Wolfer v. Mutual Life Ins. Co. of New York

641 P.2d 1349, 3 Haw. App. 65, 1982 Haw. App. LEXIS 117

• Court: Hawaii Intermediate Court of Appeals
• Decided: March 5, 1982
• Docket: NO. 7484
• Status: Published

Opinions

OPINION OF THE COURT BY

PADGETT, J.

This is an appeal from a summary judgment order made final by a Rule 54(b), HRCP, certification in favor of defendants against plaintiffs on a complaint based on alleged fraud. We affirm.

Certain basic facts are undisputed. Appellants were life insurance salesmen representing Appellee Mutual Life Insurance Company of New York (hereinafter “MONY”). Appellee Schoch was the general agent of Mony in Hawaii under whom appellants worked. Mony had developed what was called a prime sales program pursuant to which persons purchasing life insurance could finance the payment of the premiums therefor by borrowing money from Appellee Key Resources, Inc. (hereinafter “KEY”), a subsidiary of Mony. In order to be able to sell under the prime program, salesmen, such as appellants, had to enter into an agreement with Mony under which they guaranteed the repayment of the loan which the insurance purchasers made with Key. The documents executed by the appellants clearly and unambiguously set forth the unconditional guarantee of the appellants. According to the documents in evidence, Appellant Leonard Wolfer first entered into such an arrangement on May 22, 1973; then again on December 10, 1973; and on January 4, 1974. Appellant Mark Wolfer entered into such an arrangement first on April 19, 1973; again on December 10, 1973; again on January 4, 1974; and finally, on July 29, 1974.

The present action concerns guarantees made by the appellants after executing the December 10, 1973 agreement. Essentially, what happened is that they sold insurance under the program to persons who borrowed money from Key and subsequently defaulted. A portion of the commissions which appellants had received on the sales had been put into escrow and upon the default, Key called upon Mony for payment of those sums as well as other contingent commissions due appellants from Mony.

Appellants’ suit is for damages alleging fraud on the part of the appellees in procuring the guarantees from them.

Rule 9(b), HRCP, requires that averments of fraud be stated with particularity. As has been said:

The general assertion of “fraud” or “fraudulent conduct” serves no informative function and therefore is insufficient to raise an issue as to fraud without supporting particulars.

5 Wright & Miller, Federal Practice and Procedure § 1298 at 415 (1969). With this in mind, we begin our consideration of the issue before the court below with an examination of the complaint. The allegations with respect to fraud are laid down in paragraphs 3, 4, 5, 6, 7 and 8.

Paragraph 3 is a general allegation without particulars that the appellees, through Appellee Schoch, fraudulently induced the appellants to enter into the December 10, 1973 and July 29, 1974 agreements.

Paragraph 4 is that the appellees, again acting through Appellee Schoch, knowing that the appellants were to be provided with a copy of the entire agreement before execution and were to have fully understood the same, failed to provide the copies and had actual knowledge that the appellants did not understand the agreement.

Paragraph 5 alleges that appellees fraudulently failed to provide a specialized training course to appellants as required under the agreements.

Paragraph 6 alleges that appellees, acting through Schoch, urged the appellants not to fully examine the agreements before executing the same with knowledge that as a result of their not reading and examining the agreements, they could not have knowledge of the actual provisions thereof.

Paragraph 7 alleges that as a result of the fraud and false representations of the appellees, appellants were made guarantors of the payment of the premium loans.

Paragraph 8 alleges that the appellants relied upon the fraudulent representations of the appellees in entering into the agreements and would not have entered into the agreements but for those fraudulent representations.

Thus, under the complaint, the three particulars alleged in accordance with the rule were: (1) that appellees fraudulently failed to provide a copy of the entire agreement to the appellants before executing; (2) that appellees fraudulently failed to provide a specialized training course; and (3) that appellees fraudulently urged the appellants not to fully examine the entire agreement before executing the same.

Appellees moved for summary judgment, attaching numerous exhibits. They thereafter supplemented their exhibits on two occasions, apparently without first obtaining leave of court to do so. No objection, however, is here raised to the supplementation. Of course, under Rule 56(e), HRCP, we cannot consider Exhibit 5, which is a newspaper clipping since it would be inadmissible at trial nor can we consider Exhibits 13(a) through (n) since they are neither certified nor sworn to; nor can we decide any disputed issue of material fact.

