Manhattan Life Insurance v. Burke , 69 Ohio St. (N.S.) 294 ( 1903 )

The judgment of affirmance announced after the first hearing of this case (68 Ohio St., 681), was not the unanimous decision of the court, three judges only concurring therein. The case having been more fully argued’ on the rehearing, and further considered by the court, is now for disposition as upon the original submission.

. Counsel for the company at the trial rested its case upon two propositions, and they rest it upon the same propositions here. If their position is correct then the judgments below are erroneous and should be reversed; if not then the judgments should' be affirmed.

The propositions are that the reply is a departure not permissible under our rules of practice, and that under the facts as disclosed by the pleadings there could be no recovery inasmuch as the plaintiff had failed to allege, as he had failed to prove, any .return or tender back of the money received in the settlement.

The two may be treated together, and, put in legal phrase, the proposition is: A compromise, although procured by fraud, is a bar to an action upon the original claim until rescinded by a tender back of the consideration paid.

On the other hand, as an answer to this, it is claimed that where fraud has induced the agreement, the settlement is not binding, since fraud vitiates all contracts, and no tender back or payment is necessary to authorize a suit on the original contract where the judgment asked for will attain that result, which is this case.

In determining the vital legal question, however, it is important to keep in mind certain features of the controversy shown by the pleadings and the testimony. The plaintiff’s suit was upon the original contract; it was not a suit to rescind a contract, or to reform it, nor an action for damages on account of fraud. No mistake is shown in the paper itself; nor is it alleged in the pleadings that the plaintiff signed any paper which he did not understand and did not intend to sign; the claim is that he was induced to agree to sign, and to sign the contract, a contract of settlement otherwise lawful and valid, by the fraud and misrepresentation of the agents and employes of the company. The presence of a controversy between the parties, as to whether any liability at all existed on the part of the company in favor of the plaintiff, is shown by the allegations of the answer and as clearly shown by the testimony introduced by the plaintiff himself. It is also clear that, to settle this disputed demand, the execution of the release and surrender of the policy by the plaintiff was had, and the payment of the two thousand dollars by the company made.

The real question then is this: Where, at the time of the compromise of a claim founded on contract, a dispute exists between the parties as to the liability of the alleged debtor in any sum whatever, he denying that anything is owing, and an amount less than the claim is paid to the claimant in settlement of the controversy, can the party claimant maintain an action at law on the original contract, without tendering back the sum received, even though his assent to the settlement was obtained by the fraudulent and false representation- of the other party ?

No dispute exists between counsel, and we presume no doubt exists, of the soundness of the general proposition that where a party to a compromise desires to set aside or avoid the same and be remitted to his original rights, he must place the other p'arty in statuo quo by returning or tendering the return of whatever has been received by him under such compromise, if of any value, and so far as possible, any right lost by the other party in consequence thereof. ■ In an action to rescind, the petition should allege the fact of such return or tender, prior to, or at least contemporaneous with, the commencement of the suit.' Further, as a general proposition, the rule obtains even though the contract of settlement was induced by the fraud or false representations of - the other party; the ground being that by electing to retain the property, the party must be conclusively held to be bound by the settlement (8 Cyc. of Law & Pro., 531). No further authorities seem necessary in support of these propositions.

