
    Anna Dunfee and John J. Cummins, as Executors, etc., of John Dunfee, Deceased, Respondents, v. Joseph Dunfee, Defendant, Impleaded with Empire State Surety Company, Appellant.
    Fourth Department,
    May 3, 1911.
    Principal' and surety — bond of indemnity — construction — indemnity against liability arising through performance of contract — when surety liable — facts not showing fraud — fraud of principal not chargeable to obligee — motion for deposition denied.
    The liability of a surety on an indemnity bond depends upon the instrument as illumined by the circumstances which induced it; it is to be measured and determined no differently from that of any other surety.
    Thus, where the executors of a contractor paid moneys earned under a contract to a nephew of their testator upon his furnishing a bond ■ indemnifying them against any liability arising out of the contract, and' the executors testify that they required the- bond because they apprehended a recovery of damages by one who received personal injuries during the performance of the contract, the surety is hable for the amount ' subsequently recovered in an action for said personal injuries, although . the claim of the person injured was not specifically mentioned in the bond.
    Evidence in an action on such bond examined, and held, sufficient to justify the jury in finding that the executors were not guilty of fraud in procuring the execution of the bond.
    Fraud practiced by a principal is not to be imputed to the obligees unless they participated in it or had cognizance of it, or unless a conspiracy between the obligees and the principal is established.
    The court in its discretion may deny an application to secure the deposition of a party if the action has been long at issue and the moving party defers the motion until the time of trial.
    Appeal by the defendant, the Empire State Surety Company, from a judgment of the Supreme Court in favor of the plaintiffs, entered in the office of the clerk of the county of Onondaga on the 26th day of October, 1910, upon the verdict of. a jury; also from an order entered in said clerk’s office on the 25th day of October, 1910, denying the said defendant’s motion •for a new trial made upon the minutes; also from an order .entered on the 13th day of October, 1910, modifying an order theretofore made for the examination before trial of the plaintiffs and codefendant, and-also from two orders entered on the 18th day of October, 1910, one denying the said' defendant’s motion for an order to examine the defendant Joseph Dunfee before trial, and the other denying a motion for an adjournment or postponement of the trial.
    The action is on a bond executed by the defendant Joseph Dunfee, as principal, and the appellant, a surety company, as surety. The answer of the surety company, after denials, alleges as an affirmative defense that the giving of the bond in suit was procured by means of the fraud and conspiracy of the plaintiffs and the defendant Joseph Dunfee, who has not answered in the action.
    
      Benjamin Beass and Hugo Hirsh, for the appellant.
    
      John W. Hogan, for the respondents.
   Spuing, J.:

In September, 1904, the Central New York Telephone and Telegraph Company entered into a written agreement with John Dunfee, of Syracuse, the testator of the plaintiffs, whereby he agreed “to build a system of underground conduits and manholes in the streets of the city of Syracuse ” according to the specifications which formed a part of the agreement. The contractor agreed to furnish the tools, machinery, etc., essential to the prosecution of the work, “and to guard and protect the trench' and all excavations at all times against accidents, and be responsible for any accidents or injury which may occur.”

During the progress of the work and on the 24th of September, 19 Ó4, one Florence Eyan fell in an unguarded trench or excavation made at the intersection of Montgomery and Jefferson streets in said city by said contractor, and was seriously injured. On October fifth following she commenced an action against both parties to said agreement to recover damages for the injuries sustained by her. Dunfee died December twenty-fourth, and at that time the agreement was substantially performed. He left a last will and testament which was duly admitted to probate, and letters testamentary issued thereon to the plaintiffs in January, 1905,by the surrogate of the county of Onondaga. The telephone company early in April served upon the plaintiffs a notice of the pendency of said action commenced by Florence Eyan, calling attention to the clause mentioned in the agreement with Dunfee and requesting the executors to defend such action, and a notice of claim was also presented by said company to said executors, accompanied by a copy of the summons and complaint in said action. The plaintiff in that action recovered a verdict of '$20,000, which was reduced to $15,000, and judgment entered for $15,501.76 on the 9th of June, 1,906. The judgment was finally affirmed by the Court of Appeals on March 16, 1909 (See Ryan v. Central N. Y. Tel. & Tel. Co., 195 N. Y. 508), and was paid by the telephone company. .On April 29, 1909, the telephone company commenced. an action against the plaintiffs and recovered judgment for $19,993.81 and an execution was duly issued thereon, and the plaintiffs paid in satisfaction thereof the sum of $20,810.88. The defendants here had adequate and reasonable notice of the nature and pendency of said action and were requested and demanded to defend the same.

