
    WILLIAM B. DUNCAN, Jr., Respondent v. THE NEW YORK MUTUAL INSURANCE COMPANY, Appellant.
    
      Marine insurance—Cancellation of policy by agreement of parties does not affect a loss of a ship prior to the cancellation that was unknown to both parties.
    
    The principal question in this case related to the effect of a cancellation of the policy after the loss of the vessel and before either party had knowledge of the loss. The parties intended to and did cancel the policy, not from the time of its original execution and delivery, but on and after December 3, 1888, the day of its cancellation. The defendant retained the premium for the risk to that time, merely returning the unearned premiums for the unexpired time of the policy. Held, that the vessel having been lost prior to the cancellation, the liability of the defendant had become fixed and irrevocable at the time of the loss. The plaintiff did not intend to release, nor did the defendant expect to be released from any liability already incurred and existing, but only from any liability that might occur thereafter.
    This action was in equity to set aside the cancellation and recover the loss. Held, that plaintiff required no equitable relief, assuming that the cancellation operated as to future liability only, but the plaintiff assumed that equitable relief was necessary to reinstate the parties to their position prior to the cancellation, but the defendant not having raised the objection in his answer that equitable relief was unnecessary, cannot raise it now, and, therefore, it may be assumed that the plaintiff was properly in equity in his action, and that branch of the court obtained complete jurisdiction in the controversy.
    Before Sedgwick, Ch. J., Freedman and McAdam, JJ.
    
      Decided May 2, 1892.
    The plaintiff recovered a judgment after a trial at the -equity term of the court, setting aside the cancellation of a policy of marine insurance, and awarding him $6,009.96 damages on the policy.
    The defendant appeals.
    
      North, Ward & Wagstaff, attorneys, and J. Langdon Ward of counsel, for appellant, argued:—
    No case is made, either by the evidence or the findings of fact in the court below, to justify the second conclusion of law of the court and the setting aside of the cancellation of the policy, (a.) The court below has found as matter of fact that the plaintiff applied to the defendant to cancel the policy in suit from and after noon of the 3d day of December, and to return the pro rata premium for the unexpired term of eight months, which the defendant agreed to do. That when the plaintiff applied to the defendant to cancel the policy he requested that it be canceled upon the terms stated in a paper then submitted by him to the defendant, as follows:
    
