Westerfeld v. New York Life Insurance

58 P. 92, 129 Cal. 68, 1900 Cal. LEXIS 931

• Court: California Supreme Court
• Decided: June 25, 1900
• Docket: S.F. No. 1573.
• Status: Published

Opinions

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] This case was decided in Department, the opinion being written by Mr. Commissioner Britt. A rehearing was granted solely because it was thought by some members of the court that the complaint stated a cause of action for damages for deceit — it having been held in the Department opinion that it did not. Upon mature consideration we think the decision rendered in Department is right, and the opinion is adopted as the opinion of the court in Bank, except as it may be deemed to have been qualified by this opinion.

Counsel for respondent contend that the court in Department took too narrow a view in its construction of the allegation that the plaintiffs "repudiated said settlement upon the ground that it was procured by fraud on the part of defendant." They say the allegation is but the statement of one of the facts constituting their cause of action. If this be so, evidently they have no action for damages. An action for damages will not lie because of such repudiation. The action for deceit is based upon the proposition that they were induced by fraud to release and surrender their original demand. If they repudiate such release they cannot claim that they were damaged by being induced by fraud to release, for they have not released. We do not agree that by bringing a suit for damages by a proper complaint plaintiffs would thereby repudiate the settlement which they were by deceit induced to make. They would affirm the settlement and aver in effect that it was not as good a settlement as they were entitled to, and that they were deceived into making it by the fraud of defendant, and their damage would be what they lost through such deceit. If the settlement does not stand they have not been damaged. It was through making the unfortunate settlement that they suffered damage.

One who has been so defrauded has his choice of two remedies: He may rescind, and recover that which he was induced to part with. If he does this, evidently the wrong done him has been righted, or usually would be. It may chance, however, that when he discovers the fraud he cannot rescind, or that rescission would not fully compensate his loss. He may therefore decline to restore what he received in the settlement or other contract he was induced by fraud to enter into, and, affirming the contract, sue for damages. But he cannot retain what he received and recover what he parted with. If he wishes to recover that, he must promptly offer to restore what he received and demand a rescission. This is the requirement of the code.

Counsel further contend that if this allegation is thought inconsistent with the view that the action is for damages, then it might be regarded as surplusage. They say they attempted to state in the complaint "all the facts, and expected to recover upon those facts upon any theory permissible. But we insist that even although the intention had been to sue upon the policy, treating the release as void because of the fraud, we can still recover in an action for damages, if, upon the facts stated, the law permits a recovery of damages."

The allegation under criticism is a very imperfect averment of a statutory rescission, yet it clearly implies that such rescission has been made. Conceding that the other facts stated would justify and sustain a judgment for damages, yet if there has been a rescission the action for damages cannot be sustained.

But if the plaintiffs are entirely wrong in their legal theory, and have brought and tried their case, not as an action for damages, but upon the policy, claiming that the compromise is void, giving credit for the amount received in the compromise as so much paid on account, as plaintiffs have, when they should have affirmed the contract and sued for damages, has the defendant been injured by the mistaken form of the action? It is contended that the case of the plaintiffs, so far as concerns the important matters of the controversy, is the same as it would have been. It is so, except that some further matters in regard to a rescission would have been brought in. The defense, except as to what might have been said about rescission, is the same. The rule as to the recovery is the same if we accept the rule of damages contended for by the respondents. Their contention is that in cases of this character, where a creditor has been induced by fraud to accept less than was due, even when the whole demand is disputed, the damage is the difference between what he was induced to accept as full payment and what was really due.

I think, however, the rule is correctly stated in the Department opinion. It applies to other contracts than those of this character as well. In some possible cases to recover what one has been induced to part with by fraud would not be full compensation, and at all events such a plaintiff is only entitled to be indemnified, unless for special reasons exemplary damages may be awarded. But if it were permissible to allow a judgment to stand, because we can see that substantial justice has been done, when it appears that the plaintiff did not establish the case stated in his complaint, but some other which he might have stated, it cannot be done here, for objection was made and exception taken at every step in the progress of the case and a motion for a nonsuit was made upon this very ground, and the ruling denying it is assigned as error.

But I think the judgment and order must be reversed for another reason. The facts proven do not show fraud, and plaintiffs could not recover in any form of action. The alleged fraud consisted in an affirmative representation that the policy had never been delivered to Westerfeld, but was merely submitted to him for examination, to be finally delivered if he approved of it and paid the first premium, and that he never signified his approval and did not pay the first annual premium; and also in concealing the fact that it was agreed between Westerfeld and the corporation that Westerfeld should be allowed a surrender value upon his first policy, which should be applied and received in payment of the first premium upon the second policy. And, further, that Westerfeld was given time in which to pay such first annual premium until such surrender value had been fixed by the defendant, and that no surrender value had been fixed up to the time of Westerfeld's death.

