a judgment decreeing that she is entitled to payment of the proceeds of the policies. The complaint alleges that the change of beneficiary was made under a mistake of fact by the husband. The questions before us are whether plaintiff has such an interest as enables her to maintain the action and whether, as a pleading, the complaint is otherwise sufficient.
As long as plaintiff remained the named beneficiary in the policies, she was in possession of a property right in the subject-matter of this litigation. Her interest in the policies was not vested in the sense that her right could not be divested, but, until this right, subject as it was to defeasance, was taken from her with an intent based upon full comprehension of the consequences of the act, a property right of some description continued to reside in her. ( Prudential Ins. Co. v. Stone, 270 N.Y. 154, decided herewith.) She is, therefore, more than a volunteer or a donee and upon proper allegations and substantial proof may maintain an action to cancel the instruments by which she alleges that she has been deprived of this property right.
The following allegations are set forth in the complaint: Plaintiff's husband was the father of two children by a former marriage and, within a year subsequent to his marriage with plaintiff and prior to the birth of a child to him and her, he executed a trust indenture dated February 13, 1929, to the predecessor of defendant Manufacturers Trust Company. By this agreement he made several policies of life insurance, aggregating $31,000 and policies of accident insurance amounting to $14,000, payable to the trustee for the benefit of his children "in being at the time of the execution of this agreement" and provided for setting over additional policies. Two children only, the defendants Edward and Dorothy, were then in being. Prior to August 7, 1930, the husband took out additional policies in the amount of $30,000 and made them payable to plaintiff. On August 7, 1930, a child, Helene Myra, was born to him and plaintiff. Shortly after the birth of this child, plaintiff's husband substituted defendant trust company as beneficiary of the $30,000 policies in place of plaintiff. The complaint alleges that, in making this substitution, he acted under a misapprehension and mistake of fact, believing that the newly-born child, Helene Myra, was included in the benefits of the trust agreement pro rata with the two other children, Edward and Dorothy, and that he did not intend to remove and would not have removed plaintiff as beneficiary and substituted the trustee except under the misapprehension and mistake of fact that in so doing he was providing for the third child as fully as for the other children. The substance of the pleading is that, except for this mistake of fact, the intent to deprive plaintiff of her property right would not have existed and the attempted act of deprivation would not have occurred. The action is for cancellation of the change of beneficiary due to an alleged unilateral mistake of fact. It is not an action to reform the trust indenture.
The term "mistake" may be used to cover all kinds of mental error, however induced (3 Williston on the Law of Contracts, § 1540), and equity can interfere in a suit for cancellation or rescission to prevent the enforcement of an unjust agreement induced by a unilateral mistake of fact. A mistake not mutual but only on one side may be ground for rescinding but not for reforming a contract. ( Smith v. Mackin, 4 Lans. 41, 44, 45; Moffett, Hodgkins Clarke Co. v. Rochester, 178 U.S. 373.) If the erroneous transaction was such as to involve the act of the plaintiff only and the effect of the transaction would be the unjust enrichment of the defendant, the plaintiff is entitled to have the transaction rescinded, although he was the only party mistaken. (Clark on Equity, § 372.) If the intent of plaintiff's husband in changing the beneficiary was to place his three children on a plane of equality and if, through his misapprehension of fact concerning the terms of his trust agreement, he failed in his purpose, then defendants Edward and Dorothy were, by reason of such mistake of fact, unjustly enriched and their father would have been entitled to rescind his change of beneficiary and the wife, possessing a property right in the res, likewise may maintain this action. The allegations of the complaint are sufficient. Whether there is evidence of a quality necessary to support these allegations must be determined on the trial. The pleading is not defective. On this appeal we decide no other issue.
The judgment of the Appellate Division should be reversed and the orders of the Special Term affirmed, with costs in the Appellate Division and in this court.
CRANE, Ch. J., HUBBS, CROUCH, LOUGHRAN and FINCH, JJ., concur; LEHMAN, J., dissents.