Opinion
Argued October 22, 1902
Decided November 18, 1902
William Ogden Campbell for appellant.
Walter Large for respondent.
By the judgments below the names of the beneficiaries in a policy of life insurance were stricken out and the name of a stranger substituted as sole beneficiary without making the former parties to the action or giving them an opportunity to be heard. This has been done upon the ground that the insurance company, which is the sole defendant, waived the objection that there was a defect of parties defendant by not taking it either by demurrer or answer as provided by section 499 of the Code of Civil Procedure. That section, however, must be read in connection with section 452, which provides that "The court may determine the controversy, as between the parties before it, where it can do so without prejudice to the rights of others, or by saving their rights; but where a complete determination of the controversy cannot be had without the presence of other parties, the court must direct them to be brought in."
The apparent inconsistency between these sections was the subject of controversy before the courts for a long time, but we think it was dispelled by the judgment in Osterhoudt v. Board of Supervisors of the County of Ulster ( 98 N.Y. 239, 243). That was an action by taxpayers to vacate audits of town accounts for illegality and fraud, and to restrain the levy of a tax for their payment. The persons in whose favor the audits were made were not parties to the action, and while the defendants omitted to raise the objection by demurrer or answer, they raised it upon the trial, where it was overruled. In reversing the judgment rendered in favor of the taxpayers we said: "Construing sections 452 and 499 together, their meaning is that a defendant, by omitting to take the objection that there is a defect of parties by demurrer or answer, waives on his part any objection to the granting of relief on that ground, but when the granting of relief against him would prejudice the rights of others, and their rights cannot be saved by the judgment and the controversy cannot be completely determined without their presence, the court must direct them to be made parties before proceeding to judgment. When a defendant is sued alone upon a joint contract, if he omits to set up a non-joinder of his co-contractor by demurrer or answer, judgment may pass against him alone, because judgment against one joint contractor will not prejudice the other, but may relieve him from liability. The other branch of the rule would be illustrated by an equitable action brought for the cancellation of a mortgage, executed to two persons as mortgagees, in which only one of the mortgagees was made defendant. The court could not proceed to a decree for the plaintiff without the presence of the other mortgagee. The distinction is between those who are necessary parties and those who are proper parties merely. When persons who are necessary parties are not joined, the court will not proceed until they are brought in. * * * Under the Code the court is bound to take the objection when a proper case is presented."
It was further held that the persons in whose favor the audits had been made were necessary parties, because they were "primarily interested," and the judgment was reversed because they had not been joined.
Referring to section 452 in a still later case ( Mahr v. Norwich Union F. Ins. Socy., 127 N.Y. 452, 459), the court said: "While the statute does not in terms prohibit the court from determining the controversy, unless all the necessary parties are brought in, that is impliedly commanded, and is the established practice in all equitable actions." (Citing, among other cases, Peyser v. Wendt, 87 N.Y. 323; Sherman v. Parish, 53 id. 483; Van Epps v. Van Dusen, 4 Paige, 64.)
A court of equity always seeks to do complete justice and to make its judgments so full and comprehensive as to quiet the controversy in all its aspects and as to all persons. Thus every one who is compelled to obey its decrees is protected, further litigation is prevented, and the unseemly spectacle of inconsistent judgments rendered by the same court is avoided.
The plaintiff insists that the rights of the personal representatives of Max Fehrman are not prejudiced by the judgment appealed from, because they are not bound by it and can still recover upon the policy, notwithstanding the judgment of reformation rendered in this action. This might lead to inconsistent judgments and a double recovery, which is precisely what section 452 was designed to prevent. Moreover, the hazard of collecting a second judgment in favor of a different plaintiff against the same defendant upon the same cause of action might in some cases be an important consideration and the remoteness of the risk in this case does not affect the principle. The court cannot know how great the risk may be and hence should not permit it, even if it thinks it is remote. A complete determination of a controversy cannot be had when there are persons, not parties, whose rights must be determined, in form at least, at the same time that the rights of the parties to the action are determined. According to the policy under consideration, as it was written, the personal representatives of Mr. Fehrman are entitled to the proceeds, yet the judgment below, rendered without notice to them, takes the policy away from them and gives it to the plaintiff. They had a material interest in the subject-matter of the action, yet they were deprived of it without an opportunity to be heard and were cast in judgment without being sued. While they were not bound by the judgment which does all this in form, still the determination of the controversy is necessarily incomplete because they are not bound. Such a judgment, although not binding, would affect the market value of the policy and tend to prevent a disposition thereof either absolutely or as collateral to a loan. There cannot be a complete determination as to which of two persons is the beneficiary of a life insurance policy without the presence in court of both. The personal representatives of Fehrman were necessary parties and the court should have dismissed the complaint unless within a reasonable time they were brought in, not necessarily for the protection of the defendant as it had neglected its rights, but for their own protection, as well as the seemly and orderly administration of justice. The judgment should be reversed and a new trial granted, with costs to abide the event.
