*1 SABBAGH, Respondent v. PROFESSIONAL & BUSINESS LIFE
MEN’S CO. INS. (116 513) N.W.2d (File Opinion August 2, 1962) No. 9977. filed *3 Porter, Pierre, for De- Martens, Goldsmith, May & Appellant. fendant and Respond- Krause, Lemmon, for Plaintiff and
Newell E. ent. ap-
ROBERTS, insurance The defendant J. against judgment peals amount for the from a rendered paid premiums life insur- four on of the first they ground fraud. on that were obtained ance complaint alleges com- that his Plaintiff policies; pany him four insurance life issued inducing plain- purpose agent for the for the defendant represent- apply made fraudulent for the insurance tiff to discovering upon plaintiff upon relied; that ations which falsity representations re- demanded of the amounting $1725; that de- turn of the money agent. paid to' its to return the refused fendant has general a is first denial The answer of the defendant specific was ever authorized then denial represen- make false fraudulent the defendant to plaintiff. tations whatsoever complaint interpreted seeking re If clearly rescission, indicates that lief other the record than plaintiff’s implicit of rescission were tried issues may pleaded pleaded if consent.1 be treated as Issues they actually to the trier when are submitted implied parties. express or SDC facts consent Hardesty, 33.0914; 393. Durr v. S.D. N.W.2d *4 sitting court, of the trial the with- At the conclusion findings jury, follows: of fact which read as out a .made following at 1. The discussion had commencement of the trial: Both for ready “COURT: So ordered. sides trial? are, your “Mr. Porter: We Honor. Yes, your “Mr. Krause: Honor. According understanding my “Mr. then at Porter: the commencement toeing is of action since the case tried to Court may so that we know dissaffirming, theory, plaintiff’s proceeds on the basis of the contract asking and rescission. Is that correct? for “Mr. This is an Krause: action in fraud and deceit. The evidence will suing plaintiff disclose of the that the contract rescinded for the recovery damages are premiums actual which in the form of the paid and ask for damages, being exemplary the same an action in fraud. grounds “By Mr. Yes, Porter: on fraud. of grounds "Mr. Krause: On the fraud. disaffirming “Mr. that you Porter: And are the contract. “Mr. Certainly, Krause: we are. “Mr. Yes, Porter: OK. Rescinding “Mr. Krause: contract. “Mr. Well, Porter: I mean that narrows the issues that is what we can do with a court trial.”
“I. defendant, “The finds as a Court fact that the Professional and Men’s Business Life Insurance Company, foreign corporation, through agent, a its plaintiff, Bates, Albert sold to the Michel I. Sab- bagh, April Lemmon, Dakota, on at South policies, four insurance issued the defendant company bearing May 1, 1959, an effective date of being plaintiff’s through 4; exhibits 1 that plaintiff paid to the sum defendant the of One ($1,- Twenty-five Thousand Seven Hundred Dollars 725.00) policies. as for said four
“II. “The finds defendant, Court as a fact that the through agent, its Albert make did false and Bates, misleading misrepresen- statements and did make plaintiff concerning following: tations to the pay up years; eight The four would they only special policy were a available special people; group policy to a that a holder participate ownership would in the hun- one policy; dred shares stock each at end years, policy pay of twelve thou- each ten sand dollars in cash. The Court finds a fact as through that the defendant show a did plaintiff’s to the as resolution identified exhibit IA and that said is not a resolution portion policy printed of nor was it on the policy form, nor had the defendant filed part said resolution as a required
South Dakota Insurance Commission precedent law as for sale such condition policy.
“ III. *5 “The Court finds as a fact defendant represented plaintiff pur- that if.he would participate policy he in the chase said Company profits never less than the cash paid stock on shares of the c'ommon dividends earnings on in the ratio one hundred PBMI policy and that thousand charter shares to each ten dividends, or in the event of a stock dividend ac- included dividends ratio would be the cash cordingly. said fact finds as a Court misleading representation state- is false ment.