Numerous exceptions have, however, been engrafted on this general rule. One is that restoration is not necessary where the money received by the party was due him in any event and if returned could be recovered back. Bebout v. Bodle, 38 Ohio St., 500, may be referred to as illustrative. An action was brought by Phoebe S. Bodle'on a note signed by William Bebout as principal and Solomon Bebout as surety. Solomon pleaded his suretyship and an extension of time for payment by agreement to pay interest between the plaintiff and the principal maker without his consent. Plaintiff, by reply, admitted the agreement and receipt of the interest money, but alleged that the agreement to extend was procured by fraud. Solomon demurred to the reply, contending that as no offer to pay back the interest money had been pleaded, the- reply was insufficient. But the district court held, and this court held, that such payment back was not necessary, as, in any event, the principal maker owed the debt, and all of it. Of course the payment back would have been the doing of a vain thing, inasmuch as the plaintiff was admittedly entitled to the interest paid, whether by virtue of the settlement, or by the principal maker’s original liability, which liability was in no way impaired. The law does not require an idle ceremony. A less obvious distinction, at least one more likely to be misconstrued, is sought to be engrafted to the effect that an offer to return is unnecessary if the judgment asked for will accomplish that result. If this be conceded as a naked proposition, yet its application to the ease before us is not clear, and the decisions cited as illustrating it clo not seem to closely resemble onr case. The principal one is that of Allerton et al v. Allerton, 50 N. Y., 670. The plaintiffs, the defendant, and one McPherson were partners. The defendant (who had managed the Easiness), by fraudulent representations to plaintiffs as to the unprofitable character of the business, and that he (defendant) in conjunction with them would sell out to McPherson, induced plaintiffs to unite with him in such sale upon being refunded the amount invested by them, and thereafter defendant represented that he had sold out, and paid to plaintiffs the money advanced by them, while in fact defendant did not sell but retained his interest, and subsequently acquired McPherson’s interest; the business was profitable, and defendant had received large gains and profits. They asked that the sale be declared void, that defendant account for all moneys received by him, and that they have judgment for their -portion of the profits less the amount received. It is to be noted that this was a suit brought directly to set aside the alleged agreement. It was in chancery, tried by the court, and, as appears by the record, the plaintiffs were entitled to an accounting and to judgment, if the claim of fraud should be maintained. The court was appealed to as a court of equity by the injured parties, by a. proper pleading, to rescind a contract induced by fraud and then for an accounting. They did not, as in the present case, attempt themselves to rescind and ignore the contract. The case gives little, if any, aid in determining our question. And that it does not apply to a case like ours is distinctly held by the same court in Gould v. C. C. N. Bank, 86 N. Y., 75, where the Allerton case is referred to as an action in equity to rescind, in which the rights of the parties could be fully regarded and protected. The Gould ease, as in the ease at bar, was an action on the original claim, and it was there held that one who seeks to rescind a compromise of a disputed claim on the ground of fraud must restore or offer to restore whatever of value he has received; that in an action at law upon the original claim the plaintiff must show that he thus rescinded the fraudulent compromise prior to the commencement of the suit; if no rescission is shown, a final determination of the court that plaintiff was entitled to more than the sum paid is no answer to the objection. A case involving a similar question is that of O’Brien v. C. M. & St. P. Ry. Co., 89 Iowa, 644. It is there held that where a settlement with an employe on account of damages sustained from a personal injury was procured by false representations that other witnesses to the accident were against him, and the promise that he would be given work as long as he behaved himself, which promise was broken, and that the employe was in such condition mentally as not to understand the effect of the release which he signed, such settlement is not a bar to an action for damages for the injury, and that a tender of the amount received is not necessary before an action on the original liability. The record does not clearly show that the company disputed its liability at the time off the settlement, and a fair inference is that it did not, for it does not appear that the court rested its judgment on the proposition that “one who attempts to rescind a transaction on 'the ground of fraud is not required to restore that which in any event he would be entitled to retain, either by virtue of the contract sought to be set aside or of the original liability.” This proposition is taken from the opinion and syllabus in Kley v. Healy, 127 N. Y., 555, and that case is relied upon as authority for the Iowa decision. That action was one brought to procure the cancellation of a satisfaction of a judgment upon the ground that it was obtained by fraud, and that the judgment be restored as a valid lien. The court held that the defendant would be entitled to what she had received, whatever might be the result of her action for a rescission. If the action failed she was entitled to what had been paid; if she succeeded the sum was less than she was concededly entitled to by the original judgment. Hence an offer to return was not necessary. Here, too, was an appeal to a court of equity to procure a rescission. It, like the Allerton case, would seem to fall short of affording a solution of our ease. The holding in the Kley ease is consistent with earlier New York cases, notably Cobb v. Hartfield, 46 N. Y., 533, and McMichael v. Kilmer, 76 N. Y., 36, and with a host of other cases in that state and elsewhere in which the general rule hereinbefore given is maintained.

After very full consideration of the controversy in all its bearings, and an extensive examination of authorities, we are satisfied that the ease at bar comes within the'general rule and not within any of the exceptions sought to be engrafted upon it.' The rule ,may be briefly stated: If at the time of the agree-merit there was, without dispute, an amount due equal to the amount paid, as in Bebout v. Bodle, supra, and in Kley v. Healy, supra, then no tender is necessary; hut if, at the time of the settlement, it is denied by the alleged debtor that anything is' owing, and a dispute as to that liability exists, and that is settled by payment and release, then a return or tender is necessary. There being in this case a controversy between the parties, a disputed claim which the parties, being sui juris at the time deliberately settled, the one executing a full and sufficient release, intending to do just what he did do, and the other paying a money consideration therefor, the release, whether obtained by fraudulent representations or not, is binding until set aside either by a, tender or return of the money received, or by a direct proceeding in a court of equi ¡y for that purpose, upon equitable terms, and the claim for rescission in such case on the ground of fraud can not be made by a reply.