      “New York, December 3d, 1888.
    “ Clause added to Policy No. 31,466 of New York Mut. Ins. Co. issued to W. B. Duncan, Jr., Str. ‘ Samana.’ At the request of the assured this policy is hereby canceled at and from December 3d, 1888, at noon, pro rata premium to be" paid for eight months not used, $233.33.
    “ Approved.
    “ President,”
    and that the defendant then and there agreed with the plaintiff that he would cancel the said policy upon the terms mentioned in the said exhibit. But the court also found that, instead of such cancellation, the defendant’s president wrote across the face of the policy the following words: “ Canceled at request of insured K. P. for eight months, December 3, 1888, T. B. B., Jr., Pt.” and endorsed upon the policy. “ Pay $233.33 return premium and cancel policy December 3, ’88. $233.33. T. B. B., Jr., P.,” and did not sign the paper so presented as above noted. That before the payment of the return premium the agent of the plaintiff requested the defendant’s president to change the endorsement of the policy so as to conform to such written and printed paper, but that the defendant’s president refused so to do, and that thereafter the return premium due on the cancellation of the policy was paid to and accepted by the plaintiff. The court has further found that on the day of the , cancellation of the policy neither the plaintiff nor the defendant had received any information whatever concerning the steamer insured since she had sailed; and the plaintiff himself testified that there was at that time no possibility of hearing as to her arrival or non-arrival at Aux Cayes. It thus appears that before the payment and receipt of the return premium the form of the actual cancellation of the policy was known to the plaintiff, and that unless satisfied with it he was under no obligation to accept it. There is nowhere any finding, testimony or suggestion that there was anything included in it or omitted from it without the knowledge of the plaintiff’s agents. The court has also found that the cancellation of the policy was not induced by any act, deception or suppression of the defendant, and that it was a part of the contract of insurance that it would be terminated and a pro rata portion of the premium returned at the. will of the assured. The return of the premium and cancellation of the policy was, therefore, a performance of the contract. These facts bring this case precisely within Whittemore v. Farrington, 76 N. Y., 457. This was a case where on an exchange of lands the plaintiff had the right under - his contract to. demand from the defendant a warranty deed. He did demand it, but the defendant refused it. The plaintiff thereupon accepted a quit-claim deed. It subsequently appeared that the property conveyed was, at the time of the conveyance, unknown to either party, subject to an incumbrance. The plaintiff sued to rescind the agreement for the exchange of lands, and a reconveyance of the land deeded thereunder, or that defendant be required to remove encumbrance on the land deeded by him under the agreement. Bapallo, J., said: “ The question is then reduced to this: A party who under a verbal agreement for the conveyance to him of lands, is entitled to insist upon a good title, and a deed with covenants, pays the consideration and is then tendered a deed without covenants. He demands a deed with covenants and this is refused. He then accepts the deed without covenants and, believing the title to be clear, records it, and continues to occupy and improve the property. An incumbrance, unknown at the time to both parties, is afterwards discovered. Both parties are innocent of any fraud. It is conceded that no legal liability rests upon the grantor in such a case. Bates v. Delavan, 5 Paige, 300, 307 ; Burwell v. Jackson, 9 N. Y., 535. In the absence of fraud or covenants a purchaser takes the title at his own risk. Then do the facts stated entitle the plaintiff to any equitable relief ? We think not. The theory of the judgment is that the acceptance of the quit-claim deed in performance of the contract of exchange may he set aside on the ground of mistake, and the contract, treated as still executory and a new performance in a different manner, he decreed. The theory is ingenious, but is not founded upon any legal precedent or principle. In the first place, there was no mistake as to the character of the deed which was tendered and accepted. The grantee knew by accepting it he took the risk of any defect in the title which might be discovered. He was not led into accepting it by any deception or suppression on the part of the grantor. Secondly, the delivery and acceptance of the deed constituted a full execution of the prior parol contract. The title to the land passed under the deed, and the original contract was merged in it. After a contract has been thus fully performed there can be no jurisdiction in equity to decree a second performance. In a proper case equity has jurisdiction, on the ground of mistake, to reform the instrument or deed by which a prior contract has been executed or performed, hut to authorize the exercise of this jurisdiction there must have been a mutual mistake as to the contents of the instrument sought to be reformed, or else mistake on one part and fraud upon the other. Where both parties are innocent of fraud and both know the character and contents of the instrument, it cannot be reformed in equity merely on the ground that one of the parties would have exacted and would have been entitled to exact a different instrument had he been acquainted with facts rendering it to his interest to do so, or which, if he had known them, would have caused him to reject the instrument which he accepted. It is beyond the power even of a court of equity to make contracts for parties. The jurisdiction to reform written instruments free from fraud is exercised only where the instrument actually executed differs from what both parties intended to execute, and supposed they were executing or accepting, and this mistake will be corrected in equity only on the clearest proof, and that only by making the instrument conform to what both parties intended. But an instrument or covenant, the nature and contents of which are fully comprehended by both parties at the time of its execution, cannot be altered in its terms by the courts, see Wilson v. Deen, 74 N. Y., 531, and authorities there cited.” (b.) The court has found, and the fact is, that the defendant had no choice under the terms of the policy but to cancel it when requested. An application to cancel was on the part of the assured a warranty that the vessel had arrived in safety, and that there was no claim under the policy. May v. Christie, Holt, 67. (c.) The cancellation of the policy was not the result of such a mistake of fact as will justify a court of equity in interfering. Properly speaking, there was no mistake'of fact in the matter. There can be no mistake,, properly so called, as to a fact concerning which the party making the alleged mistake neither has, nor by possibility can have, any knowledge, information or reasonable grounds for belief. The fact is that there is nothing in the case to show that the question of the safety or loss of the vessel ever presented itself to the mind of any one connected with the matter.
    The case is precisely within the principle laid down by Judge Story in his work on Equity Jurisprudence, where he says : “ § 150 : In like manner where the fact is equally unknown to both parties ; or where each has equal and adequate means of information; or where the fact is doubtful from its own nature; in every such case if the parties have acted with entire good faith a court of equity will not interpose. For in such cases the equity is deemed equal between the parties; and, when it is so, a court of equity is generally passive, and rarely exerts an active jurisdiction.” “ | 151: The general ground upon which all these distinctions proceed is, that mistake or ignorance of facts in parties is a proper subject of relief only when it constitutes a material ingredient in the contract of the parties, and disappoints their intention by a mutual error; or where it is inconsistent with good faith, and proceeds from a violation of the obligations which are imposed by law upon the conscience of either party. But where each party is equally innocent, and there is no concealment of facts which the other party has a right to know, and no surprise or imposition exists, the mistake or ignorance, whether mutual or unilateral, is treated as laying no foundation for equitable interference. It is strictly damnum absque injuria.”
    
