Sabbagh v. Professional & Business Men's Life Ins. Co.

• Decision Date: 02 August 1962
• Docket Number: 9977,No. 50601,50601
• Citation: 116 N.W.2d 513,79 S.D. 615
• Parties: Michel I. SABBAGH, Plaintiff and Respondent, v. PROFESSIONAL AND BUSINESS MEN'S LIFE INSURANCE COMPANY, a Corporation, Defendant and Appellant.
• Court: South Dakota Supreme Court

Page 513

116 N.W.2d 513

79 S.D. 615

Michel I. SABBAGH, Plaintiff and Respondent, v. PROFESSIONAL AND BUSINESS MEN'S LIFE INSURANCE COMPANY, a Corporation, Defendant and Appellant.

No. 50601, 9977.

Supreme Court of South Dakota.

Aug. 2, 1962.

Martens, Goldsmith, May & Porter, Pierre, for defendant and appellant.

Newell E. Krause, Lemmon, for plaintiff and respondent.

ROBERTS, Judge.

The defendant insurance company appeals from a judgment rendered against it for the amount of the first premiums paid on four policies of life insurance on the ground that they were obtained by fraud.

Plaintiff alleges in his complaint that defendant company issued to him four life insurance policies; that the agent for the defendant for the purpose of inducing plaintiff to apply for the insurance made fraudulent representations upon which plaintiff relied; that upon discovering the falsity of the representations plaintiff demanded return of the premiums amounting to $1725; and that defendant has refused to return the money paid to its agent. The answer of the defendant is first a general denial and then a specific denial that its agent was ever authorized by the defendant to make any false or fraudulent representations whatsoever to the plaintiff.

If the complaint be interpreted as seeking relief other than rescission, the record clearly indicates that issues of rescission were tried with plaintiff's implicit consent. ¹ Issues not pleaded may be treated as if pleaded when they are actually submitted to the trier of the facts by express or implied consent of the parties. SDC 33.0914; Durr v. Hardesty, 76 S.D. 232, 76 N.W.2d 393.

At the conclusion of the trial the court, sitting without a jury, made findings of fact which read as follows:

'I.

'The Court finds as a fact that the defendant, Professional and Business Men's Life Insurance Company, a foreign corporation, through its agent, Albert Bates, sold to the plaintiff, Michel I. Sabbagh, on April 30, 1959, at Lemmon, South Dakota, four insurance policies, issued by the defendant company bearing an effective date of May 1, 1959, being plaintiff's exhibits 1 through 4; that the plaintiff paid to the defendant the sum of One Thousand Seven Hundred Twenty-five Dollars ($1,725.00) as premiums for said four policies.

'II.

'The Court finds as a fact that the defendant, through its agent, Albert Bates, did make false and misleading statements and did make misrepresentations to the plaintiff concerning the following: The four policies would pay up in eight years; that they were a special policy and only available to a special group of people; that a policy holder would participate in the ownership of one hundred shares of stock for each policy; that at the end of twelve years, each policy would pay ten thousand dollars in cash. The Court finds as a fact that the defendant through its agent did show a resolution to the plaintiff identified as plaintiff's exhibit IA and that said resolution is not a portion of the policy nor was it printed on the policy form, nor had the defendant company filed said resolution as a part of the policy with the South Dakota Insurance Commission as is required by law as a condition precedent for sale of such policy.

'III.

'The Court finds as a fact that defendant represented to the plaintiff that if he would purchase said policy he would participate in the profits of the Company never less than the cash dividends paid on shares of the common stock of PBMI in the ratio of earnings on one hundred shares to each ten thousand charter policy and that in the event of a stock dividend or dividends, the cash dividends ratio would be included accordingly. The Court finds as a fact that said representation is false and is a misleading statement.

'IV.

'The Court finds that the defendant company instructed its agent Albert Bates and supplied him with sale material including copies of plaintiff's exhibit IA and deliberately and intentionally caused the fraudulent and false misrepresentations heretofore set out.

'V.

'The Court finds as a fact that Albert Bates was acting as a general agent of the defendant company at the time material herein.

'VI.

'The Court finds as a fact that the plaintiff relied on the false and misleading statements and misrepresentation made by the defendant through its agent to the plaintiff and was thereby induced to purchase said four policies of insurance.'

