Appeal from judgment of Court of Common Pleas, Trial Division, of Philadelphia, Jan. T., 1969, No. 2986, in case of Harriet Sonnenstein v. Massachusetts Mutual Life Insurance Company.
William J. Kennedy, with him Dechert, Price & Rhoads, for appellant.
David N. Rosen, for appellee.
Wright, P. J., Watkins, Jacobs, Hoffman, Spaulding, Cercone, and Spaeth, JJ. Opinion by Jacobs, J. Dissenting Opinion by Hoffman, J. Spaulding and Cercone, JJ., join in this dissenting opinion.
[ 225 Pa. Super. Page 76]
The issue presented by this appeal is whether a party to a transaction can avoid that transaction because of the undue influence of a third person. We find that even if the undue influence of a third person has been proven by the appellee, she cannot avoid the transaction because the appellant, the other party to the transaction, had promised in good faith something of value before it knew of the undue influence.
Appellee, Harriet Sonnenstein [hereafter called the "wife"], was the owner and beneficiary of an insurance policy on the life of her husband. Appellant, Massachusetts Mutual Life Insurance Company [hereafter called the "insurance company"], was the insurer. At trial, before the court without a jury, the wife's testimony revealed that her husband, who had assigned this policy to his wife, later decided it was unnecessary to keep the policy in force since he had acquired sufficient assets from the sale of his business to provide for his wife in the event of his death. The husband procured a surrender form and asked his wife to sign it. At first, she refused to sign the surrender form since she wanted to keep the policy in force. Then, her husband threatened to not talk to her, to cut off her spending money, and to sleep in the guestroom. After more than 3 weeks of arguing, the wife succumbed to the pressure and signed the surrender form. This form and the life insurance policy were then given by the husband to a former agent of the insurance company who forwarded them to the company. After receipt of these, the insurance company in good faith processed the surrender and sent a check for the cash surrender value of the policy to the former agent, who had sent in the form and policy, to be given to the wife. Some days later, but before the wife received the check, her husband died. After receiving the wife's claim for the value of the insurance policy on her husband's life, the insurance
[ 225 Pa. Super. Page 77]
company defended on the ground that the wife had effectively surrendered the policy before her husband's death. At that point, the wife revealed that she signed the surrender form because of her husband's threats.
The lower court found that the wife had proven by the undisputed facts that she had signed the surrender form because of the undue influence of her husband. Furthermore, the court found that the transaction was avoidable by the wife even though the insurance company had processed the surrender and written a check to the wife for the cash surrender value. The court reasoned that the insurance company had not materially changed its position, since payment of the cash surrender proceeds was not made before the insurance company received notice of the undue influence. Judgment was entered in favor of the wife for the net death benefit under the policy.
In the present case, the insurance policy on the husband's life contained the following provision under the heading "Guaranteed Surrender and Nonforfeiture Provisions": "This policy may be surrendered for its cash surrender value which shall be equal to the value of this policy plus the value of any paid-up additions and any dividend accumulations and less any indebtedness."*fn1 Such a provision in an insurance policy has been held in Pennsylvania, in accord with general contract law, to be a continuous, irrevocable offer which becomes a binding contract when accepted by the owner of the policy. Varas v. Crown Life Ins. Co., 204 Pa. Superior Ct. 176, 203 A.2d 505, allocatur refused, 204 Pa. Superior Ct. xxxvii (1964), cert. denied, 382 U.S. 827 (1965). In Varas, Judge Watkins, speaking for the Court, stated:
[ 225 Pa. Super. Page 78]
"We believe that the cases are at one in holding that the rights of the parties are fixed when an option given by a policy is exercised by the insured [owner of the policy]." Id. at 184, 203 A.2d at 509. Generally, this offer is considered accepted and the policy is cancelled upon receipt by the insurance company of the policy and the request for cancellation by the insured (owner of the policy). See 3A J. A. Appleman & J. Appleman, Insurance Law and Practice § 1757 (Rev. 1967). Thus, in Murphy v. Home Life Insurance Co. of America, 47 Pa. D. & C. 197 (1942), it was held that an owner's application for the cash surrender value of his insurance policy effectively surrendered the policy even though he died before he received the check for the cash surrender value from the insurance company. The same is true in this case. The surrender form stated: ...