Court Opinion

ID: 6695858
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:50:24.379371+00
Date Added: 2024-06-11T16:01:14.352980
License: Public Domain

Walker, J.,
dissenting: If the case had been submitted to the jury under the first instruction given by the court, and the same verdict had followed as is now found in the record, there would have been no error in the charge; but' in the second instruction an affirmative verdict was made to turn upon whether plaintiff had made the false statement as to his health and physical condition • with the actual intent to deceive and defraud the defendant. We think this is contrary to the elementary law and to the former decisions of this Court. Fishblate v. Fidelity Co., 140 N. C., 589; Bryant v. Insurance Co., 147 N. C., 181; Alexander v. Insurance Co., 150 N. C., 536; Gardner v. Insurance Co., 163 N. C., 367; and also to our stat-. ute, Revisal, sec. 4808. We believe this is admitted in the majority opinion, provided those authorities and the statute apply to the particular facts of this ease or to agreements of this kind; but it is held not to be an insurance contract. This, we think, is a total misapprehension of the character of this agreement-. It is generally considered as relief -benefit insurance, and so far and so exactly partakes, in its essential elements, of the true nature of insurance as to fall under that denomination.
29 Cyc., at p. 8, says of these orders or ássociations: “While these’ organizations are thus distinct from insurance companies, yet where they agree with their members, in consideration of the payment of dues and assessments, to indemnify them or their nominees against loss from certain causes, such as -accidental personal injury, sickness or death, they conduct an insurance business, and the distinction is in so far without a difference. The certificate issued to the member stands in place of the ordinary insurance policy and is essentially 'a contract of insurance. Upon this view, in many States, these societies are *196deemed insurance companies, and their rights and liabilities are governed accordingly, and the statutory regulations prescribed for insurance companies apply to them, in the absence of statutes regulating benevolent or friendly societies with insurance features.”
It is impossible for us to conclude, after comparing this contract and one for simple insurance, that the same principles which govern in the latter as to good faith in making representations, and their materiality, should not be strictly applicable to the former.
But it is not necessary, in order to show the plain error of the charge, that we should be able to assimilate the two kinds of contracts, or assign them both to the same category in law. The doctrines which govern as to the validity and enforcement of insurance contracts are, in all important respects, applicable to contracts generally. Bigelow (Ed. 1890), p. 8, says, referring to what is necessary to constitute fraud: “But the truth is, as Lord Kenyon virtually said, and as others have pointed out, such •a case is falsehood told scienter; for the person who makes such a statement declares by plain implication that he is possessed of knowledge of facts sufficient to justify it; and that, by the very terms of the case, he knows to be false. This for many years has been held enough. The fraud is in the means, not in' the ‘endeavor.’ ” And again at p. 117: “Though it is usual in actions for fraud to charge expressly a fraudulent intent, where the fraud is alleged to consist in intention, and the quo animo is the gist of the inquiry, still there is no rule requiring a fraudulent intent to be averred where the intent is a legal conclusion drawn from the facts alleged, and where the existence of those facts, and not the fraudulent intent, is the gist of the inquiry and the foundation of the rights asserted in the action.” Practically the same rule is stated in 9 Cyc., pp. 409-411: “Contracts of insurance are of a special nature, within this rule, so that an innocent misrepresentation or concealment of material facts will avoid the policy. The test of fraud, as opposed to misrepresentation, is that the former does, and the latter does not, give rise to an action ex delicto. ■ Therefore mere repre*197sentation, altbougb false and material, if not knowingly false, so as to constitute fraud, will not support an action for damages, unless it is a term or condition in tbe contract, or the parties stand in a fiduciary relation. In contracts uberrimae fidei (where one party relies on the other party’s knowledge of the facts), and where merely innocent misrepresentation avoids the contract, such misrepresentation may be set up as a defense to defeat an action at law on the contract. The same is true where the parties occupy a fiduciary or confidential relation. And as we have seen, an innocent misrepresentation may be ground for rescinding or reforming a contract in equity, or for refusing to compel specific performance. Fraud is a false representation of fact, made with a knowledge of its falsehood, or recklessly,, without belief in its .truth, with the intention that it should be acted upon by the complaining party, and actually inducing him to act upon it to his damage. It differs from mere misrepresentation in that it has the element of knowledge; and its most frequent example in the law of contracts is the making of false representations to induce consent to an agreement. It may be laid down as a general.rule that any false representation of a material fact, made with, knowledge of its falsity, and with intent that it shall -be acted upon by another in entering into a contract, and which is so acted upon, constitutes fraud, and will entitle the party deceived thereby to avoid the contract or to maintain an actibn for the injury sustained.”
But decidedly more to the very point is the statement of the law upon this subject to be found in 20 Cyc. (Title, Fraud), p. 37: “The proposition, that a fraudulent or dishonest intent is necessary, means nothing more than that the misrepresentation must be’made with knowledge of its falsity or with what the law regards as the equivalent of such knowledge, and with the intent that it shall be acted upon or in such a manner as naturally to induce the other person to act upon it. If these circumstances exist, the misrepresentation is fraudulent both in morals and in l'aw, and is made with all the fraudulent intent which the law requires; a motive to obtain benefit or cause injury is not an essential element. So where the representation *198relates to a material fact and (1) is made with, knowledge of its falsity, or (2) recklessly, without any knowledge of its truth or falsity and as a positive assertion calculated to convey the impression that the speaker knows it to be true, a fraudulent intent will always be inferred; and independent evidence to establish it is not required.”