The resolution referred to in the findings of fact as Exhibit IA was adopted by defendant company on January 2, 1959, and it was therein resolved as follows:

'BE IT RESOLVED THAT P.B.M.I. adopt the PRESIDENT'S SPECIAL POLICY program designed to attract 25,000 selected citizens as cooperative policyholders or the equivalent; and

'BE IT FURTHER RESOLVED THAT such Special Policies be issued on the President's Special Participating plan; and

'BE IT FURTHER RESOLVED THAT these policies shall participate in the profits of the Company--never less than the cash dividends paid on shares of the common stock of P.B.M.I.--in the ratio of earnings on 100 shares to each $10,000.00 Charter Policy. In the event of a stock dividend or dividends, the cash dividend participation ratio will be increased accordingly.

'This Special Participating feature shall be available only when the policy is in full force and all due premiums thereon have been paid. The minimum dividend will be paid on the basis of the cash dividend paid on the common stock during the previous calendar year.'

No question is raised as to the sufficiency of the evidence to sustain the findings of the trial court as to misrepresentation by defendant's agent. Counsel for defendant assert, however, that delay in seeking rescission during which time the policies were in full force and effect and defendant was obliged to pay if any of the conditions happened upon which liability rested and failure to restore or offer to restore to defendant what the persons insured had received of value under the insurance contracts precluded recovery; that plaintiff chargeable with knowledge of the contents of the policies limiting the authority of soliciting agents had no right to rely on the representations of the agent and too the representations tended to vary the term of the insurance contracts; that plaintiff in paying premiums in the amount of $800 relied on the advice of his own attorney and not on that of defendant's agent and in the absence of such reliance has no cause of action therefor; and that prejudicial error was committed when a large volume of incompetent and hearsay evidence concerning the defendant company was received during the trial.

SDC 10.0804 provides:

'Rescission, when not effected by consent can be accomplished only by the use, on the part of the party rescinding, of reasonable diligence to comply with the following rules:

'(1) He must rescind promptly, upon discovering the facts which entitle him to rescind, if he is free from duress, undue influence, or disability, and is aware of his right to rescind; and

'(2) He must restore to the party everything of value which he has received from him under the contract, or must offer to restore the same, upon condition that such party shall do likewise, unless the latter is unable or positively refuses to do so.'

There is a distinction between a legal rescission and rescission in equity. In the former, the rescission is by act of the party and is a condition precedent to bringing an action to recover money or thing owing to him by any other party to the contract as a consequence of the rescission. On the other hand, rescission in equity is effected by the decree of the court which entertains the action for the express purpose of rescinding the contract and rendering a decree granting such relief. 12 C.J.S. Cancellation of Instruments Sec. 5. We are in the present action dealing with a legal rescission. The provision of section 10.0804, supra, provides how a contract by a party may be rescinded.

Was there a rescission within the requirements of the statute? It appears from the evidence that the four policies of insurance were delivered April 30, 1959. It does not appear from the evidence when plaintiff obtained actual knowledge of the fraud and the circumstances were not such as to charge plaintiff as a matter of law with constructive knowledge. See Nat. Bank of Dakota v. Taylor, 5 S.D. 99, 58 N.W. 297. There were representations as to matters outside of the policy and application. Defendant's agent assured plaintiff that he would acquire one hundred shares of the common stock of defendant company for each $10,000 of insurance and the right to exercise certain voting privileges. The policies did not so provide. It was not a situation where by the exercise of ordinary diligence plaintiff by examining the policies would have discovered the falsity of the representations. The attorney's letter of November 20, 1959, returning the four policies to the company and demanding refund of the premiums, made known to the defendant the election of the plaintiff to disaffirm the policies. December 18, 1959, J. R. Blevins, Vice President of the defendant company, replied stating that it would be for the best interest of all concerned to cancel the policies and enclosed a check for the 'unused premium'. December 28, 1959, plaintiff's attorney returned the check and demanded refund of the premiums in full less $116.00 which he claimed was a reasonable amount 'for the protection offered from the date of the policy to the date of the refund'. There was further correspondence with reference to the amount of the refund which we need not detail. January 22, 1960, Mr. Blevins wrote plaintiff's attorney as follows:

'This will acknowledge receipt of your letter dated January 7, 1960, and I wish to state that I am happy that the check was not accepted by your client, as this check was sent out to you in error, as we were not authorized to make such a refund by Mr. Bates, who sold these policies....