In a suit by a company organized under the laws of the State of
New York against citizens of the State of Alabama on a bond
conditioned for the faithful performance of duty and the payment of
money received for it, executed by the agent of the company who
transacted business as such in the City of Mobile, where he
resided, and by them as his sureties, the latter pleaded that the
company, as a condition upon which it would retain in its
employment the agent then largely indebted to it, required such
bond and also his agreement to apply all his commissions thereafter
earned to his former indebtedness to it; that the agreement was
made, and the commissions were so applied; that the company knew
that the agent had no property, and depended upon his future
acquisitions for the support of himself and family; that the
defendants were ignorant of such indebtedness and agreement; that
had they been informed thereof, they would not have executed the
bond; that the agreement as to the commissions and its performance
were a fraud on them, and that the bond as to them was thereby
avoided.
Held that the plea was bad, as it set forth
neither the circumstances attending the delivery of the bond nor
averred misrepresentations,
Page 92 U. S. 94
fraudulent concealment, opportunities to make disclosure on the
part of the company, inquiries by the sureties before the bond was
delivered, or knowledge by the company that the sureties were
ignorant of the facts complained of.
Held further that
this agreement had no such connection with the undertaking of the
sureties as to give them a right to be informed thereof except in
answer to inquiries. As none was made, the company was under no
obligation to volunteer the disclosure.
This is a suit by The Manhattan Life Insurance Company of the
City of New York against the plaintiffs in error, sureties on the
bond of one Henry V. H. Voorhees, who was the agent of the company
at Mobile, Ala.
The bond sued on is as follows:
"Know all men by these presents that we, Henry V. H. Voorhees,
as principal, and Jacob Magee and Henry Hall, as securities, of the
Town of Mobile, and State of Alabama, are held and firmly bound
unto the Manhattan Life Insurance Company of the City of New York
in the sum of $5,000, for which payment well and truly to be made
we bind ourselves, our heirs, executors, and administrators,
jointly and severally, firmly by these presents."
"The condition of this obligation is such that if the
above-bounden Henry V. H. Voorhees, who has been appointed an agent
of the said The Manhattan Life Insurance Company, shall faithfully
conform to all instructions and directions which he, as such agent,
may at any time receive from the said The Manhattan Life Insurance
Company, and shall on the first day of each month remit to the
office of said company all moneys received by him (not previously
remitted) as such agent, less his commissions, together with his
account of the same, then the above obligation to be void;
otherwise to remain in full force and virtue."
The breach assigned was the agent's withholding from the company
moneys received by him subsequently to the date of the bond, as
well as other moneys remaining in his hands at the time it was
executed.
The defendants pleaded three pleas. Upon the first and second
issue was joined.
The third plea was as follows:
"For a further plea, the defendants say that before the
execution and delivery of said bond, said Henry Voorhees was
largely
Page 92 U. S. 95
indebted to said plaintiffs for moneys before that time received
by him belonging to plaintiffs in conducting their business as
agent in Mobile, of which these defendants had no notice, and the
plaintiffs required of him the bond described in the complaint as a
condition on which only they would retain him in their employment
as agent in Mobile in conducting their business, and, besides the
bond, the plaintiffs required of said Voorhees a promise or
agreement that all his future commissions and interest he might
acquire and earn in conducting their business afterwards, he, the
said Voorhees, should pay to the plaintiffs, to be applied to his
then past indebtedness, for which said plaintiffs had no
security."
"The plaintiffs then well knowing, for so the fact was, that
said Voorhees had no property or means of his own by or out of
which his said past indebtedness could be paid. They also well
knew, and so the fact was, that he could not support himself and
family but by means of his future acquisitions by his labor, and
therefore the appropriation of his commissions and interest in all
his future acquisitions in conducting plaintiffs' business would
compel him, said Voorhees, to appropriate a similar amount to his
support out of moneys received by him belonging to plaintiffs."