The fraud consists in this, that the applicant for admission to this relief society has made a false representation of the fact inquired about as to the state of his health, when a truthful statement was required in order that the society might determine whether to admit him to membership, and he, of necessity, knew this to be so, and yet made a statement which was knowingly false, which, as has been shown, was vitally material and which misled the company.
If, under the first instruction, these facts alone had been found, plaintiff could not recover; but the judge complicated them with an immaterial element, namely, the actual intent to deceive or defraud the defendant, and the latter, thereby, lost the verdict. The answer was material, having been made in answer to a direct question (Bobbitt v. Insurance Co., 66 N. C., 70), and if false, so as to deprive the defendant of a fair opportunity to exercise its judgment upon the question whether it would admit the plaintiff to the benefits of the society, it was,in law, fraudulent and vitiated the contract, without regard to the- particular dishonest intent in the mind o'f plaintiff at the time he gave the answer. The very situation of the parties, the nature of their negotiations, and the questions asked of the applicant,'made it essential that the answers should be true, and certainly not knowingly false, "whether actually intended to deceive or not. Yance on Insurance, p. 269, says: “A false representation avoids a contract of insurance when material, and wholly without reference to the statute.” Commenting on that statement, in Gardner v. Insurance Co., 163 N. C., at p. 374, we said: “Every fact which is untruly stated or wrongfully suppressed must be regarded as material, if the knowledge or ignorance of it would naturally and reasonably influence the judgment of the underwriter in making the contract at all, or *199in estimating tbe degree or character of the risk, or in fixing the rate of premium,” citing Fishblate v. Insurance Co., supra; Alexander v. Insurance Co., supra, aijd many other authorities.
The Alexander case expressly holds, it to be immaterial whether the statement was intentionally fraudulent or deceitful, and it is said therein: “The company was imposed upon by. such representation, and induced to enter into the contract. In such case it has been decided by the highest Court that, ‘Assuming that both parties acted in good faith, justice would require that the contract be canceled and the premiums returned,’ ” citing Insurance Co. v. Fletcher, 117 U. S., 519, and Bryant v. Insurance Co., supra.
When plaintiff was asked for the information, he was bound to know what was expected of him, and that a false answer would mislead the defendant and induce it to make the agreement. Every man of intelligence and'honesty would necessarily know the effect or consequence of a false affirmation as to the state of his health; and to charge that defendant must prove, and the jury must find, that plaintiff actually had a dishonest motive in giving the false answer, was going beyond what- the law required to defeat a -recovery. But for the erroneous instruction, the jury may have found the facts, as contained in the first instruction, and answered the issue “No.” The same idea was involved in Boddie v. Bond, 154 N. C., 359, 366, where we declared substantially the same principle, as applicable to a case of equitable estoppel.. We there held that when a man knowingly induces his neighbor to regard as true that which is false, he will not be allowed to -take advantage of any resulting agreement, if the person to whom the misrepresentation was made was thereby misled to his injury by the asseveration or conduct of the other party, citing Kirk v. Hamilton, 102 U. S., 68; Light Co. v. Bristol Gas Co., 99 Tenn., 371. The rule of honesty is the rule of the law, and strict compliance -with it is exacted, and he who breaks it must pay the penalty if loss or injury results.
It seems to be conceded in the majority opinion that our statute, Revisal, sec. 4808, “is but a succinct statement of the *200law which ordinarily obtains in the interpretation of contracts/’ and this being so, if a representation is knowingly false, material, and induces another to enter into a contract, relying upon the truth of the statement, the contract is not enforcible.
It can make no difference in the result that plaintiff was required to join the society as a condition of entering int.o the defendant’s service. He had an option to enter into the service or not, and a full opportunity to exercise it. His action was, in every respect, voluntary. There is no finding that defendant knew of the plaintiff’s condition at the time the contract was made. Nothing was said in the charge about it, nor was a finding in regard to it, one way or another, required by the court.
The amount involved in this case is not large pecuniarily, but the principle announced by the Court is important in its consequences, and will be followed as precedent hereafter. We respectfully think it will tend to unsettle the law upon the subject of fraud in the making of contracts. It is better to hold fast to the established principle that a false statement, which in its very nature must produce a certain impression upon another and induce him to act in accordance therewith, or, in other words, which is calculated necessarily to mislead, and which does actually mislead him into a course of action which otherwise he would have rejected, is fraudulent in law, if knowingly made, and will avoid a contract which is the result of it, without any specific intent to defraud.. The law will not permit a man to take advantage of conduct on his part which has prejudiced another. It will presume that he intended the evil consequences which have resulted, without actual proof that he did so intend, and will hold him bound by his act., It is not his particular motive that the law regards so much as the certain tendency of his conduct to mislead the one who is dealing with him.
Justice BbowN concurs in the dissenting opinion.