“IV. company that the defendant “The Court finds supplied agent him Bates and instructed its Albert copies plaintiff’s including with sale material deliberately intentionally caused exhibit IA and misrepresentations hereto- the fraudulent and false fore set out.
“V. Bates “The finds a fact that Albert Court general agent acting of the defendant as a was company time material herein. at the
“VI. plaintiff “The finds as a fact that Court misleading statements and relied on the false and through misrepresentation defendant made thereby induced to the and was purchase four of insurance.” said findings to in the of fact The resolution referred adopted by on Jan- IA as Exhibit was uary 2, 1959, follows: and it therein resolved as adopt THAT P.B.M.I.
“BE IT RESOLVED program de- POLICY PRESIDENT’S SPECIAL signed 25,000 citizens as co- to attract selected operative policy equivalent; holders THAT such
“BE IT FURTHER RESOLVED Special Special the President’s Policies be issued on Participating plan; and *6 these
“BE IT FURTHER THAT RESOLVED policies participate profits of the in the shall paid Company less than cash dividends —never of P.B.M.I.— shares of the common stock on earnings to each in the ratio on 100 shares Policy. $10,000.00 event of a Charter dividends, the cash dividend stock dividend accordingly. participation be increased ratio will Special Participating shall be “This feature only in full force and available when paid. The all due thereon been have paid minimum on the basis dividend will be paid stock dur- cash dividend on the common ing year.” previous calendar question sufficiency
No is raised as to of the evi- findings dence to sustain the of the trial court as to mis- representation by agent. defendant’s Counsel for defendant delay seeking during assert, however, that in rescission time which were in full force and effect and n obliged pay defendant was if of the conditions happened upon liability which rested and failure to restore persons or offer to restore to defendant what the insured pre- had received of value under the insurance contracts’ recovery; plaintiff chargeable knowledge cluded with policies limiting authority of the contents of the soliciting agents right rely representations had no on the agent representations vary and too the tended to pay- contracts; the term of the insurance in ing premiums the amount $800 in relied on the advice attorney of his own and not on that of defendant’s the absence of such reliance has no cause prejudicial therefor; of action and that error was committed large incompetent hearsay when a volume of evi- concerning dence the defendant was received dur- ing the trial. provides: 10.0804
SDC “Rescission, when not effected consent can accomplished only part use, on the diligence rescinding, party of reasonable following c'omply rules: “(1) *7 upon promptly, must rescind discov- He ering rescind, him to if the facts which entitle disability, duress, undue or influence, is free from right rescind; and is aware of his to and “(2) party everything He to the must restore which he has from him under the value received upon contract, same,, or must offer to restore the party likewise, unless that such shall do condition positively do the latter is unable or refuses to so.” legal a a rescis There is distinction between equity. former, in the rescission sion and rescission bring -by party precedent of the is a condition to act and money ing thing owing him an to recover action consequence party a of the other to the contract as equity hand, rescission. On the other rescission in is ef ¡by fected the decree of the court which entertains the ac express purpose rescinding tion for the the contract rendering granting a decree such relief. 12 C.J.S. present § Cancellation of Instruments. 5. We are in the ac provision dealing legal The of sec tion with a rescission. supra, provides party 10.0804, tion a how contract may be rescinded. requirements
