pal's habits or business conduct.45 False answers to specific inquiries concerning material matters will release the surety.46 The question of liability of sureties on fidelity bonds of employees is frequent in cases where the obligee has neglected to notify the surety of a prior default or dishonesty of the principal. But for the defense of concealment to be sufficient, it must be shown that the creditor procured the surety's signature, or was present when the instrument was executed, and then misrepresented or concealed material facts which it was his duty to disclose.47 The obligee owes no active duty to ascertain the facts concerning the honesty of the principal; and, if he is negligent, the surety cannot complain, for the creditor's duty is only to inform the surety of prior defaults within his knowledge, and he need perform no detective work to obtain such information.48 Neglect to inform the surety, whether specific inquiry is made or not, of the prior defalcations of the principal-employee is a misrepresentation and vitiates the guarantor's contract as much as if duress or fraud of any other character had been imposed. That the obligee had known, but had forgotten the employee's previous dishonesty seems to be no shield. He owes the duty to notify nevertheless.49 The previous misconduct of the principal, 45 Pidock et al. v. Bishop (1825) 3 Law J. R., K. B. 109, 3 B & C 605; Bellevue Building and Loan Association v. Jeckel et al. (1898) 104 Ky. 159, 20 Ky. L. Rep. 460, 46 S. W. 482; Franklin Bank v. Cooper, Executor (1855) 39 Me. 542; Remington Sewing Machine Co. v. Kezertee et al. (1880) 49 Wis. 409, 5 N. W. 809. 46 Bank of Monroe v. Anderson Bros. Mining & R. Co. et al. (1855) 65 Ia. 692, 22 N. W. 929. But see United States Fidelity and Guar anty Co. v. Muir (1902) 115 Fed. 264, 53 C. C. A. 56. 47 Lake et al. v. Thomas (1897) 84 Md. 608, 36 Atl. 437. 48 Connecticut Mutual Life Insurance Co. v. Scott (1884) 81 Ky. 540, 543, 5 Ky. L. Rep. 639; Atlas Bank v. Brownell et al. (1869) 9 R. I. 168, 11 Am. Rep. 231. 49 Farwell, L. J., in London General Omnibus Co. Ltd. v. Holloway (1912) 2 K. B. 72, 84, said: ".. I am glad to assume that the plaintiffs had forgotten the clerk's previous defalcations, or that it did not occur to them to disclose these defalcations. For all that, I think they cannot enforce the bond which the surety gave in ignorance of them, and I agree that the appeal must be dismissed.'' In the opinion in Herbert v. Lee et al. (1907) 118 Tenn. 133, 101 S. W. 175, 176, we find this conclusion: "We think, upon this finding of facts, that a failure upon the part if material, should be disclosed by the obligee whether made the subject of specific inquiry or not, in any case where it would naturally affect the surety's decision. The motive of the concealment or failure to communicate the material facts is of no consequence. The concealment need not have been wilful to discharge the surety. The fact that it was material is sufficient to release him.50 Even though the bond be made to the State, according to some authority at least, the duty exists to disclose to the surety any fact which should be made known by an individual obligee.51 of the obligee to communicate the criminal conduct of Lee, out of which the existing indebtedness occurred, at the time of the making of these bonds, to the sureties upon them, although not inquired of by the sureties, was such conduct on his part as to relieve the sureties from liability.'' Accord: Third National Bank v. Owen et al. (1890) 101 Mo. 558, 14 S. W. 632. 50 Railton v. Mathews et al. (1844) 10 Clark & Finnelly 934, 8 Eng. Reports Reprint 993. Note the language of Mr. Justice Swayne in Magee v. The Manhattan Life Insurance Co. (1875) 92 U. S. 93, 23 L. Ed. 699, that "to constitute fraud, the intent to deceive must clearly appear. The concealment must be willful and intentional." 