      Wheeler, Cortis & Godkin, attorneys, and Everett P. Wheeler of counsel, for respondent, argued :—
    I. (1.) Was the agreement to cancel the policy made upon the terms stated, as follows:
    Str. “ Samana.”
    New York, December 3, 1888.
    Clause added to policy No. 31,466 of New York Mutual Insurance Co., issued to W. B. Duncan, Jr. :
    At the request of the assured this policy is hereby canceled at and from December 3, 1888, at noon, pro rata premium to be paid for eight months not used, $233.33. Approved.
    President.
    (2.) Was the steamship “ Samana ” seaworthy when she sailed from New York ? (3.) Was she lost before noon of December 3, 1888 ? On these points the learned judge found in favor of the plaintiff. Judgment was rendered for the full amount of the policy, $5,000, less the return premium, $233.33. When the agreement to cancel was made, December 3, 1888, the plaintiff had a valid claim upon the policy for a total loss, and there can be no question of the validity of the plaintiff’s claim at the time. According to the defendant’s contention, the agreement for cancellation was to relinquish a valid claim for $5,000 in consideration of the payment of $233,33. It is well settled that such an agreement is invalid, even though accompanied by the payment of a portion of the demand. Bunge v. Koop, 48 N. Y., 225; Coe v. Hobby, 72 Ib., 141; Smith v. Kerr, 108 Ib., 31.
    
    II. The defendant argued that in order to constitute a mistake for which a court would rescind a contract, it was necessary to show a positive and erroneous belief, and also to show that this mistake was .mutual; or, in other words, that it existed in the minds of both parties. Neither of these propositions is applicable to the case of an action to rescind a contract. The facts in this case are undisputed. Mr. Duncan testified, referring to the cancellation of the policy: “ I believed the steamship ‘ Samana ’ to be at that time in a place of safety.” Mr. Bleecker testified that he “had no supposition on that subject.” In the mind of one there was a positive error; in the mind of the other ignorance, which was equally an error. “ The general rule is, that an act done or contract made under a mistake or ignorance of a material fact is voidable and relievable in equity.” 1 Story, Eq. § 140. See also §§ 134, 141, 143, 143a. In section 142 it is said that in such a case equity relieves upon the ground that both parties intended the purchase and sale of a subsisting thing and implied its existence as the basis of their contract. Both Judge Story, in section 209, and Chancellor Kent, 2 Comm. 468, quote from the civil law, as an illustration, the sale of a house and lot under the supposition that the house was still in existence, whereas in point of fact it had been destroyed by fire. The rule thus stated is supported by the authorities. Belknap v. Sealey, 14 N.Y., 143; Marvin v. Bennett, 26 Wend., 169; Bank of Commerce v. National Mechanics’ Bank, 55 N. Y., 211; Martin v. McCormack, 8 Ib., 331; McKay v. Barber, 37 Geo., 423; Young v. Cole, 3 Bing. N. C., 723. Martin v. McCormack cites with approval the case of Hitchcock v. Gridding, 4 Price, 135, which was a bill to rescind, a contract for the conveyance of a remainder in fee expectant upon an estate in tail. A recovery which barred the entail had been suffered at the time of the contract. Both parties were ignorant of this, and the court held that this mutual mistake was a ground for rescission. Rheel v. Hicks, 25 N. Y., 289. Held, that money paid under a mistake as to the existence of a material fact could be recovered back. The court quote with approval the language of Chief Justice Savage in Mowatt v. Wright, 1 Wend.,355. “Error of fact takes place,” says the same learned judge, “ either when some fact which really exists is unknown, or some fact is supposed to exist which really does not exist.” The section in Story’s Equity cited by Mr. Ward must be taken in connection with section 152, which treats of the reformation of a contract. In such case undoubtedly it must be made to appear that the contract as reformed does express the real intention of the parties. Equity will never make a contract for parties. But this is quite a different thing from rescinding the contract, leaving the parties to stand in the same position as they did before the agreement was made. The rule is this, equity will not reform a contract unless the mistake is proved to be the mistake of both parties, but may rescind and cancel a contract upon the ground of mistake of facts material to the contract of one party only. Diman v. Providence R. R. Co., 5 R. I., 130.
   By the Court.—McAdam, J.