Was there a of the rescission within appears policies four statute? It from the that the evidence April ap of insurance delivered 1959. It does not were pear plaintiff from knowl the evidence when obtained actual edge of the not such fraud and circumstances were charge plaintiff as to as a matter of law with constructive knowledge. Taylor, 99, 58 Bank of Dakota v. See Nat. S.D. representations as matters out 297. There were to- N.W. policy application. side Defendant’s as of. plaintiff acquire that he would one hundred shares sured $10,- of the stock of for each common defendant voting right 000 of to exercise certain insurance and the privileges. policies provide. It not a The did so ordinary diligence by the exercise of situation where policies plaintiff by examining the would have discovered attorney’s representations. falsity of the letter of returning policies 20, 1959, the four com- November to the pany demanding premiums, refund of the made known to the election disaffirm policies. Blevins, December J. R. Vice Presi- replied stating company,, dent of the defendant that would be for best of all interest concerned cancel the premium”. and enclosed a check for the “unused plaintiff’s attorney 28, 1959, December returned the check and demanded refund of full $116.00 less pro- which he claimed was a reasonable amount “for the tection from the date of offered date correspondence of the refund”. There further *8 was reference to the amount of the refund which we need not January plaintiff’s 1960, 22, detail. Mr. Blevins wrote attorney as follows: acknowledge your receipt
“This will of letter January 7, I960; dated and I to wish state that I happy accepted by your am that the check was not you client, error, as this check was sent out to in as we were not to such authorized make a refund by policies. Bates, Mr. who sold these
“I wish to advise that Mr. Bates is an inde- pendent any adjustment contractor, and made in by contracts would have be made or authorized Mr. Bates. returning policies you
“I am the which are protection, they still in force with full as should your be the in hands of client. Our records show premium May next the annual be due on will payment 1, 1960, bourse, and of if such is not by they automatically lapse time, made will at expiration grace period.” the
Defendant contends that rescission was timely required by quoted. the statute above In Saunders 261, Bank, N.W.
v. Farmers’ & Merchants’ Nat. S.D. delay discovering 250, “However, the said: the is pro The statute fraud is not what the statute covers. discovering rescind the one must then vides that after fraud right deprive promptly. Failing one of the so to do will although injury prejudice rescind, be shown no promptness delay. statute, is the as a of Under result the regarding imperative condition, the con made an without statutory, sequences party. is matter on the other upon estoppel.” re elected to not based an Whether discovering promptly under all the fraud scind after the trial court. the circumstances consideration of finding it must fact this issue and There is no of on disposition by the final be determined trial court before this can made. action provisions
It that the contention of defendant required plaintiff quoted aas con- above statute policies judgment being aside dition of the set the value of the court restore to defendant persons protection for the insured at least received May policies effective, period became when plaintiff by letter advised to November when representations made defendant of in- and returned to the defendant (cid:127) included received surance. The *9 policies coverage during were in force. the time the rescission, not have in his the time of At possession did anything be to defendant. of value to restored dependent, indicated, first, have A cause of action is upon as we discovering promptly being after contract avoided the upon second,, return or offer to and, the fraud return commencing wrongdoer of suit that which the before party complaining words, In rec'eived. other there parties can be no of a contract unless the can rescission permit. placed quo far as in status so circumstances It is each of the of insur true that contracts of ance in a sense was not that of the because non- insured knowledge assent thereto with of the facts. Federal See
625
Houck,
However,
Land
68
Bank v.
S.D.
