Home Loan & Inv. Ass'n v. Paterra

• Decision Date: 02 July 1969
• Docket Number: No. 522-A,522-A
• Citation: 255 A.2d 165,105 R.I. 763
• Parties: HOME LOAN AND INVESTMENT ASSOCIATION v. John J. PATERRA. ppeal.
• Court: Rhode Island Supreme Court

Page 165

255 A.2d 165

105 R.I. 763

HOME LOAN AND INVESTMENT ASSOCIATION v. John J. PATERRA.

No. 522-Appeal.

Supreme Court of Rhode Island.

July 2, 1969.

Adler, Pollock & Sheehan, Edward L. Maggiacomo, Providence, for plaintiff

Earl F. Pasbach, Providence, for defendant.

OPINION

JOSLIN, Justice.

This civil action was brought in the superior court by the payee against an accommodation maker to recover the unpaid balances due on two negotiable promissory notes. A trial justice sitting without a jury determined that the plaintiff had failed to advise the defendant about certain relevant and material facts concerning the loan transactions, treated the concealment of those facts as equivalent to fraud, and found for the defendant for whom judgment entered. The plaintiff appeals.

The facts are not in dispute and can be briefly stated. In November 1964, Ernest Petteruti applied to plaintiff for a loan. Ernest's health was poor, he was heavily in debt, and he was in dire need of financial assistance. Obviously, he was a poor credit risk and plaintiff was unwilling to lend him any money without the protection of the signature of a substantial endorser or co-maker. Ernest then went to defendant, told him of his difficulties, and asked him to guarantee the loan. He suggested that defendant communicate with Joseph Petteruti (Ernest's nephew and plaintiff's president) in order to verify his circumstances and the arrangements he had made concerning the proposed loan. The defendant complied with Ernest's suggestion and telephoned Joseph. What Ernest had told him was confirmed. Joseph was aware that Ernest had financial problems and that he was a poor credit risk; he knew that Ernest in the past had failed to keep his financial commitments and that he would be unable to pay the proposed loan; and he was unwilling to lend him any money unless a substantial guarantor could be found. When defendant asked whether the loan would be covered by life insurance, Joseph replied that it would be. Feeling secure in the belief that the insurance proceeds would be available to meet any obligations on the loan 'in the event that anything happened' to Ernest, defendant then became a co-maker on a note for $1,097.16. It was dated November 24, 1964, and called for 12 equal monthly payments of $91.43 each.

About a month later Ernest again approached defendant. He was still in pressing need of money and asked defendant to sign for him so that he might obtain an additional loan from plaintiff. Once again defendant telephoned plaintiff, asked whether Ernest's life would be insured, and was told that it would be. Notwithstanding that assurance, he was reluctant to sign. His reason was that he thought it unfair for Ernest to ask him, a 'perfect stranger,' to endorse his obligation at a lending institution which was controlled and owned by the borrower's family-the Petterutis. His misgivings were satisfied when both Ernest and Joseph assured him that Mary Petteruti, Joseph's mother and Ernest's sister-in-law, would also sign. The second note was executed on December 16, 1964, and defendant and Mary Petteruti were co-makers. The note was in the principal amount of $1,134.18, and provided for 18 equal monthly payments of $63.01 each commencing on January 16, 1965. Neither in this instance nor at the time of the first transaction was defendant shown a copy of the insurance contract, and while this note, just like the earlier one, indicated that life insurance would be carried on the loan, it did not disclose the extent of the coverage.

Ernest died in July or August of 1966. No payments had then been made on either note. Although defendant had been notified during Ernest's lifetime that the notes were in default, he had not been dunned for payment, and indeed, it was not until six months after Ernest's decease that a serious demand was made upon him for payment. By then ownership and control of plaintiff had passed from the Petteruti family.

The controversy centers on what was meant and what was understood when defendant asked whether life insurance would be carried on the loan and was told that it would be. There are two versions. The defendant's is that he would not have become a co-maker unless the loans were covered by life insurance. Life insurance coverage to him meant that the insurance proceeds would be available to pay whatever balances might be due on the two notes whenever Ernest died. If that were not so, he said, it would have been foolish for him to sign knowing that Ernest was in poor health and that he would be unable to pay the installments on the notes as they fell due.

Joseph, in his version, does not deny that he told defendant that Ernest's life would be insured, but he says that the kind of insurance he was taking about and the kind actually carried was what is known in benking circles as credit group life insurance. That type of insurance, he testified, does not cover whatever may be owing on an obligation at the time of a borrower's death, but covers only such amounts as are not then in default. In this case, of course, all of the installments on each of the obligations had matured and were in default when Ernest died, and therefore, there...