Potter v. Monmouth Mutual Fire Insurance

Rescission of settlement obtained by fraud essential to a recovery. Where an. insurance company show, in defence to a suit upon a policy, that the plaintiff has accepted a specific sum in adjustment of his loss and the assured replies that the settlement was procured by fraud practiced upon him by the defendants, it will be necessary for him to prove that he has returned the money received upon such settlement before commencing his action ; otherwise it cannot be maintained.

On exceptions. Assumpsit upon a policy issued by the defendants to the plaintiff, insuring the buildings upon his farm and the personal property in them for a term of four years, to the amount of $1150. The policy was delivered September 18, 1867, and the property was destroyed by fire September 1, 1869. Between these two dates JVIr. Potter had mortgaged his farm. After the loss there was debate and difficulty about its adjustment, which resulted in its being settled by payment of a thousand dollars in full on the fifteenth day of October, 1869, by a draft of that date and amount, payable in thirty days. This action was instituted November 15, 1870, to recover the other $150 upon the policy, and was in the ordinary form of declaring upon such an instrument, no mention being made of the compromise, which (at the trial) the plaintiff testified he was induced to assent to by reason of fraudulent misrepresentations, by some of the directors of the insurance company, that his having mortgaged the estate, without notice to them, was such an alienation of it as to avoid the policy. He said he was told there was a statute to that effect. In defence it was stated that the main objection urged to him, when he presented and adjusted his claim, was that there was an over-valuation, he having paid between thirteen and fourteen hundred dollars for the farm of sixty acres with these buildings upon it. It appeared, however, that the effect of the mortgage was discussed and part of the syllabus of the case of Pollard v. Somerset Ins. Go., 12 Maine, 221, was read to him. The legislation of 1861, c. 31, and of 1862, c. 115, had changed the law in this State, but this was not known to Mr. Potter; whether or not it was known to the defendants’ directors was not made clearly apparent. The verdict was for the plaintiff. Though several exceptions were noted at the trial the only one insisted upon in argument by the company was the refusal of the judge to give this instruction requested by them, viz: “Fraud does not render contracts void, except at the option of the party defrauded; and, where there is a settlement of a claim for a sum less than appears to be due upon the face of it, after such settlement, before an action can be maintained upon the original cause of action, upon the ground of deception, misrepresentation or fraud, on the part of the debtor in effecting the settlement, the creditor must (within a reasonable time) rescind the contract of settlement, and return or tender to the debtor whatever sum was paid and received in effecting. it.” The presiding justice told the jury that though “there may, perhaps, be some question with regard to that, I have thought best, on the whole, to instruct you that this action may be maintained, if the plaintiff has succeeded in defeating the effect of that instrument [his agreement] although he did not return the money received by him.” cited a number of cases from the Maine Reports in support of their exceptions.