“Answering particularly more counsel’s first by proposition, a contract entered into fraud on through negligence side, one or mistake on the * * * absolutely other, is not void. When the es- gives sential added,, element of assent is effect binding to the transaction as a contract from the beginning, deception if same as no had been * * * practiced. principles great apply Those respondent force this class cases. The had nearly year full benefit his insurance repudiated before he transaction, and his as- signees had the benefit theirs for months be- they regard. fore period acted in The entire premium upon respondent’s covered the first policy poli- had, before he refused to abide such cy, nearly expired. No one would venture to claim during period delay, that if he had died such have been bound personal representatives and his would not have it.” enforced *10 by pre
Plaintiff demanded return letter of all paid protection miums less reasonable amount for the action, how- This in force. were while the afforded premiums paid brought without to recover the ever, was by per- protection enjoyed the the insurance for deduction unquestionably return entitled to An insured sons insured. for voidable premiums insurance is of the contract when of agents. misrepresentation insurer or its fraud or the Appleman, 8352. North- Practice, § In Insurance Law and Fleming, 36, 80 12 S.D. v. Hail Ins. Co. Mutual western insured was in- claimed that wherein N.W. misrepresentation of hail take out insurance duced to quo recognizing doctrine status insurer, Court this said: had received case bar
“In the at namely, protection stipulated, his the consideration during the of 1895.It would hail season from loss manifestly unjust, therefore, re- to to allow him be protection, and,, after tain the full benefit this expired, to his con- the season for loss had rescind making any ground fraud, on the without tract protection such remuneration to the during or insurance the season.” Shearer, Assur. v. Provident Sav. Life Soc. Ky. 938, an action recover the amount 151 S.W. to ground premiums paid upon misrepresentations inducing policy the insured to surrender his old accept place, in its the court said: a new one appealed judgment
“If from should be company required to stand and the allowed paid, return to in- Shearer necessary thereon, terest effect be to would give during Shearer the full benefit the time it inwas force without cost to him. During protected this time Shearer was policy, he had if died the compelled paid have been agreed have amount it pay contract of insurance. It is very plain that, therefore if this contract is to be
;627 upon rescinded, canc'eled.and it should be done equitable terms. insurance should carry required upon not be insurance the life of nearly years receiving Shearer for five without premium therefor, nor Shearer be allowed should yet pay to recover the and not company anything insurance for- insurance upon during period he had his life covered by premiums.” these case of Moore v. Mutual Reserve Fund App.Div. ap Ass’n, 255,
Life pellate 121 106 N.Y.S. Supreme by division the New York a Court quo three to decision held two the status doctrine require intervening did deduction for the insurance protection enjoyed. which After insured had careful cons conflicting views, ideration of these opinion expressed we remain of the Fleming policyholder in the case that a misrepresenta is not entitled to rescission for fraud and recovery premiums paid tion without deduc enjoyed protection tion for the value of the insurance carrying him. The actual cost to the proof risks while were in is a force matter of and defendant should be credited with that on re amount covery by plaintiff. Society Savings Provident Life Assur. supra; McKindley Shearer, Drew, v. v. 69 Vt. A. 37 142(f); 285; § 37 C.J.S. Fraud annotation in 136 see also may proceeded upon A.L.R. 5. We add that if the trial court theory deceit, fraud evidence not suf the. judgment prem ficient warrant iums for the amount of the
paid. Fleming, Northwestern Mutual Hail Ins. Co. v. supra. This not a case where no risk attached and the policy was void ab initio. In such instance insured is premium paid entitled return of the since there was payment premium. no consideration for the of the A distinction in the two remedies is this: seeks Rescission quo, damages restore status but “must fraud casualty measured the usual tests of rather than an quo Deavers, effort to restore status ante.” Ward v. 92 seeking dam- U.S.App. Plaintiff 76. F.2d D.C. prove has ages must for fraud in a law action consequence directly damages fraud as a suffered ascertainable. *12 is definite to extent an Am.Jur., Deceit, § 265. Fraud and enabled have which would
There was no evidence premiums paid the excess of the trial court to determine that it was received. Defendant contends the benefits over upon plaintiff court evidence submit to the to incumbent upon parties. equity between it could do which “One 485, is said: Keener, 28, 222 N.W. v. 54 S.D. Smith seeking the court to enable furnish evidence must rescission quo also equity, be restored.” See status cannot to do Perry Meyer, where Fryer 717; v. 347, 110 193 N.W. Neb. v. Wyo. Campbell, 994. We believe that 48 43 P.2d failing in show that defendant to is insufficient evidence permit be restored so far as circumstances will position. former contain the of here involved
The insurance “policy, including pro- the benefits and clause that this Company printed or or at- visions written hereon application Company, hereof, and the hereto tached application copy this a was attached hereto when of which issued, constitute the entire contract between signed applications parties.” follow- contain the The “* * * ing Company provision: shall not bound be any way by any promises, statements, information or any given by agent person or or or other at made writing time unless the same be reduced to and sub- Company mitted to the at its Home a Office made part pre- It such contract.” is asserted that is sumed to have known the contents the contracts and cannot therefore hold defendant accountable for un- representation parol authorized and too evi- representations vary of such dence tended to terms improp- the written insurance contracts and was therefore erly received. general contracting party rule is agreement
is bound
an
to which he assents in the
fraud,
accident,
absence of
or
mistake
undue influence
say
and the like and he will not
heard
he did not
agree
Brooks,
intend to
to its terms.