51The gravamen alleged in this plea is, that Mr. Sooy had antecedently been in the employment of the State as treasurer; and that during such term he had been guilty of defalcations and embezzlements which were known to the State; and that no disclosure of such malpractices had been made to the sureties, they being ignorant of them. Such a statement describes a fraud; at all events, a fraud in law. A person called in as a guarantor of the honesty of an employee has the right to infer that the continuance of such employee in the service of the master is a tacit assertion on the part of the latter, that there has at least been nothing criminal in the past conduct of the servant in the course of his employment. Such an inference is the natural and reasonable result of the circumstances; and hence the obligee is chargeable with the knowledge that the surety is acting on that basis, and with such knowledge it is impossible to acquit him of bad faith if he allows the suretyship to take effect. Where silence is reasonably sure, in the ordinary course of things, to produce the effect of deceit, silence must be culpable, and in law, the one should be regarded as the equivalent of the other. In the present instance the duty of disclosure was of the most imperative character; it is the case of an officer who had violated his official oath and defrauded the public, and had thus committed crimes of a nature highly penal. It was, therefore, obvious that, in becoming bound for the honest conduct of such an officer, the sureties were acting under a delusion as to the real facts of the Without specific inquiry, however, certain facts do not require disclosure by the creditor. The negligence of an employee, resulting in a prior shortage, not due to what was then believed to be a criminal act, need not be disclosed to a prospective guarantor who makes no specific inquiries concerning the facts.52 The gratuitous surety who fails to investigate the principal's previous record is not without blame. If he closes his eyes to the information available and a loss results, unless the act of the creditor is fraudulent, the surety cannot set up the nondisclosure as a defense.58 A bank as obligee is under no duty to volunteer advice to a prospective surety on a note that he principal had overdrawn his account when his credit was believed to be good.54 Neither is there a duty to inform the surety of a previous indebtedness to the obligee,55 or of the personal habits of the principal, not related to his prospective employment.56 A bank need not volunteer information that the cashierprincipal is one of its directors.57 transaction. Neither in morals nor in law can an obligee stand by and knowingly allow an obligor to take a risk which the former knows the latter has no intention to assume. Sooy et al. v. State of New Jersey (1877) 39 N. J. L. 135, affirmed 41 N. J. L. 394. Another view is presented in Cawley et al. v. People (1880) 95 Ill. 249, 255: "The (county) board, or any of its members, were not their agents, nor did the law or morals require the members of the board to seek the sureties to give them such information. Nor could the neglect of any member to give the information, even if they had possessed it, have been a fraud by the board. It only acts as a body and not as individuals. The law has conferred power and imposed duties upon the board only as an aggregate body." Accord: Board of Supervisors of the County of Monroe v. Otis (1875) 62 N. Y. 88. See State of Florida v. Rushing (1879) 17 Fla. 226; Independent School District v. Hubbard (1899) 110 Ia. 58, 81 N. W. 241, 80 A. S. R. 271; The State v. Dunn (1854) 11 La. Ann. 549; Myers et al. v. State (1886) 66 Md. 80, 5 Atl. 410. 52 Wells Fargo & Co's. Express v. Walker (1898) 9 N. M. 456, 54 Pac. 875. 58 Magee et al. v. The Manhattan Life Insurance Co. (1875) 92 U. S. 93, 23 L. Ed. 699, 700. 54 Farmers' & Drovers' National Bank v. Braden et al. (1891) 145 Pa. 473, 22 Atl. 1045. 55 Palatine Insurance Co. of Man. chester, Eng. Ltd. v. Crittenden et al. (1896) 18 Mont. 413, 45 Pac. 555. 56 Inhabitants of Hudson v. Miles (1904) 185 Mass. 582, 71 N. E. 63, 102 A. S. R. 370. 