John Dunfee was a man of affairs engaged extensively in the performance of work requiring earth excavation. He had several independent deposit accounts in the State Bank of Syracuse. His account in connection with the performance of the agreement, with the telephone company was kept by itself as that of “John Dunfee & Co., Subway,” although he had no partner in the enterprise. On the 20th of December, 1904, he was paid on account of said contract $23,006.35, whieh was deposited to the credit of said account, making the same $25,558.13; and after his death the account was kept intact until May 29, 1906.

The defendant Joseph Dunfee, a nephew of John, had taken charge to some extent at least of the contract work referred to, and claimed he was entitled to the profits of the business and frequently demanded of the executors the payment over of the money in the “John Dunfee & Co., Subway,” account on the ground that it belonged to him.

The depositions of the two executors were taken before' trial in pursuance of an order of the justice sitting at the Trial Term granted upon the application of the surety company and were read upon the trial in its behalf. Mrs. Dunfee) .the widow and executrix, in response to the questions of the counsel for the. defendant, testified: “ The conversation I had with my husband with respect to Joseph Dunfee and this contract was he said he took this contract for Joseph Dunfee so as to put him on his feet, and whatever proceeds there were from it after all claims and everything against it was paid was to he turned over to him. He told me that. Along very early in the fall when he first took the contract he spoke of it first, and then he spoke of it several times and said he was very glad, that it was going to he quite a little money for Mr. Dunfee when the contract was finished; of course, that was after all claims were paid. He said he took this contract for Joseph Dunfee. And that he was going to give Joseph Dunfee the ■profits of this contract after all claims were paid. ■ He did say the same thing afterwards to me.”

And further she testified that her husband talked with her several, “possibly five or ten times” on this subject, calling attention to the fact that Joseph “had been unfortunate in many transactions,” and that- these conversations continued until withiuten days of the death of her husband. He referred to the Ryan claim, stating that the profits inuring, to Joseph were likely to be diminished by reason of that demand. Mr. Cummins also in his deposition stated, in response to inquiries made by the counsel for the surety company, that Mr. John Dunfee had told him that Joseph was to do the work in connection-with the telephone company contract and was to have the. profits accruing therefrom.

The money arising from the telephone contract was retained in the bank to await, the final decision in the Ryan case. When Joseph Dunfee became’insistent upon the recognition of his claim by payment over of the money the executors promised to comply with his request providing he would give them a bond of indemnity which should be satisfactory to Mr. Hogan, their counsel. Thereupon Joseph Dunfee made a written application to the defendant surety company on the 14th of May, 1906, for such a bond in the sum of. $27,000, which was subsequently approved by the appellant, and the bond in suit was given, which was principally prepared .by the attorney for the executors. The only purpose of the bond was to protect the executors in the payment of this money to Joseph Dunfee, and the particular reason for its requirement was to indemnify them against their -ultimate liability • arising from the Eyan claim or judgment. Both Mrs. Dunfee and Mr. Cummins testified that their apprehension of this claim was the substantial ground of their refusal to pay Joseph the net avails of the subway contract.

In interpreting the bond it is essential to keep this proposition in view, for- the liability of the surety depends upon the instrument illumined by the circumstances which induced it (Western N. Y. Life Ins. Co. v. Clinton, 66 N. Y. 326); and it is to be measured and determined no differently than that of a principal or other party sustaining a different relation.” (Ulster County Savings Inst. v. Young, 161 N. Y. 23, 30.)