v.
Stoefen
66 S.D.
587,
The rule is § stated thus in 32 C.J.S. Evidence “It everything is well established as that, fraud vitiates parol always touches, which show, evidence is admissible to purpose invalidating for the of a instru- written procured by ment, that its fraud, execution that, was or express fraud, reason of it does not the true inten- parties. respect tions of the The rule in this is not inapplicable by writing rendered the fact that con- agreements a tains recital to the effect that all between * * parties therein, are contained *. Thus it been has frequently contract, held that even if the when reduced writing, places authority, agent’s limitations on the parol prove repre- evidence is admissible fraudulent agent by of an sentations which the contract was induced.” misrepresentation There was fraud and at the inception plaintiff of the transaction between the agent company. parol of If the rule evidence permit did not introduction of evidence a contract where is procured by contracting party induced fraud, a could Mahaney, Register as this court stated in National Cash Co. v. pra, “claim the of the benefits contract and re su pudiate the means which it obtained.” The was de- liability re- of the from because immune fendant writings we have referred. to which in the contained citals signing applications gave his at the time Plaintiff premiums. part agent first for a of the defendant’s note to pay his check dated note mailed the Plaintiff he had short that Plaintiff testified 1959. October premium receipts previously left the time acting plaintiff attorney. on contends that his Defendant attorney making payment cannot such the advice his part with the amount he was induced to claim that now representation through of defend- check fraudulent this agent. from situation is different ant’s We think that this Virginia, Life that in Frazell v. Ins Co. of N.C. by defendant, insured testified where cited S.E. soliciting agent had he did not believe what that attorney sought him, to the of his as told but the advice plain- meaning agree with of the insurance contract. We proof payment that this contention that is no tiff’s there discovery appear It made after of the fraud. does not was attorney to the been advised his had meaning of contracts and the effect of the insurance falsity representations from a read- unrevealable ing and examination the insurance contracts. predicated are
The other errors
on the in
testimony
objection.
troduction
urges
over
certain
Defendant
testimony
incompetent.
was
This
an
*14
jury
many
tried to
action
the court without a
and
factors
prejudicial
be
that would
considered
in a case
to a
tried
jury will not
so held
be
in case
a trial h> the court.
usually
This court has
held that where there is sufficient
properly
findings
evidence
before the
to
court
sustain
improper
the fact
evidence was received will not be
presumption
considered reversible error. That
is
rely upon improper
trial court did not
In re
evidence.
Estate,
204,
129;
S.D.
re
N.W.
Stensland’s
Hoisin
g
Estate,
ton’s
need
63Í dispose position appeal to of this areWe in directing judgment trial. The is without a new reversed to determine the cause remanded with directions question plaintiff rescinded fact as to whether the con knowledge promptly obtaining tracts of insurance after fraud and to allow the introduction of evidence finding and make of fact to the in actual cost of protection surance in afforded were while judgment force then to enter in accordance with this opinion.
RENTTO, J., SMITH, J., P. concur. (dissenting). HANSON, J.
I would affirm.
