Court Opinion

ID: 9567349
Source: CourtListenerOpinion
Date Created: 2023-08-21 19:52:48.411716+00
Date Added: 2024-06-11T10:00:33.582648
License: Public Domain

DISSENTING OPINION OF
CIRCUIT JUDGE KANBARA
I respectfully dissent.
This is an appeal from a summary judgment order in favor of defendants-appellees against plaintiffs-appellants on a complaint based on alleged fraud.
The focal question is whether or not a genuine issue of material fact exists.
As stated in Lau v. Bautista, 61 Haw. 144, 146-7, 598 P.2d 161, 163 (1979):
Under H.R.C.P., Rule 56(c) a summary judgment will be sustained only if the record shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. [Citations omitted.] Inferences to be drawn from the record must be viewed in the light most favorable-to the non-moving party. [Citations omitted.]
Accord, Windward Partners v. Lopes, 3 Haw. App._ (No. 7795, decided February 18, 1982).
So viewing the evidence, we cannot say that no genuine issue of material fact exists.
The Mutual Insurance Company of New York (hereinafter “MONY”) devised a premium financing plan called the Prime Plan. It was designed for persons who may immediately want or need a *74substantial amount of insurance but cannot currently afford the premiums on such policies but who may have good future income potential. These included medical students, residents and interns, certain other students and certain businessmen.
From 1960 through 1970 a forerunner of the Prime Plan provided for financing by local banks. Insurance agents were required to guarantee the loans.
Since 1970, MONY provided for premium financing through its wholly-owned subsidiary, Key Resources, Inc. (hereinafter “Key”). It was intended for clients who could not obtain bank financing. From 1970 to 1973, insurance agents were not required to guarantee the loans. Appellants assert that the default rate was 15 to 20 per cent. (Opening Brief at 9.) Appellees state that this was not the default rate but was the delinquent or slow pay rate in the college market. (Answering Brief at 9.)
In early 1973, MONY revised the Prime Plan. It required the insurance agent personally to guarantee the loan and to deposit 20 per cent of the first year’s commission into an escrow account.
Under the premium financing plan, Key would agree to finance a client’s premiums for a certain number of years. It would charge the maximum legal rate of interest. The insured would make monthly payments to Key covering interest and part of the premium advanced by Key. These monthly payments were substantially less than the regular premiums would have been. At the end of the repayment period, a balloon payment, often of several thousand dollars, is due. It is either refinanced or offset against the cash surrender value of the policy.
In the event of default at any time, Key would receive the cash value of the policy and then the amount in the agent’s escrow account. If these amounts were insufficient, then Key would receive the agent’s accrued commissions and various retirement, incentive program and profit-sharing funds. If these were insufficient, Key presumably could recover from other assets of the agent.
Appellants, Leonard Wolfer and Mark Wolfer, who are father and son, respectively, began to work for MONY on December 1, 1972. Neither had any prior experience in the insurance business.
After appellees revised the Prime Plan in early 1973, appellants executed agreements with appellees to participate in the Prime Plan. Leonard Wolfer first executed such an agreement on May 22, 1973 *75and Mark Wolfer on April 19, 1973. They sold Prime Plan policies from December 1973 until November 1975.
From late 1974 and thereafter, a number of their clients defaulted, and appellants were required to comply with the guaranty provisions.
Appellants brought action for damages alleging fraud on the part of appellees in procuring the guaranties from them.
Their complaint alleges that appellees, through Appellee Schoch, who was the general agent of MONY in Hawaii and under whom appellants worked, fraudulently induced them to enter into the participation agreements; that 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; that appellees fraudulently failed to provide a specialized training course to appellants as required under the agreements; 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; that as a result of the fraud and false representations of the appellees, appellants were made guarantors of the payment of the premium loans; and 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.
Appellees filed a motion for summary judgment.
In opposition thereto, appellants filed their affidavits, which were virtually identical.
Paragraph 7 in each affidavit avers:
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 of 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 *76this 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.
Paragraph 9 of each affidavit avers that affiant relied upon 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.
Paragraph 14 avers that
I received no specialized training nor was I adequately informed about the Prime Program from the company or from my office manager, Robert E. Schoch.
Paragraph 15 avers that
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. Fraud has been broadly classified as either actual or constructive.
