Remington Sewing Machine Co. v. Kezertee

Sukety. (1) When concealment of material fact, by obligee, discharges surety. Evidence. (2) Testimony of party. Reversal oe Judgment: (3) For immaterial error in instruction. 1. If one who contemplates becoming surety to another for a third person, applies to the person to whom the security is to be given, for information as to the nature, extent and risk of the obligation, or the circumstances, condition or character of -such third person, while the person so applied to may refuse to give such information, yet, if he undertakes to give it, he is bound to disclose every material fact within his knowledge affecting the proposed liability; and if he conceals any facts unknown to the proposed surety, which, if known, would have deterred him from becoming surety (where the latter has not the present means of ascertaining the fact, or where, though he has such means, artifice is used to mislead him or throw him off his guard), this is a fraud which will relieve the surety from his obligation. And this is especially so where the surety becomes such at the request of the person to whom the security is given. 2. Testimony of the surety that he would not have become such if he had known the facts concealed, is admissible. 3. An omission by the court of a correct qualification of a general principle of law stated in the charge, is not error, where such qualification is rendered inapplicable by facts shown by the undisputed evidence.

APPEAL from tlie Circuit Court for Winnebago County. In PTovember, 1873, the plaintiff company entered into a contract, in writing, with James IT. Barr and Nicholas Konrad, by which the latter became the exclusive agents of the company to sell its machines in this state, and agreed to guaranty the payment of all notes taken by them for the company for machines, and of all debts due the company on account of sales made by them. By an instrument under seal attached thereto, the defendants became guarantors for the performance of the contract by Barr & Konrad, and covenanted therein to answer and make good to the plaintiff any loss and damage it might sustain through the default of Barr & Konrad, and to pay any judgment the company might recover against them. This action was brought upon such guaranty. The complaint alleges that Barr & Konrad are in default over $8,000. The only defense to the action stated in the answer of the defendants, necessary to be noticed, is, that the signatures of the defendants were obtained to the guaranty by means of fraudulent representations and fraudulent concealments of an agent of the plaintiff in respect to the solvency and financial condition of Barr & Konrad. The evidence tends to show that Barr & Konrad applied to the defendants to become sureties for the performance of their contract with the company, and also that one Hilder, who was a general agent of the company, made the same request of at least one of the defendants, blit they severally ref used to do so until informed of the financial condition of Barr & Konrad; that the latter thereupon requested the defendants to meet the general agent of the company at .their office for the purpose of obtaining the desired information; that the defendants went to such office, and together there met the agent of .the company, Mr. Hilder, who told them that he had gone through the books of Barr & Konrad the day before, and had found the latter in a good financial condition, they being $2,500 — or, allowing $500 for bad debts, $2,000 — ahead, and doing a prosperous business; and that, although the company required them to give security, it was a mere matter of form, and there would be no risk in signing the guaranty. The books referred to were there present, but the defendants did not examine them. Barr & Konrad had previously acted as agents for the company under a similar contract, and when the above conversation was had were liable to the company in a sum exceeding $32,000, as indorsers or guarantors of unpaid promissory notes taken by them for the company for machines sold by them. Nearly $11,000 of this amount was overdue at the time. The agent knew of this liability, but did not inform the defendants of it. The evidence tends to show that the books of Barr & Konrad, above mentioned, did not show the existence of the liability. Each defendant testified that had he been informed of such liability he would not have signed the guaranty. The judge charged the jury somewhat at length, giving some instructions proposed on behalf of the plaintiff, and refusing to give others; but the substance of the charge is contained in the following paragraph quoted therefrom: “ The defendants had the right to inquire of the agents of tjiese plaintiffs as to the financial standing and ability of Barr & Co., and it was the duty of these plaintiffs, or their agents, to make truthful representations. It was their duty, when being inquired of, to make known to these defendants material facts which affected the risk that the defendants took in becoming sureties, that were within the knowledge of the plaintiffs or their agents; and, upon such inquiry, any concealment of material facts 'affecting the risk, or any false representation of material facts affecting the risk, known to the plaintiffs or their agents, would render the bond void, provided they were such facts as both parties had not equal opportunity to ascertain, and provided that the plaintiffs used no artifice or acts tending to divert the attention of the defendants here from making those examinations which were within their reach otherwise, or examining into such facts as were equally within the reach of the knowledge of both parties; bnt if there are such facts as are peculiarly known to the plaintiffs and not equally known to the defendants, the plaintiffs, or their agents, upon such inquiry, are bound in the law to make them truthfully known, if they know them. . . . One other proposition: It must be such facts that, if known to the defendants, they would not have 'entered into this contract as sureties.” There was a verdict and judgment for the defendants; and plaintiff appealed from the judgment. In the absence of particular inquiry, the agent of plaintiff was not bound to disclose all the details of the business. Big-elow on Eraud, 44-5, and cases there cited; Brandt on Surety-ship, 490, 491; H. B. Ins. Go. v. Lloyd, 10 Exch., 523; Hamilton v. Watson, 12 C. & F., 109; Booth v. Btorrs, 75 Ill., 438; Ham v. Greve, 34 Inch, 18. The contract which defendants signed, by at least two distinct references, disclosed the fact that plaintiff’s agents were required to guaranty the notes taken by them; and it was through defendants’ own negligence that they failed to obtain fall information upon that point. In addition to the above cases, see ¿Etna L. Ins. Co. v. Mabbett, 18 Wis., 067; Garbutt v. Bamk, 22 id., 384; Mamlockv. Fairbanks, 46 id., 415. JBut the representation of Hilder was literally true. It was that, deducting estimated bad debts, Barr & Konrad were §2,000 ahead. If these indorsed notes were liabilities — and there is nothing to show that the proper steps were ever taken to charge the indorsers, — -they were likewise assets in their hands for the payment of their debts. It is in evidence that both Barr and Hilder considered §500 a fair estimate, at the time, of the amount of bad debts. If they turned out to be mistaken, that is no fraud. Bigelow on Fraud, 56, 57; 55 Barb., 536; 40 FT. Y., 562. Even if the representation was false, it would not vitiate the contract, unless defendants were damaged thereby. Ableman v. Both, 12 Wis., 81; Castlemanv. Griffin, 13 id., 535; Barber v. Kil-bourn, 16 id., 485; Garbutt v. Bank, 22 id., 384. But there is no proof that, when this action was brought, Barr & Konrad were legally liable on the indorsed notes. In contracts of suretyship, good faith is to be observed; and when a party desirous of obtaining security knows facts of an important character affecting the risk of the surety, and has reason to believe that they are not known to the proposed surety, if information be sought of him or he have a suitable opportunity, it is his duty to make this known. Maltby's Case, 1 Dow, 294; Jackson v. Duchaire, 3 Term, 552; Stone v. Crompton, 5 Bing. FT. O., 142; Frankl/yn Bank v. Cooper, 36 Me., 179;' JEtnaLife 7ns. Co. v. Mabbett, 18 Wis., 671; Peabocly'v. Leach, id., 657; Cotzhausenv. Simon, 47 id., 103; Leev. Jones, 108 Eng. O. L., 386; 4 Am. Law Beg. (FT. S.), 487; 11 Yroom, 147; Burge on Suretyship, 218; Brandt on Suretyship, 490, 492, §§ 365, 366; Kerr on F. & M., 122.