"And they further aver that said Voorhees did promise and agree
with said plaintiffs, before said bond was executed, that he would
pay said plaintiffs all his commissions on the moneys that he might
afterwards receive in conducting their business, to be applied to
the then past indebtedness of said Voorhees to said plaintiffs. And
these defendants further aver that at the time they executed said
bond, which was as the securities of said Voorhees, they had no
notice or knowledge of said agreement between said Voorhees and
said plaintiffs nor any notice or knowledge that he, said Voorhees,
had fallen behindhand or had become indebted to plaintiffs, and if
they had been informed of said agreement or of said indebtedness,
they would not have executed said bond."
"And these defendants further allege that in pursuance of said
agreement, the said Voorhees did pay said plaintiffs all his
commissions afterwards earned and acquired in the business of the
plaintiffs, which was carried to the credit of his past
indebtedness to them in pursuance of said agreement, but retained a
corresponding amount from the moneys of the plaintiffs he
afterwards received as he was compelled from necessity to do. And
they further aver that said agreement and its execution as set
forth in this plea was a fraud on these defendants, and therefore
they are not bound by said writing obligatory, but the same, as to
them, is void; and of this they are ready to verify. "
Page 92 U. S. 96
To which plea the plaintiff demurred. The court sustained the
demurrer.
The jury found for the plaintiffs below and judgment was
rendered accordingly, whereupon the defendants brought the case
here and assigned for error the judgment of the court in sustaining
the demurrer
Page 92 U. S. 97
MR. JUSTICE SWAYNE delivered the opinion of the Court.
The defendant in error sued the plaintiffs in error upon a bond,
which recited that Henry V. H. Voorhees had been appointed an agent
of the insurance company, and was conditioned for his paying over
to the company all moneys belonging to it which he should
receive.
The breach alleged was that he had received such moneys, which
he had failed to pay over.
The defendants pleaded three pleas:
1. That Voorhees had paid over all moneys belonging to the
company which he received after the execution of the bond.
2. That at the time of the execution of the bond, Voorhees, as
such agent, was indebted to the company and that there was an
agreement between him and the company that all moneys received by
Voorhees should be credited upon this indebtedness; that these
facts were concealed from the defendants, and that all the moneys
so received were so credited.
3. That the plaintiffs required the giving of this bond as a
condition on which only they would retain Voorhees in their
employment as such agent; that they required, further, an agreement
by Voorhees that all his commissions thereafter earned should be
applied to his past indebtedness to the company; that they were so
applied; that the defendants were ignorant of the indebtedness and
of this agreement; that if they had been informed of them, they
would not have executed the bond; and that the agreement as to the
commissions and its execution
Page 92 U. S. 98
were a fraud on them, and that the bond, as to them, was thereby
avoided.
The third plea was demurred to, and the demurrer was sustained.
Issue was taken upon the first and second pleas. The jury found for
the plaintiff, and the court gave judgment accordingly.
The only question presented for our determination is as to the
sufficiency of the third plea.
The demurrer admits the substantial facts which the plea avers.
Do the agreement as to the commissions and the circumstances that
it was unknown to the sureties and not communicated to them by the
company exonerate the sureties from liability upon the bond?
A surety is "a favored debtor." His rights are zealously guarded
both at law and in equity. The slightest fraud on the part of the
creditor touching the contract annuls it. Any alteration after it
is made, though beneficial to the surety, has the same effect. His
contract exactly as made is the measure of his liability, and, if
the case against him be not clearly within it, he is entitled to go
acquit.
Ludlow v. Symonds, 2 Caine's Cas. 1;
Miller v.
Stewart, 9 Wheat. 681.
But there is a duty incumbent on him. He must not rest supine,
close his eyes, and fail to seek important information within his
reach. If he does this and a loss occurs, he cannot, in the absence
of fraud on the part of the creditor, set up as a defense facts
then first learned which he ought to have known and considered
before entering into the contract. Kerr on Fraud and Mistake
96.
Vigilantibus et non dormentibus jura subveniunt.
Where one of two innocent parties must lose and one of them is
in fault, the law throws the burden of the loss upon him.
Hearne v. Nichols, 1 Salk. 289.
It may be well, before examining the question arising upon the
plea, to advert to some of the points bearing upon the subject
which have been adjudged in authoritative cases.