37 AM. JUR.2d, FRAUD AND DECEIT, § 4.
Actual fraud contemplates intentional deception, including false and fraudulent misrepresentations. Ibid.; Dobison v. Bank of Hawaii, 60 Haw. 225, 226, 587 P.2d 1234, 1235 (1978).
Constructive fraud is defined as an act done or omitted which is construed as a fraud by the court because of its detrimental effect upon public interests and public or private confidence, even though the act is not done or omitted with an actual design to perpetrate actual fraud or injury. 37 AM. JUR.2d, FRAUD AND DECEIT, § 4.
Constructive fraud often exists where the parties to a transaction have a special confidential or fiduciary relation which affords the power and means to one to take undue advantage of, or exercise undue influence over, the other. Id., § 5.
Relationships between trustee and beneficiary, principal and agent, and attorney and client are familiar examples in which the principle of fiduciary or confidential relationship applies in its strictest sense. Its operation, however, is not limited to dealings between parties standing in such relations, but extends to all instances when a fiduciary or confidential relation exists as a fact, in *77which there is confidence reposed on one side and a resulting superiority and influence on the other. Id,., § 16.
Generally, a principal-agent relation exists between an insurance company and its agents. 45 AM. JUR.2d, INSURANCE, § 146.
As stated in Montgomery Ward & Co., Inc. v. Tackett, 163 Ind.App. 211, 216-7, 323 N.E.2d 242, 246 (1975):
The relationship of principal and agent is confidential and fiduciary, binding the agent to the exercise of utmost good faith. [Citations omitted.] Likewise, the principal owes to the agent the obligation of exercising good faith in the incidents of their relationship and must use care to prevent the agent from suffering harm during the prosecution of the agency enterprise. Lawrence Warehouse Co. v. Twohig (8th Cir. 1955), 224 F.2d 493. See also, 3 Am. Jur.2d, Agency, § 238; 3 CJS, Agency § 318; Restatement (Second) of Agency § 435 (1957).
A threshold issue is whether or not a fiduciary or confidential relation existed between appellees and appellants. Appellants assert that such a relation existed. Appellees assert the contrary. Whether or not such a relation existed depends on evidentiary facts and the weight to be accorded thereto. These are not determinable from the pleadings or the exhibits and affidavits submitted on the motion for and against summary judgment. Hence, a dispute exists on this issue.
Contracts of guaranty create a contractual relationship which requires fair, full and frank disclosure of all relevant facts. 37 AM. JUR.2d, FRAUD AND DECEIT, § 147. Likewise, if one party to a contract has superior knowledge or means of knowledge which are not open to both parties alike, he has a duty to make such disclosure. Id., § 148. It would appear that an insurance company that is requiring its agents to guarantee obligations of its insureds to it has a duty of full disclosure to its agents.
We note that MONY designed the Prime Plan after over a decade of experience, presumably aware of the benefits and perils to itself and to its agents. Appellees occupied a position of superior knowledge and experience over the agents.
It is further noted that the Prime Plan is heavily weighted in favor of MONY and Key and against appellants. The companies collect premiums and interest from a class of customers who cur*78rently cannot afford the premiums to which they are committing themselves. Thus, they are greater credit risks than purchasers who require no financing or who qualify for bank financing. The companies minimize this risk to themselves by having the agents unconditionally guarantee any indebtedness. They further minimize such risk by requiring the agent to deposit a portion of his commissions into a fund, by providing that the companies could avail themselves of monies in this fund, any other monies that may be due from the companies to the agent and apparently ultimately his personal assets in enforcing the guaranty, and by requiring that the agent, not the companies, bring any legal action against a defaulting customer.
The gravamen of the complaint, as amplified in appellants’ affidavits, is that appellees had made misrepresentations and had failed to disclose material facts about the program, and that appellants had relied on appellees to their detriment.
Appellees place great reliance on the Participation Agreements between MONY, Key and the appellants and on certain form letters from appellants to their clients in which the agent states that he unconditionally guarantees full payment of net loss on all defaulted premium loans on policies sold by him. These were attached as exhibits to their motion for summary judgment. This is evidence that is entitled to great weight but is not dispositive. They do not indicate the circumstances and manner in which the Prime Program was presented to appellants.
Appellants assert that appellees misrepresented the agents’ potential liability under the program or failed to disclose material information that was necessary to an informed decision on whether or not to participate. For example, paragraph 6 of the Participation Agreement states that Key “will make every reasonable effort to effect collection” before requiring the underwriter to pay the defaulting customer’s debt.1 Also, the loan agreement between Key and an insured provides that upon default the “outstanding loan *79shall, at KEY’S discretion, be referred to an attorney for collection, . . .” Ex. 10A, para. 10.