57 Frelinghuysen, Receiver v. Bald win et al. (1883) 16 Fed. 452. The creditor need not give any unsolicited information to the surety concerning the insolvency of the principal. His silence will not constitute fraud unless the nature of the transaction requires a disclosure of all the facts. These observations meet the approval of the courts generally: "Undoubtedly, if the proposed surety should apply to the creditor for information as to the responsibility or solvency of the principal, it would be the duty of the creditor to give him all the information he possessed on that subject, and if he should withhold any fact within his knowledge, material to the risk to be assumed by the surety, the latter would not be bound. But the creditor is not bound in such case to volunteer his information unsolicited and uncalled for. It is said, that 'any concealment of material facts, or any express or implied misrepresentation of such facts, or any undue advantage taken of the surety by the creditor, either by surprise or by withholding proper information, will undoubtedly furnish a sufficient ground to invalidate the contract.' . . The fact of the insolvency of the principal cannot be said to be concealed by the creditor, unless he is called upon by the surety, or by the circumstances of the transaction, to make the disclosure, and he fails to do so. His silence is no fraud unless the proposed surety or the nature of the transaction calls upon him to speak.58 § 35. Failure of the principal to execute. If the instrument shows upon its face that it is to be executed by a principal, who fails to sign it, but is signed by sureties, there is lack of harmony as to the liability of those who signed. It is elementary that there can be no surety without a principal. By signing before the principal, the view is taken by one line of cases that there is an implied understanding that the principal will execute the instrument prior to its delivery. His execution is made a condition to its binding effect upon the surety. By inserting the name of the principal in the body of a bond, notice is given the obligee that if he accepts it without the principal's signature, he does 58 Ham v. Greve et al. (1870) 34 Ind. 18, 22. so with knowledge that he is accepting an incomplete instrument.59 Other courts have held the surety liable when the principal failed to execute the instrument. In some cases the principal would be liable for his default without an undertaking, as in the case of a public officer.60 By others, the view is that the undertaking was given voluntarily for the purpose of saving harmless the obligee against whom the defense of the failure of the principal to execute cannot avail.61 Other courts have considered the failure of the principal to sign to be a technicality which should not affect the rights of the parties. Courts have held the surety is not injured because he may recover the amount paid on the principal's behalf whether the latter signed the instrument or not.6 62 59"In any case, if the bond is so written that it appears that several were expected to sign it, the obligee takes it with notice that the obligors who did sign it can set up in defense the want of execution by the others, if they agreed to become bound, only on condition that the other co-sureties joined in the execution." Dair v. United States (1873) 16 Wall. 1, 21 L. Ed. 491. Accord: Hall et al. V. Parker (1878) 39 Mich. 287; Board of Education of Rapid City v. Sweeney et al. (1891) 1 S. Dak. 642, 48 N. W. 302, 36 A. S. R. 767. That the principal's failure to execute a bail bond is a defense to the surety, see Bean v. Parker et al. (1822) 17 Mass. 591, 604. 60 City of Deering v. Moore (1893) 86 Me. 181, 29 Atl. 988, 41 A. S. R. 534; Douglas County v. Bardon et al. (1891) 79 Wis. 641, 48 N. W. 969. 61 Bollman, Sheriff v. Pasewalk et al. (1888) 22 Neb. 761, 36 N. W. 134. (1893) 13 Mont. 363, 34 Pac. 187, 40 A. S. R. 449; Eureka Sandstone Co. v. Long et al. (1895) 11 Wash. 161, 39 Pac. 446. Some of the cases have pointed out a distinction where by law the principal is liable without a contract. "As to such obligations, where the liability of the principal is fixed by contract or by operation of law, the sureties who guaranty the fulfillment of that obligation cannot avoid their obligation because the principal did not sign the bond with them." Cockrill v. Davie et al. (1894) 14 Mont. 131, 35 Pac. 958. Admitting the right of the surety to obtain indemnity from the principal, the Michigan Supreme Court says that "if he had signed the bond he would not only be estopped by the judgment from contesting his liability, but the sureties could require recourse to his property to satisfy the execution before the seizure of theirs. These are not barren advantages." Johnston et al. v. Township of Kimball (1878) 39 Mich. 187, 189. |