Mincho v. Bankers' Life Insurance

McLaughlin, J.: On the 19th of June, 1906, the plaintiff applied for and obtained from the defendant a policy of life insurance for $20,000, and he then paid an annual premium of $1,397.27, and by the terms of the policy agreed to pay a similar amount on the nineteenth of June in each succeeding year until he had made in all iifteen payments and at the expiration of fifteen years from the date of the contract, or sooner in the case of death, the defendant agreed to pay the plaintiff, if living, or to his executors, administrators or assigns, if dead, the sum of $20,000. ■ Thereafter, and on or about the 12th of June, 1907, defendant canceled said policy and gave the plaintiff notice of that fact, and that it would not be liable thereunder and would'not perform the same. Thereupon he brought this action in equity to procure a judgment restoring said policy and declaring it an existing contract and liability of the defendant, and to compel it to issue a receipt showing the payment of the premium ■ due on the 19th of June, 1907, which the plaintiff tendered to the defendant and which it refused to accept. - [580] The defendant, as a separate answer, alleged that as a consideration of issuing the policy the plaintiff sighed certain written statements which were made a part of it and -which' statements the jilaintiff warranted were true, and among other things, lie stated that lie had never made an application for life insurance on which a policy was not issued or issued upon a different plan from the one applied for, whereas he had in fact previous to making such statements, frequently applied for and been refused insurance in other companies, and that “as soon as defendant was informed of this, and before the first anniversary of the policy,- the defendant duly notified the plaintiff that it elected to cancel said policy of insui’ance and said . policy was thereupon duly cancelled.” Tim plaintiff demurred to this defense upon the ground that it is insufficient in law upon • the face thereof. The demurrer was sustained and defendant appeals. The answer was held bad upon the ground, as appears from the opinion of tlie learned justice at Special Term, that “ there is no allegation that' the defendant has returned, or offered to return, the premiums paid by the plaintiff; ” in other words, that the general rule applies as to the rescission of contracts. There is no doubt about the general rule,- which is that in order to rescind a contract, the one seeking to do so inust place or offer to place, the other party in the same position, so far as he has parted with value, in which he was prior to its execution. This rule h'as for its origin the equitable principle- that one who seeks to free himself from a contract can do so only by returning all benefits derived therefrom. (Cox v. Stokes, 156 N. Y. 491; Outcault v. Bonheur, 120 App. Div. 168.) Where restoration has not' been made prior to the commencement of the action, then willingness and ability to restore must be alleged and such allegation complied with at the trial. (Gould v. Cayuga County Nat. Bank, 99 N. Y. 333; Nelson v. Hatch, 56 App. Div. 149.) This rule, however, is not of universal application. (Kley v. Healy, 127 N. Y. 555.)- Where a party seeks to rescind on the ground of fraud, he has an election of remedies. He “ can rescind by tendering or restoring what he has received, and then commence his action. He may "keep what lie has received and sue to recover damages for the fraud ; or he may commence an action in equity to rescind and foi’ equitable relief, offering in his complaint to [581] restore, in case lie is not entitled to retain, what he has received.” (Gould v. Cayuga County Nat. Bank, 86 N. Y. 75, 84.) The same rule applies where, by way of defense, a rescission is sought. (City of Ironwood v. Wickes, 93 App. Div. 164.) If the party seeking to rescind has incurred expense or otherwise sustained damage by reason of the fraud, then equity will not compel him to pay back all he has received, but only such part as remains after deducting his loss. This is equitable to both parties. The party perpetrating the fraud ought to be compelled to pay whatever damage the other party has sustained by reason of such fraud.- But if this rule be applied I do not think the answer demurred to sets forth a defense, inasmuch as facts are not stated from which it can be seen or even inferred that the defendían t has incurred any expense or sustained any loss by reason of the plaintiff’s alleged fraud. There is no offer to return the premium paid, or any part of it.' The judgment asked is simply that the complaint be dismissed, with costs. The defendant should have indicated in its answer, by an appropriate offer to that effect,'a willingness to restore, if it be determined that it is not entitled to retain, what it has received (Delano v. Rice, 23 App. Div. 327), or else the relief demanded should provide for an award in plaintiff’s favor if it be determined that the defendant is not equitably entitled to keep what the plaintiff has paid to it. (Allerton v. Allerton, 50 N. Y. 670; Harris v. Equitable Life Assurance Society, 64 id. 196; Pritz v. Jones, 117 App. Div. 643.) The allegation that defendant “ duly cancelled ” the policy does not make the answer good. This is a conclusion of law and not the statement of'a fact. The interlocutory judgment appealed from, therefore, should be affirmed, with leave to the defendant to serve an amended answer on payment of the costs in this court and in the court below.' Patterson, P. J., Laughlin and Scott, JJ., concurred; Houghton, J., dissented.