The various agreements with respect to the prime sales program executed by the appellants appear as Exhibits 8(a) through (g). They are certified to by the affidavit of Robert E. Schoch, which appears as Exhibit 4 and they clearly and unambiguously set forth the unconditional guarantee by the appellants of the payment of the premium loan of the insurance purchasers.

The depositions of the appellants were not taken nor are any exhibits offered by the appellants in opposition to the motion for summary judgment. They rely upon their affidavits as the basis for raising a genuine issue of material fact.

The two affidavits, one by each appellant, which are virtually identical, appear to have been drawn carefully and with great skill. They are remarkable for what they do not assert. Thus, they do not assert, as alleged in paragraph 4 of the complaint, that they were not provided with copies of the entire agreement before execution or that they did not understand the entire agreement before execution; nor do they assert, as alleged in paragraph 6 of the complaint, that the appellees, through Appellee Schoch, urged them not to fully examine the agreements before executing the same.

Moreover, they do not assert that appellants did not read the agreements before executing them nor even that they did not understand when they executed them that they were to become unconditional guarantors of the full repayment of the premium loans. Exhibits 11 (a) through (n) are letters from appellants to various insureds signed by appellants and the insureds. The first is dated January 29, 1974, only forty days after the December 10, 1973 agreement while the last is exactly twenty-three months later. Each contains the statement that “Both the Manager of my agency office and I will guarantee your note to Key in order to assist you in securing the loan.” It is not therefore surprising that appellants did not, in their affidavits, swear they did not understand the guarantees.

The affidavits aver in paragraph 7:

I signed documents having to do with the sale of financed insurance under the Prime Program at the urging and insistence of Robert E. Schoch, the then manager of the Hawaii agency for the Mutual Life Insurance Company of New York. All the documents, including guarantees of the payment of the loan balance to Key Resources, Inc., that I signed were at the urging and upon the representation of Robert E. Schoch that this was a great sales tool and we would make a lot of money by the use of this plan. It was never explained to me that I was guaranteeing to pay the entire debt of the policyholder in the event of a default. Mr. Schoch mentioned that the only liability that an underwriter could, possibly have would be the temporary loss of funds which were held in the escrow account.

Thus, by the very wording of paragraph 7, the “representations” upon which appellants relied in executing the agreements were that the prime program was a great sales tool and appellants would make a lot of money by its use. The statement as to the liability of an underwriter is not characterized as a “representation” but only as something that was “mentioned”. It is not alleged to have been a statement upon which appellants relied in executing the agreements. In paragraph 9, the affidavits state:

I relied on the representations of Robert E. Schoch who was my superior in the company and would not have become involved in the Prime Program without same.

We note that neither the alleged “representation” that the prime program was a great sales tool from which appellants would make a lot of money nor the “mention” of the extent of their liability appears in the complaint as one of the particulars of fraud.

Moreover, the affidavits do not allege that the “representation” that the prime program was a great sales tool from which the appellants would make a lot of money was false. The documents establish that appellants sold over $2 million face value life insurance under the program. Exhibit 7(A) indicates that on one policy of $100,000 face value, they earned a gross commission of $ 1,102. Thus, not only is there no averment that the representation was false, it does not appear to be false on the face of the record.

As the Supreme Court has said:

To support a finding of fraud, it must be shown that “the representations were made and that they were false,. . . [and] that they were made by the defendant with knowledge that they were false, (or without knowledge whether they were true or false) and in contemplation of the plaintiffs relying upon them and also that plaintiff did rely upon them." Hong Kim v. Hapai, 12 Haw. 185, 188 (1899).

Kang v. Harrington, 59 Haw. 652, 656, 587 P.2d 285, 289 (1978). Accord, 37 AM. JUR.2d, FRAUD AND DECEIT, § 42 (1968). Paragraph 7 simply does not make any averments sufficient to create a genuine issue of material fact as to the necessary elements of fraud.

The same is true of paragraph 15 of the affidavits, in which appellants state:

Had I been fully informed about the program and had known the full impact of agreeing to guarantee the debt of another I would not have become involved in the program.

The affidavits aver in paragraph 16 that due to the failure of the appellees to give the appellants the necessary training, the prime program was a complete failure resulting in 24 defaults out of 52 policies sold.