Paragraph 6 of the Participation Agreement, coupled with said paragraph 10, is susceptible of an interpretation that “under normal circumstances” the company would refer delinquent accounts to an attorney for collection before seeking recourse against its agent.
However, the company construed “every reasonable effort to effect collection” to mean writing letters and telephoning the delinquent client, “short of going to a collection attorney.” Ex. 7C, letter of Homer Wood, 2d Vice President for Market Development of MONY, to Schoch dated January 6, 1975.
The lack of clarity and appellants’ contrary interpretation of paragraph 6 in the Agreement are indicated in Schoch’s letter to Wood on December 30,1974 (Ex. 7B) and Leonard Wolfer’s letter to Wood dated January 13, 1975 (Ex. 7D). If the company’s policy was as stated in Wood’s 1975 letter, was this disclosed to appellants in 1973 and 1974 when they executed the Participation Agreements? This was an important consideration with respect to an agent’s exposure to financial risk and liability for legal fees, for if the company were to exhaust its legal remedies against the defaulting purchaser before requiring the agent to make good, the agent’s risk would be substantially less than if the company were not to do so and simply proceed against the agent. Consequently, such disclosure could have a significant bearing on an agent’s decision on whether or not to participate in the program. Its disclosure after appellants had made numerous sales and after defaults had occurred was too late.
Another unclear area is the extent of instruction given by appellees to the agents on how to evaluate a client’s credit-worthiness. Appellants’ complaint about appellees’ failure to provide specialized training may be pertinent to this issue.
In this connection, it is noted that when a bank finances a premium loan, it could be expected, in its own self interest, to evaluate carefully a borrower’s credit-worthiness. The Prime Plan was in*80tended for customers who do not obtain bank financing. Thus, the insurance agent does not have the benefit of a bank’s independent professional credit analysis, as he did in the 1960-70 version of the Plan. Accordingly, his exposure to financial loss is increased. The companies, on the other hand, have the safeguard of the agent’s unconditional guaranty of the loan. This diminishes the companies’ exposure to loss and may accordingly diminish their incentive to be critical in evaluating a prospective purchaser’s credit-worthiness.
The nature of the relationship between appellants and appellees, the relative sophistication and the extent of knowledge of each concerning the details of the program, whether there had been misrepresentation, failure of disclosure of material facts, or overemphasis on the Prime Plan as a selling tool and undue minimization of the risks to underwriters are issues of material fact that exist.2 These kinds of issues are peculiarly dependent on the facts and circumstances of each case for their resolution. See Adair v. Hustace, et al., 64 Haw._, n.7 (No. 6589, decided February 9, 1982). The parties should have been afforded a reasonable opportunity to present evidence bearing on these issues. See City and County of Honolulu v. Midkiff 62 Haw. 411, 418, 616 P.2d 213, 218 (1980).
The proferred facts and the inferences that may be drawn therefrom are reasonably susceptible to conflicting interpretations. Under the circumstances, the granting of the appellees’ motion for summary judgment, in my opinion, was improvident. Fry v. Bennett, 59 Haw. 279, 280, 580 P.2d 844, 846 (1978); Kawaihae v. Hawaiian Insurance Companies, 1 Haw. App. 355, 362, 619 P.2d 1086, 1091 (1980).

 The Participation Agreement, para. 6, states that “although KEY under normal circumstances will make every reasonable effort to effect collection, I [the underwriter] waive any right to require that such action by [sic] brought by KEY against said borrowers in default on repayment of their premium loans.” [Emphasis added.] This can be read to mean that “every reasonable effort to effect collection” under normal *79circumstances would include legal action by Key. The waiver by the underwriter does not prohibit the company from taking legal action against defaulting customers. Indeed it suggests that “under normal circumstances" it would. The company’s policy in this regard would appear to be a material fact that should have been disclosed.

 “It is true that as a general rule, mere expressions of opinion, honestly and dutifully given, do not constitute actionable fraud ... However, this rule, by its very terms, hinges upon factual questions concerning the knowledge and motives of the persons stating the opinion.” Montgomery Ward Co., Inc. v. Tackett, 163 Ind. App. 211, 221, 323 N.E.2d 242, 248 (1975).