A fraudulent concealment is the suppression of something which
the party is bound to disclose. Kerr,
supra, 95.
To constitute fraud, the intent to deceive must clearly appear.
Spofford v. Newson, 9 Ired. Law, 507.
Page 92 U. S. 99
The concealment must be willful and intentional. De Gol. on
Guar. & Sur. 366.
The test is whether one of the parties knowingly suffered the
other to deal under a delusion. 2 Kent's Com. (Comst. ed.) 643.
The mere relation of principal and surety does not require the
voluntary disclosure of all the material facts in all cases. The
same rule as to disclosures does not apply in cases of principal
and surety as in cases of insurance on ships or lives.
North
Brit. Ins. Co. v. Loyd, 10 Exch. 533.
In this case, a former guarantor was discharged, and others
taken in his place. The fact of the prior guaranty was not
disclosed. The subsequent guarantors made no inquiry, and they were
held to be liable. If the surety desires information, he must ask
for it. The creditor is not bound to volunteer it. An undisclosed
prior debt will not affect the validity of the contract.
Hamilton v. Watson, 12 Cl. & F. 119.
If the creditor be applied to, he must make a full and frank
communication. De Gol.,
supra, 367.
One took a note from another whom he knew to be insolvent, and
did not disclose that fact to a person who became surety. It was
held that the surety was bound and that the payee had a right to
presume he was aware of the insolvency of the principal.
Ham v.
Greve, 34 Ind. 18.
To render the general allegation of concealment sufficient in a
pleading, it is necessary also to aver that the creditor either
procured the surety's signature or was present when the instrument
was executed and then misrepresented or concealed essential facts
which should have been disclosed; otherwise, the allegation of
fraud is only the pleader's deduction.
Burks v.
Wonterlein, 6 Bush 24.
In this case, the court said,
"The principal may have presented her [the payee] the note,
signed in her absence, when she could have made no communication to
the surety, and could therefore have been guilty of neither
misrepresentation nor concealment, and the general allegation of
concealment does not negative the idea of her absence."
Id.
In such circumstances, the creditor is under no obligation,
legal or moral, to search for the surety and warn him of the
Page 92 U. S. 100
danger of the step he is about to take. No case has gone so far
as to require this to be done.
Wyethes v. Labouchere, 3 De
G. & J. 609.
The creditor is not bound to inform the intended surety of
matters affecting the credit of the debtor or of any circumstances
unconnected with the transaction in which he is about to engage.
Id.
It appears by the record in this case that the plaintiff was a
corporation of the City of New York, that Voorhees was the agent of
the company at Mobile, in the State of Alabama, and that the
parties to the bond were all of that city.
The plea does not set forth any of the circumstances attending
the execution and delivery of the bond. It does not aver that there
was any misrepresentation, anything fraudulently kept back, or any
opportunity to make disclosures on the part of the company, or any
inquiry by the sureties, before the bond was delivered. Nor is it
averred that the company was aware that the sureties were ignorant
of the facts complained of. It is perhaps to be inferred from the
plea that the fact was -- as the record, aside from the plea, shows
it to have been -- that the bond was executed at Mobile and sent by
Voorhees by mail to the company in New York. If this were so, the
company, upon receiving it, was under no obligation to make any
communication to the sureties. The validity of the bond could not
depend upon their doing so. The company had a right to presume that
the sureties knew all they desired to know, and were content to
give the instrument without further information from any source.
Under these circumstances, it was too late, after the breach
occurred, to set up this defense.
There is another objection to the plea. There was nothing
fraudulent in the agreement. The obligation of the agent was simply
to pay over the money of the company which he should receive. This
the sureties guaranteed that he would do. To do it was a matter of
common honesty; not to do it was a fraud. The agreement of the
agent to apply money belonging to him derived from any source in
payment of a preexisting debt to the company had no such connection
with what the sureties stipulated for as gave them a right to be
informed on the subject, except in answer to inquiries they might
have made.
Page 92 U. S. 101
They made none, and there was no obligation on the part of the
company to volunteer the disclosure.
On both these grounds the plea was bad, and the demurrer was
properly sustained.
Judgment affirmed.