If the facts which it was alleged defendant concealed had any existence, then the affirmative representations charged upon defendant were false. Plaintiffs proved the falsity of the representations by the uncorroborated evidence of Todhunter, a former employee of defendant. He testified, in effect, that Westerfeld was dissatisfied with his first policy and threatened to make trouble for the company, which he charged had cheated him. Thereupon Westerfeld was induced by Hawes, general manager of the defendant, acting through Todhunter, to take out a new policy, upon the consideration that he would be allowed a surrender value upon the first policy which would about pay the first premium. It is, in effect, so stated in the complaint, although, in accordance with the admitted design to have such pleadings as could support any legal theory, it is not expressly stated that the acceptance of the new policy was so conditioned. The evidence of Todhunter plainly shows that only upon this promise did Westerfeld consent to accept the new policy. All the negotiations were through Todhunter, and he testified that he reported to Colonel Hawes that Westerfeld would be satisfied with the new policy "if he could determine the cash surrender value of the first," and that Hawes promised to refer that matter to the home office. Further, that Westerfeld wanted to know what the cash surrender value would be, and was told by Todhunter that it would be about eight hundred dollars. At the time he received the application he says: "It was understood that, if the cash surrender value of the first contract fell short of the premium required to pay the second, he would have to pay the difference, and if there was any overplus the company would give him the difference. I told him that. I do not recall exactly what he said, except that he gave me the application." And when the policy was delivered he told Westerfeld that there was nothing further to do with reference to the delivery except applying the surrender value of the first. And afterward when Todhunter received a note from the manager calling his attention to the outstanding policy and saying it must receive immediate attention, he, as he testified, called upon Hawes and reminded him of the arrangement, and that "Westerfeld was not called upon to pay the premium until the surrender value of the first contract was obtained from New York." The only other testimony in regard to delivery was given by Mr. More, who testified that at the request of Todhunter he handed the policy to Westerfeld, who remarked: "I am not to settle for this until I submit this to my friend." According to this testimony Westerfeld did not accept the policy as delivered, and there is no evidence which tends to prove that after this Westerfeld ever indicated that he was satisfied with it. This certainly does not show a delivery which would bind anyone. It counts for nothing if in fact, as respondent contends, the policy was such as Westerfeld contracted for. He refused to accept it until he was satisfied upon this subject.

Upon this point, therefore, there was no evidence to sustain the verdict except that of Todhunter, from which it clearly appears that Westerfeld took the new policy, if he did accept it, upon the representation that a surrender value would be paid upon the first policy, and, of course, had the company refused to allow such value, he could not by the corporation be held for the annual premium.

The policy as issued to Westerfeld in 1890, called the first policy, contained these provisions:

"No agent has power in behalf of the company to make or modify this or any contract of insurance, to extend the time for paying a premium, to waive any forfeiture, to issue a permit for residence, travel, or occupation, or to bind the company by making any promise or receiving any representation or information. This power can be exercised only by the president, vice-president, or actuary of the company, and will not be delegated. . . . .

"Surplus will be apportioned to this policy only at the expiration of each period of five years from the date of the commencement of the insurance, and then if this policy is in force. . . . .

"This policy may be surrendered to the company at the expiration of the first or of any subsequent five-year period, upon thirty days' previous written notice. At the expiration of the first period eighty per cent of its reserve (computed as hereinbefore specified), and in addition thereto the surplus then apportioned, will be allowed as a surrender value. At the end of any subsequent period the entire reserve (computed as hereinbefore specified), and in addition thereto the surplus then apportioned, will be allowed. The above cash values will not be allowed for a surrender at any other time."

Before taking the second policy, as alleged, Westerfeld had most persistently refused to pay "another single cent" upon the first policy. He was not, therefore, prevented from paying by the negotiations in regard to the second. He was presumed to know the conditions of the policy, and, in fact, had given it a careful examination, as is shown by his complaints. He knew, therefore, that the first policy had no surrender value whatever, and that its terms could not be modified by any officer of the corporation except the president, the vice-president, or actuary. Hawes was not one of the officers mentioned. Indeed, it is not shown even by Todhunter's testimony that such modification was agreed to by Hawes, but only that he promised to apply to the home office to have them do it, if possible, and nothing further was done in the matter either by the home office or by Hawes. But granting that Hawes promised that such modification would be made, and that the policy was delivered upon such promise, is the defendant bound by it? Respondents argue that it was not a modification of the first policy, but only an agreement as to the mode of paying a premium on the second. But that is not the case. The second policy was accepted in consideration of a promise to modify the terms of the first policy and allow a surrender value therefor — contrary to the stipulations contained in it.