If this action is rescission, considered to one for be majority opinion indicates, as the there no reason to remand to the trial court “with directions determine question of fact as to whether rescinded the promptly obtaining contracts of insurance after knowl- edge Judge pointed of the fraud”. As Rentto out in Beatty Depue, the case of v. 78 S.D. 103 N.W.2d concerning diligence seeking “Our rule spelled rescission is out in That SDC 10.0804. sec- tion states as follows:
“ ‘Rescission, when not effected consent can accbmplished only part on the use, party rescinding, diligence of reasonable to com- ply following with the rules:
“ ‘(1) promptly, upon He must rescind dis- covering the facts him rescind, which entitle influence, if he is free from undue duress, disability, right and is aware of his to rescind.’ any duty Before one is under act must entitling have discovered facts him to rescind right and be of his aware to rescind. Bancroft v. McCray Woodward, 445; 183 Cal. 190 P. v. Title *15 Cal.App.2d Co., Ins. & 537, Trust 12 1234; 55 P.2d 632 Cal.App.2d Ellichman, 831, v.
Gedstad way, putting another statute P.2d 661. Or our party prompt- mistaken reads that the ‘must rescind ly upon discovering him to facts entitle which * * * right rescind, re- if he is aware 'his ” scind.’ undisputed clearly in shows The evidence this case promptly upon rescinded insurance discovering the him rescind facts which entitled and right in after he became of his to rescind accord- aware interpreted this dance with 10.0804 as court in SDC Beatty Depue, supra, case of should so hold v. and we as a matter of law. majority
Also,, under view seem more it would equitable to affirm remand action with and this direc- pre- directions, rather as the tions than to reverse with vailing party obligated appeal. pay costs of now (dissenting).
BIEGEEMEIER, J. complaint The is an action in and asks deceit actual punitive representa- damages and for false findings fraudulent theory tions; ing trial court’s followed allow- only’ damages; nor actual neither the word rescission appears hint of it in either. Plaintiff stated the evidence “This is show he contract and an rescinded pre- at the fraud deceit”. No order was made action for theory, permitted hearing change or limit this trial Supp. I9601 SDC 33.1003. Hail court Northwestern Mutual Ins. This has said in Fleming, 36, 41, where v. 12 S.D. N.W. Co. * * * (upon practiced person) has “fraud been (1) may open courses are to him: He rescind two provided statute; in the contract in the manner (2) bring may, upon discovering fraud, *” * * deceit an action v. First Bank of Webster First National Mobridge, 45 D. 187 N.W. Bank S. National (1922): 623, 624,
633
right
damages
“The
to sue for
for fraud and
deceit without rescission and without an offer to
* * *
property purchased
return the
is well
* *
established
v.
Accord: Kordis
Co.,
Auto
247,
Owners Ins.
311 Mich.
18
damages
811,
N.W.2d
813. The measure of
for fraud
paid by
upon
is
policy,,
“the cash
her
with interest”.
Rohrschneider v. Knickerbocker
Co.,
Life Ins.
76 N.Y.
Am.Rep.
216,
32
cited in
136 A.L.R.
and 59. The
against
same result was reached
ain
similar suit
the de-
present
Stegman
fendant in the
action in
Professional
v.
&
Business
Men’s Life Ins. Co., 173 Kan.
Even in the rescission, cases return of the any part premium. sufficient, is not return of reasoning appears for this in the cases in 136 A.L.R. profit by 56. Otherwise the its puts require pay- fraud, and, own it, as the Vermont court ment for the McCarty use a horse before the rescission. See also Co.,
v. York New Life Ins. Minn. 77 N.W. Appleman, 426; Practice, Insurance Law and § 8352 and (Vols. 20). Prompt § 11276 15 and action implicit findings judgment in the trial court’s proof .mitigation 'him. Defendant offered no of the dam- sustained, ages. may If defendant has loss it have re- against agent. course I would own affirm. Respondent CHRISTENSEN, FALLS, OF v.
CITY SIOUX Appellant (116 389) N.W.2d (File 1962) Opinion August 6, 9915. filed No.