SOUTHERN STATES LIFE INS. CO. V. MCCAULEY, 1970-NMSC-010, 81 N.M. 114, 464 P.2d
404 (S. Ct. 1970)
SOUTHERN STATES LIFE INSURANCE COMPANY,
a Corporation, and
CHARLES A. KEELING, SR., Plaintiffs-Appellees,
vs.
FRED L. McCAULEY, Defendant-Appellant
SUPREME COURT OF NEW MEXICO
1970-NMSC-010, 81 N.M. 114, 464 P.2d 404
APPEAL FROM THE DISTRICT COURT OF
BERNALILLO COUNTY, REIDY, Judge
ROBERTSON & REYNOLDS, Silver City,
N.M., Attorneys for Appellant.
CHARLES A. KEELING, JR., Albuquerque,
N.M., Attorney for Appellees.
MOISE, Chief Justice, wrote the opinion.
John T. Watson, Justice, James W.
Musgrove, District Judge.
{1} This is a suit on a
promissory note executed by defendant-appellant to appellee Keeling,
representing part of the premiums for two life insurance policies issued by
Southern States Life Insurance Company on the life of appellant's parents,
Thomas Crawford McCauley and Marie Opal McCauley. Appellee Keeling endorsed the
note to Southern States Life Insurance Company, but subsequently paid the note
and it was assigned back to him. No question is presented as to his right to
sue. See Smith v. Orion Insurance Company, 298 F.2d 528 (10th Cir. 1961);
Annot. at 90 A.L.R.2d 1291.
{2} The record discloses, and
the court found, that in 1951 the named insureds had purchased insurance from
Southern States Life Insurance Company,
{*115}
which policies expired by their terms in 1961. Thereafter, in 1965,
appellant discussed the possible purchase of new policies, but was dissatisfied
because of the absence of value in the old policies. Notwithstanding that the
lapsed policies had no actual value, appellee advised appellant that if his
parents would take new policies, a credit of approximately $4,000.00 could be
allowed because of the old policies. The premium on the new policies was more
than $9,000.00 for the first year, 90% of which represented appellee's
commission. On March 22, 1965, two new policies on the lives of his parents
were issued and delivered to appellant as owner and beneficiary, and he
executed and delivered a note to appellee in the amount of $5,064.95 which,
together with a $4,182.15 credit granted by appellee, covered the first year's
premium on the new policies. Appellant would not have purchased the new
policies had he not received the benefit of the refund which was in fact a
special favor or advantage given by appellee in order to sell the insurance.
{3} The note was not paid when
due and this suit was instituted to collect. Appellant answered admitting
execution of the note, but claimed that it was null and void because executed
in reliance on false representations made by appellee that the old policies had
value which appellant was entitled to have credited on the premium on the new
policies. The basis for appellant's claim may be found in the provisions of §
58-9-3, N.M.S.A. 1953, which reads as follows:
"Any person who is not a licensed agent, broker, or
solicitor, who shall at any time knowingly receive any rebate of any premium
specified in any insurance policy, or any special favor or advantage of any
kind or nature whatsoever not plainly designated in the policy, or receive any
dividends or profits, except dividends on participating policies, or agree to
receive any dividends or profits, or anything of value whatsoever not specified
in the policy, shall be guilty of a misdemeanor, and shall, upon conviction, be
punished by a fine of one hundred dollars [100], or imprisonment in the county
jail for thirty [30] days, or both, in the discretion of the court; Provided,
that this section shall not apply to the payment of dividends upon contracts
made as inducements prior to the enactment hereof."
Appellant contends that there were two contracts, one
involving the life insurance policies which need not be considered here, and
the other involving the promissory note which was void because of illegal
consideration. The illegality was said to result from Keeling's agreement to
give a rebate which would be illegal for appellant to receive. Appellant
maintains that if he paid the note with knowledge of the statute against
rebates he would violate the statute.
{4} Since the statute
prohibits the receipt of rebates it would be violated by appellant's failure to
pay the full premium, no less than by his promise to pay only a portion of it.
The court would not be discouraging the receipt of rebates by permitting those
who do receive a portion of the premium as a rebate to escape liability for the
unrebated balance.
{5} The note was given to the
solicitor, who paid the company, and the policy as agreed upon was issued,
Should the fact that a rebate was granted by appellee, the receipt of which by
appellant is a misdemeanor, have the legal effect asserted by appellant? A
somewhat similar situation existed in Word v. J. E. Earnest & Co., 129
S.W.2d 833 (Tex. Civ. App. 1939), rev'd on other grounds, 132 Tex. 16, 152
S.W.2d 325 (1941). However, the statute there being construed clearly made it a
crime for the insurer, acting through its agent or otherwise, as opposed to the
insured, to do what was there held a violation of law.
{6} Appellant makes no
reference to 58-9-12(8), N.M.S.A. 1953, which prohibits the giving and the
offering of rebates,
{*116} and we need
not discuss its effects. Under our decisions the insurance company could not
have avoided liability on its policy because of the illegality here relied
upon. See Douglass v. Mutual Ben. Health & Accident Ass'n,
42 N.M. 190,
76
P.2d 453 (1937); Buck v. Mountain States Investment Corporation,
76 N.M. 261,
414 P.2d 491 (1966); Foundation Reserve Insurance Co. v. Kennedy,
79 N.M. 382,
444 P.2d 293 (1968). This being true, it would seem grossly improper to permit
appellant to escape payment of the premium represented by the note. This is
particularly true since to excuse him would result in his being permitted to
take advantage of his own criminal act, which was not a criminal act of the
appellee or its principal, the insurance company. See 6A Corbin, Contracts,
1522 (1962) Couch on Insurance 2d, 30.65.
{7} We would also note the
rule quoted in Delgado v. Delgado,
42 N.M. 582,
82 P.2d 909 (1938), from
Esquibel v. Chavez,
12 N.M. 482,
78 P. 505, 510 (1904), that "The general
rule, of course, is that provisions prescribing the penalty in a statute are
exclusive, and that the courts have no right to impose any penalty, save as
provided by the Legislature." As stated in Delgado, supra, if parties to
an illegal contract are in pari delicto, courts ordinarily will leave them
where it finds them. However, the rule is otherwise when they are not so
situated and the statute places a penalty on one and not on the other. The
party at fault under the statute cannot gain an advantage by his own act. Buck
v. Mountain States Investment Corp., supra, and American Nat. Ins.Co. v. Tabor,
111 Tex. 155, 230 S.W. 397 (1921), although involving violations of the
statutes by the insurers rather than the insureds, are such cases.
{8} It follows that the
judgment appealed from is not in error and should be affirmed. IT IS SO
ORDERED.
John T. Watson, Justice, James W. Musgrove, District Judge