I do not think that the provisions of section 452 of the Code of Civil Procedure were intended to cover a case of this character; and I do think that sections 488 and 499 of the Code, to the effect that where it appears upon the face of the complaint that there is a defect of parties, the objection thereto must be taken by demurrer or answer, or else it will be deemed to have been waived by the defendant, have been practically nullified by the construction given by the prevailing opinion. The purpose of this latter section of the Code was to require the question of defect of parties to be raised at the earliest possible moment, either by demurrer or answer, so as to avoid the involving of the plaintiff and the public in the expenses of a long and useless trial upon the merits. If the insurance company can wait until the final close of the trial, and then by motion for direction of a verdict raise the question of defect of parties for the first time in a case of this character, I see no reason why it may not be done in every case; and thereby the express provision of the statute that it should be deemed waived by the defendant becomes of no force or effect, and the county may in every case be subjected to the expense of maintaining a trial upon the merits, when it would have been unnecessary had the objection been seasonably made.
Section 452 of the Code was designed for a different purpose, and, to my mind, is not in conflict with the provisions of section 499. Indeed, we are required to construe the provisions together for the purpose of making one harmonious system of practice. It often occurs upon the trial of cases that the names of persons are disclosed who have an interest in the subject matter of the litigation, who have not been made parties, and where the defect does not appear upon the face of the complaint. In all such cases the provisions of section 452 apply. The court, therefore, "may determine the controversy, as between the parties before it, where it can do so without prejudice to the rights of others, or by saving their rights; but where a complete determination of the controversy cannot be had without the presence of other parties the court must direct them to be brought in." Under this provision the court is given the power to determine the controversy, as between the parties before it, unless in doing so it is going to prejudice or destroy the rights of others who are not parties. The recovery of a judgment in this case against the insurance company does not prejudice or destroy the rights of the executor or administrator and assigns of the decedent, if such there be. They have not been made parties to this action, and are not in any way bound by the determination made. Their rights are neither prejudiced nor destroyed. The defendant alone is affected by the judgment. It may, under some remote contingency, be required to pay this insurance again. But this insurance company is not an infant or ward of the court. It is fully able to take care of its own interests, and we need not be concerned therewith. It had the right to save itself from double liability by raising the question of defect of parties by demurrer or answer, but it did not see fit to do so. Instead, it proceeded with the trial. It could have protected itself by giving notice of the bringing of the action to the personal representatives of the decedent, and asking them to defend. It may have done so, and the personal representatives of the decedent may be here defending in the name of the insurance company. We are not advised as to the steps taken by the insurance company to protect itself, nor is it any part of our duty to ascertain. The presence of other persons to the controversy, which the court must direct to be brought in, is fairly illustrated by the case of Osterhoudt v. Board of Supervisors of Ulster Co. ( 98 N.Y. 239). That was a taxpayer's action brought against the board of supervisors to prevent waste, by annulling the audit of the bills of certain individuals, and to restrain the board from levying a tax for their payment, upon the ground that the claims were illegal, inequitable, unjust, false and fraudulent. It will at once be seen that the very purpose of the action was to affect the rights of the claimants who were not made parties, by restraining the levying of the tax for their payment. In such a case they were necessary parties, and the court very properly held that they must be brought in.
Again, section 499 of the Code provides a statutory and mandatory rule of pleading. Defect of parties must be raised by demurrer or answer when the defect appears upon the face of the complaint. This rule of pleading is as positive and distinct as the rule that the material allegations of the complaint shall be denied by the answer, or else they shall be deemed admitted; or that the Statute of Limitations must be pleaded or deemed waived. If the courts can disregard this requirement to raise the question by demurrer or answer, they may with equal propriety disregard the requirements for denials of complaints, or of the pleading of the Statute of Limitations.
The complaint in this action demands judgment for the sum of $135, with interest thereon from September 29th, 1897. This is the final relief sought by the plaintiff. In order to recover this amount the plaintiff asks that the policy be reformed by inserting the plaintiff's name in the place of the executor, administrator and assigns of the decedent. The decedent appears to have been a poor person, unable to pay his board bill, and we are not advised as to whether he left a will or that the same has been proved, or that any administrator has been appointed of his estate. If there has been, he may become a rival claimant with the plaintiff for the insurance. Cases of this character are not uncommon, and wherever rival claimants appear the courts have always permitted the insurance company to interplead them if it so desired. But in no case have I ever heard of its being a ground for dismissal of complaint where the insurance company has, for reasons of its own, neglected to interplead.
This court is, by the Constitution, limited in its judgment to the review of questions of law only. It has no power to review discretionary rulings or orders of the court below. In this case the defendant's counsel, at the close of the testimony, "renewed his motion to dismiss the complaint on the same grounds as stated at the close of the plaintiff's case; and on the further ground that there is a defect of parties defendant." The motion was denied and the defendant excepted. The motion, as we have seen, was to dismiss the complaint, not to stop the trial and have the necessary parties brought in, but to deprive the plaintiff of her cause of action by the dismissal of her complaint. I do not understand that the court could properly have dismissed the complaint upon this ground; the most that it had the power to do was to stop the trial, and to make an order for the bringing in of the necessary parties. Consequently, the exception taken to the refusal to dismiss the complaint presents no error of law upon which this court can properly base a reversal. I, therefore, favor an affirmance.
PARKER, Ch. J., GRAY and BARTLETT, JJ., concur with VANN, J.; O'BRIEN and MARTIN, JJ., concur with HAIGHT, J.
Judgment reversed, etc.