But it is contended that the company is estopped to deny the authority of Hawes; that, having delivered the policy without express condition, it is bound thereby. Upon the uncontradicted testimony the court should have found that the policy was not delivered as an executed contract. But there was no estoppel upon any view. Westerfeld had notice of the want of authority, and also that Hawes made no claim to such authority. It is not a case where the corporation has been paid to carry a risk and is now attempting to escape liability. Westerfeld did not pay the first premium, and could not have been compelled to do so. Cases holding that when an agent gives credit in violation of his authority, and delivers the policy, the company is bound, do not go far enough for plaintiffs. They do not hold that the company shall be bound, though the premium is not to be paid and there is no liability on account of it. (Harnickell v. New York Life Ins.Co., 111 N.Y. 390; Insurance Co. v. Ewing, 92 U.S. 377; Giddingsv. Insurance Co., 102 U.S. 108.) Farnum v. Phoenix Ins. Co.,

83 Cal. 246,¹² is much relied upon by respondents. It was there held that the promise to pay on the part of the insured was a sufficient consideration for the contract, and that a local agent having authority to solicit business and make contracts of insurance, to countersign and deliver policies, binds his principal within the general scope of his apparent authority, notwithstanding an actual excess of authority. Any fact known to such agent which could constitute a breach of a condition and make the contract void, at the option of the company, from its inception, will be considered waived. The company cannot, in general, receive through its agents pay for carrying a risk, and be able when loss occurs to avoid liability by taking advantage of a limitation upon the authority of the agent. Here this state of things did not exist. It had not been paid to carry the risk, and could not have enforced payment. In the Farnum case the difference in the construction of limitations upon the power of agents in entering into contracts of insurance, and in modifying them afterward, is recognized.

It is also said that whether a particular agent has power to waive conditions is a question of fact. Plaintiffs offered no evidence as to the authority of Hawes except the policy, which expressly denied to him the authority to modify the contract. The burden was upon plaintiffs. The title "general manager," for a specified territory, does not establish the particular authority required, especially after this express limitation, which was known to the insured.

Respondent also relies upon a class of cases like Kahn v.Traders' etc. Co., 4 Wyo. 419.¹³ In that case it was held that consent to additional insurance given by an authorized agent, upon which the insured acts, will bind the company, although not indorsed upon the policy as required, although the authority of the agent was expressly limited to that mode. The reasons given are that the company had notice of the additional insurance — notice to the agent being notice to the company — and should have promptly notified the insured, if it did not consent, and also that it could not so tie its hands or that of its agents. The transaction was one which the agent was fully authorized to make, and the insured had done everything which ordinarily he would be required to do. But the company required, in addition, that for its protection he should see that the agent executed his undoubted authority in a certain mode. There are numerous authorities upon the subject and the matter is extensively discussed in the text-books. The majority of cases seem to be against the position taken in that case, but it is said that the present trend is in favor of the rule there declared. It is also said in that case, and numerous other cases with like conflict, that an adjuster can bind the company for whom he acts by his declaration that proofs furnished are sufficient, notwithstanding provision in the policy to the contrary. If this means that the company is bound unless it promptly gives notice that it is not satisfied, and in time to enable the insured to make his proof, it is clearly right and in accord with rules applicable alike to other transactions. But I see nothing in these decisions applicable to this case. Knowledge of the agent is not knowledge of the principal in matters not within the scope of the agent's authority. I see nothing unfair in such a limitation upon the authority of an agent as to matters involved here. To make such modification of the contract is not usually expected of an agent, and the power to do so is not implied in what may be called his usual ostensible authority.

It may be remarked that, as the correctness of the order refusing a nonsuit is involved on this appeal, we are not hampered by anything the court found or failed to find. Plaintiff's case was not strengthened by evidence after the ruling on the motion for a nonsuit was made.

The judgment and order are reversed.

McFarland, J., Harrison, J., Van Dyke, J., and Henshaw, J., concurred.

The following is the opinion rendered in Department Two, August 1, 1899:

¹² 17 Am. St. Rep. 233.

¹³ 62 Am. St. Rep. 47.