Reference no: EM132350047

Nydegger, a contractor, who held a policy of insurance for $6,000 on the life of his debtor, Stewart, whose whereabouts were unknown, finding it difficult to pay the premiums, made an arrangement with the insurance company under which the policy was surrendered, and a paid- up policy for $2,500 was issued by the company and accepted by him in lieu of the policy surrendered. At the time of this transaction both parties acted on the supposition that Stewart was alive, but in point of fact he had been dead ten days. Nydegger claims the $6,000, but the insurance company refuses to pay more than $2,500 on the ground that the contract was in the nature of a doubtful claim. Is this defense valid? Explain.