Many of the legal principles affecting the rights and liabilities of the parties under the contract of insurance, have been settled adversely to the defendant, in an action by the plaintiff on a similar policy on the same vessel, issued by the China Mutual Insurance Company. See Duncan v. China Mut. Ins. Co., 39 State R., 248, affd. 41 State R., 368. The new phase now presented is as to the effect of a cancellation of the policy after the loss of the vessel, and before either party knew of the fact. It is manifest that the parties intended to cancel the policy—not from the time of its original delivery, but on and after December 3, 1888, the day of the cancellation. The defendant retained the premium for the risk up to that time, and returned merely the unearned premium for the time unexpired. The vessel having been lost prior to the cancellation, the liability of the defendant had at that time become fixed and irrevocable. The plaintiff did not intend nor did the defendant expect to be released from any actual liability already incurred and then existing, but from any that might occur thereafter. The acts of the parties demonstrate this. If it had been intended to rescind the policy in toto, the entire premium would have been returned, for this was the consideration of the defendant’s agreement. For here, as in Baker v. Citizens’ M. I. Co., 51 Mich., 243, the policy was not canceled until after the loss and right of action accrued, and as was held in that case, “ There is nothing in the mere act of cancellation to operate retroactively so as to cut off the claim for damages already existing.” Perhaps the plaintiff required no equitable relief, if the surrender of the policy was intended to operate as to future liability only, but the plaintiff acted on the assumption that equitable relief was necessary to reinstate the parties to their former position, and the defendant not having raised the objection in its answrer that equitable relief was unnecessary, cannot raise that question now. Town of Mentz v. Cook, 108 N. Y., 504; Ostrander v. Weber, 114 Ib., 95. We will assume therefore that the plaintiff was properly in equity, and that that branch of the court obtained complete jurisdiction over the controversy. The plaintiff did not seek for reformation, so that the court was not called upon to' make a new contract for the parties, but to rescind the cancellation, so as to reinstate the parties where the contract itself placed them. . While equity will not reform a contract unless the mistake is proved to be the mistake of both parties, it may rescind and cancel a contract upon the ground of mistake of facts material to the contract of one party only. Diman v. Providence R. R. Co., 5 R. I., 130. That is this case. Story lays down the general rule, “ that an act done or contract made under a mistake or ignorance of a material fact is voidable and relievable in equity.” (Story’s Eq., §§ 134, 140, 141 to 143); and Pomeroy, in treating of the same subject, says the mistake or ignorance “ must concern a fact material to the transaction, as that a certain matter or thing exists at the present time, which really does not exist: or that a certain matter or thing existed at some past time, which did not really exist.” Pomeroy’s Eq., § 854. Chief Justice Savage in Mowatt v. Wright, 1 Wend., 355, on the same topic said, that error of fact takes place, either when some fact which really exists is unknown, or some fact is supposed to exist which does not.” In the present instance, both parties evidently acted on the supposition that the vessel was in existence, and hence contracted with reference to a subsisting thing, which in fact had no existence at the time. Neither party knew nor had any reason to believe that the vessel had foundered prior to the time of canceling the policy, and must have contracted without such knowledge or belief, and on the implication that it was still afloat and had an existence. In such a case—mutual mistake going to the essence of the contract, equity may relieve however innocent the parties may he (Story’s JEq., § 142), and the same principle is carried into all contracts of whatever character, based on the existence of the subject matter thereof. Thus, if an article intended to be sold has no existence, there can be no contract of sale. If A. sells his horse to B., and it turns out that the horse was dead at the time, though the fact was unknown to the parties, the contract is necessarily void (2 Kent’s Com., 468), and the rule is in no way limited by the nature of the subject matter involved, but extends to anything capable of existence, and which the contract implies has an existence at the time it is made, Dexter v. Norton, 47 N. Y., 62 ; Kein v. Tupper, 52 Ib., 550. The setting aside of the cancellation seems warranted on equitable principles by the facts established. The insured certainly never intended to discharge an existing liability of $5,000, in consideration of the return of an unearned premium of $233:33, leaving in the possession of the insurer the premium for the risk up to and' after the time the liability itself accrued, and effect should not be given to such a result where it is contrary to the manifest intention of the parties. Sperry v. Miller, 16 N. Y., 407; McGregor v. Bd. of Education, 107 Ib., 516, 517. The policy was surrendered, it is true, but there is no claim that it was destroyed or intended so to be, and the surrender in view of the facts, is consistent with the theory that it was made because customary, and as evidence that the liability kept alive till December 3,1888, was not to continue after that date. Thé intention of the parties must characterize the act and interpret its meaning. The evidence as to seaworthiness, loss of the vessel prior to December 3, 1888, and damages, sustain the findings made by the trial court, and as there is no merit in the exceptions, but one question— that of interest—remains to be considered; The remedy invoked by the plaintiff was founded on' the postulate that he had no action at law, until the cancellation was set aside. Following this supposition to its natural conclusion, the item of $312.99 for thirteen months’ interest should not have been allowed. Interest is in the nature of damages after default by the defendant, Hanley v. Crowe, 19 State. JR., 828, and the theory of the suit (by which the plaintiff is of course bound), implies that he had no present cause of action until the cancellation was set aside. For the reasons stated, the judgment must be modified as to the item of interest, and affirmed as to the residue, without costs.

Sedgwick, Ch. J.—I concur in the result.

Freedman, J., concurred.  