As to the matter of the lack of training, again, it is not alleged that the appellants entered into the agreement as a result of the lack of training. Apparently, what appellants are attempting to say in paragraph 16 of their affidavit is that, because of the lack of training, they sold insurance to people who subsequently defaulted on the premium loans. The problem with this is that agreements with the same mention of training were executed in April and May of 1973 and again in December of 1973. All of the sales which are the bases of the complaint, followed the December agreements. Thus, when appellants commenced the sale under the program, over six months had gone by, during which they knew they had not received the specialized training they now claim they were entitled to, and yet they commenced the sales anyway.

Without appellants having made sales to insurance buyers who defaulted, there could have been no liability under the guarantees, since it was the defaults which gave rise to the liability and to the damage here claimed. But since appellants knew that they had not received the specialized training, they could not have been relying on the promise of specialized training in making the sales in question. Reliance, of course, is a necessary element of fraud. Kang v. Harrington, supra; Hong Kim v. Hapai, supra; 37 AM. JUR.2d, FRAUD AND DECEIT, idem. When appellants entered the original agreements, they may. have been relying upon receiving specialized training before commencing sales, but certainly when seven months later, after again executing essentially the same agreements, they commenced sales, they could not have been relying upon receiving such training before making sales and in fact, they do not so aver in their affidavits. Thus, paragraph 16 does not raise a genuine issue of material fact as to fraud.

The remaining allegations in the affidavits are equally insufficient to establish the elements of fraud.

We see nothing in the relationship of the parties as set forth in appellants’ affidavits nor in the facts sworn to in those affidavits to establish either actual or constructive fraud.

The Supreme Court of this State has recently stated:

... we would apply to the instant case the general rule “that fraud cannot be predicated on statements which are promissory in their nature, or constitute expressions of intention, and an actionable representation cannot consist of mere broken promises, unfulfilled predictions or expectations, or erroneous conjectures as to future events, even if there is no excuse for failure to keep the promise, and even though a party acted in reliance on such promise.”

Stahl v. Balsara, 60 Haw. 144, 149, 587 P.2d 1210, 1214 (1978). Aloha Petroglyph v. Alexander & Baldwin, 1 Haw. App. 353, 354, 619 P.2d 518, 519 (1980).

Appellants complain that when the insureds to whom they had sold the policies defaulted, Appellee Key failed to take legal action against the insureds to collect on the notes. However, the appellants expressly waived such action in the agreements {see, Exhibit 8A, for example).

Appellants assert, however, that the agreements they entered into with the appellees lacked consideration and were therefore void.

In their affidavits, paragraph 13, appellants state:

I received no benefit, either financial or otherwise, for my participation in the Prime Program of selling financed insurance and received absolutely nothing of value for my guarantees, which were given to the company’s insureds.

We take the averments of paragraph 13 as being a conclusion drawn from the fact that because of numerous defaults, the commissions they earned for the sale of the policies were eaten up by the guarantees. We do not take the averments of paragraph 13 as being factual statements that no consideration passed to appellants as a result of the execution of the agreements in question, since it is undisputed that without the execution of the agreements, appellants could not have participated in the prime program and, thus, could not have made sales under that program and since it is further undisputed that as a result of sales made under that program, commissions did pass to the appellants. See Exhibits 7(a) through (d).¹ We find no genuine issue of material fact as to whether appellants did receive legal consideration for the guarantees.

Appellants also assert that there was failure of performance of appellees’ obligations under the contract and that that alone would entitle them to damages and thus, overcome a motion for summary judgment. The failure to which appellants are adverting is the failure to provide them with the specialized training which they claim, under the contract, appellees promised to furnish. But all of appellants’ damages arise out of their being called upon to make good upon the guarantees, all of the guarantees arise out of appellants’ sales under the program, and all of the sales were made by appellants with full knowledge that they had not received the specialized training they now claim they were entitled to. If, therefore, there was a default on the part of the appellees in furnishing the training, that default was, in the circumstances, damnum absque injuria. There is no genuine issue of material fact as to whether the alleged default caused appellants any of the damages which they are claiming.

Mark S. Davis for appellants. William S. Miller (Richard E. Stifel with him on the brief, Goodsill, Anderson fc? Quinn of counsel) for appellees.

Since this was a judgment certified under Rule 54(b), HRCP, the judgment is affirmed but the case is remanded for further proceedings. .

Judge Kanbara dissents. His dissenting opinion will be filed at a later time.

1 We are unwilling to construe the affidavits as an assertion that the passage of money to appellants as recited by them in Exhibit 7(a) did not, in fact, happen. Appellants have not disavowed Exhibit 7(a) and we do not think the appellants intended to swear falsely in their affidavits.