It is to be borne in mind that the parties were settling a controversy. It was the settlement of this dispute that afforded the consideration for the compromise of the original claim. True it is that the amount received was discounted from the recovery. But that is no answer. ¥e say as the New York court said in the Gould case. Suppose the verdict had been the other way, what would have been the position of the defendant in respect to the money paid under the release? Clearly there would be no recourse to recovery back from the plaintiff. The compromise agreement is binding upon the plaintiff in error, and could not be rescinded or set aside at its instance. If binding on one side it must be on the other so long as it exists. It did exist at the time this action was brought; it had not been rescinded, and consequently, while it bound one party it must equally bind the other. Lyons v. Allen, 11 App. D. C., 543; E. T. D. & G. Ry. Co. v. Hayes, 83 Ga., 558.

It is urged with much confidence that the face of this policy was a liquidated demand and that the payment of a less sum could not satisfy it, even though accepted as such, because there was no consideration for giving up the rest. The rule of law stated is good. But it is not correct to say that a policy of insurance is a liquidated demand. It is not identical with an instrument for the payment of money only, nor the judgment of a court. The every-day business of the courts shows to the contrary. The original consideration may be sufficient, and there may be a legal delivery of the instrument, and yet, when the event insured against occurs, there may be, and in a great many instances there are, good and sufficient defenses to a'recovery. There was such defense pleaded in this case. To characterize such a contract as a liquidated demand is a consideration in terms. It is safe to say that a claim concerning which a defense may be made is not a liquidated claim, and if a defense is made it is a proper subject of compromise. One may buy his peace. The law favors the amicable settlement of disputes.

In argument it is urged that the plaintiff below signed the contract of release without knowing its contents; that in accepting the check for two thousand dollars he supposed he was receiving payment on the policy, and hence the release is not binding upon him, and there was no settlement. The plaintiff does testify that he did not read the paper; that he couldn’t read writing, although he could write his own name, and that the signatures on the release and on the check are his; that he signed them. He undertakes to say further that he received this money as a payment on the claim. It is true, also, that the jury, in addition to the general verdict, returned answers to divers interrogatories in which it is found that the parties did not agree to settle; that the two thousand was not paid plaintiff in full settlement of the policy; that the release and cheek did not express the intention ■ of the plaintiff, etc. But the testimony of Burke himself leaves no sort of question but that he perfectly understood that the agents of the company were there to settle the entire claim; that they had no other purpose, and that, by signing and delivering the release and surrendering the policy he was assenting to a settlement for the amount paid. He was sm juris, and in law able to look out for his own interests. The testimony respecting the alleged fraud would be potent in a suit properly brought, and the finding of the jury with respect to it might be conclusive of the facts in a suit involving them properly pending before a jury. But, over and against it all, there is the release and the surrender of the policy, and the retention of the money received, which are, while the contract of compromsie remains unrescinded, controlling. In the words of another, restitution before absolution is as sound in law as in theology.

But it is insisted, finally, that the case is ruled by Insurance Co. v. Hull, 51 Ohio St., 270, and that to reverse the judgment below will be to overrule that ease. We do not think so. The holding in that case involved the effect of a suppression of a criminal prosecution, and the decision is based on that fact. A contract attempted to be founded upon such consideration has no legal efficacy; it is against public policy, is void absolutely, and incapable of ratification. It is otherwise with a contract induced by fraud. Such contract is voidable only. We may not agree with all of the argument and all of the conclusions stated in the opinion by the learned judge who reported that case, but our ease does not require any criticism upon the decision, much less an overruling of it. Indeed the opinion itself, in the concluding paragraph, emphasizes the distinction between that case and one where the contract sought to be rescinded has been induced by fraud. The distinction was also made by the learned trial judge in his charge wherein he said to the jury, among other things, that if there was a settlement as claimed and a promise that the plaintiff should not be prosecuted on the charge of burning the property, formed no part of the consideration for such settlement, she could not recover, but if such promise was a part of the consideration, the contract was void and constituted no defense to the action.

We do not overlook the claim made in argument that the testimony of the plaintiff was that at the time of the settlement there were threats of imprisonment. He does so testify. But there is no claim made in the pleadings of the suppression of a criminal prosecution, nor was there any offer to amend the pleadings; and whether, if they had been amended and that charge made, the testimony would have supported it, we need not inquire. Besides, all the evidence was subject to the objection made at the outset of the trial.

As conclusion we aré of opinion that no right of recovery was shown on the part of plaintiff below and that the judgments 'in- his favor are erroneous. The former entry of affirmance . will be set aside, and judgment for plaintiff in error will be. rendered in accordance with this opinion.

Reversed,