It is recited in the bond that the money on deposit from the subway contract is to the credit of John Dunfee, and that Joseph Dunfee claims to own it and desires it paid to him. The conditional clauses in the bond read as follows: “Now, therefore, the. condition of this' obligation is such that if the executors of the last will and . testament of John Dunfee, deceased,, the obligees in this bond named, shall advance to said Joseph Dunfee from said moneys on deposit, as aforesaid, the sum of twenty-seven thousand dollars, or any part thereof, that the said Joseph Dunfee shall pay any and all claims of every name and nature outstanding by reason of the construction of said work, and any and all sums which exist or may be established as a liability against the estate of John Dunfee, deceased, by reason of said contract^ or any liability by reason of the bond signed by said John Dunfee accompanying the said contract, or any liability that may be hereafter established against the estate of John Dunfee by reason thereof or connected therewith, or arising therefrom, or against said Anna Dunfee and John J. Oúmmins as executrix and executor, or individually, by reason of said advancement; and further, that in the event of any determination that any of said moneys so advanced belongs to the estate of John Dunfee and not to Joseph Dunfee, then that said Joseph Dunfee shall refund the same and save said obligees and executors, both as executors and individually, harmless, by. reason of such advancement, then' this obligation to be void, otherwise to remain in full force and effect.

“It being understood, however, that the advancement of said money shall in no wise be construed as a concession of the ownership of said fund in said Joseph Dunfee, or any waiver of right of claim to same by said obligees, and in the event that upon the accounting of said executors it should be determined that said money belongs to the estate of John Dunfee, deceased, then said accounting and determination shall be conclusive as against the surety herein and fix the liability of the surety hereunder.”

In the fight of the facts detailed these conditions of the bond seem plain and unambiguous. Joseph Dunfee wanted this money. The executors were satisfied of the genuineness of his claim. They realized that the fund might be very largely depleted by reason of their liability to be made to respond to the Ryan claim. The final determination of that action might not be reached in several years. Joseph did not wish to await until its determination before receiving- the money, and the executors were willing to accede to his demand if they were adequately guaranteed the repayment of the money, or so much as might be necessary to save them from loss, if any resulted.

Nor does the second, clause quoted impair the effect of the previous condition. The bond was prepared for the purpose of indemnifying the plaintiffs against loss from two or three contingencies which might be expected to occur. Primarily, as already noted, protection was intended from loss arising, by reason of damages resulting from the performance of the telephone contract by Dunfee, a concrete instance of which confronted the executors in the verdict of Florence Ryan. In the second place, the sum on deposit representing the profits of that contract exceeded the amount of the Ryan verdict by several thousand dollars. All of this, in pursuance of the promise to Joseph Dunfee, was to be turned over to him upon the acceptance of the indemnity bond, and the terms of the bond unmistakably disclose that the payment of this fund was to be made, and that the bond was designed to save the executors harmless on account of such payment. The amount is stated to be $27,000, and that it is “claimed to be owned by said Joseph Dunfee,” and is to.be advanced to him. If the Byan claim should he upheld, and, on an accounting, the difference between it and the amount paid over should be determined to belong to the estate of John Dunfee, deceased, and the executors, therefore, be charged with this overpayment, they provided for that-not unlikely contingency. In the event that the Byan judgment should be reversed and the action fail, another condition of affairs, would be presented which might be fraught with disastrous" consequences, to the plaintiffs unless they were guaranteed from loss occurring because of any such determination. Upon the judicial settlement of their accounts the beneficiaries of the will off John Dunfee might test the-validity of the payment to Joseph, and, if denied, the account might be surcharged with this sum. A determination of this kind was provided for, and for Dunfee’s refunding the money, and that the advancement should not establish ownership in Dunfee as against the executors, and the sureties should be concluded by the. determination. There were no inconsistencies in the bond. It was prepared carefully to save the plaintiffs harmless, and was intended to be effective for that purpose, forecasting any situation which might be expected to develop.

Complaint is made because the Byan claim is not specifically mentioned. The criticism might be tenable if the payment of that claim was the only matter covered by the bond. It did refer to the construction contract and the liability of John Dunfee for damages suffered .during the prosecution of the work. The attention of the appellant was, therefore, definitely called to this contract, which was readily accessible to it. In the application of Joseph Dunfee for the bond he gave among his references the name of Mr. Nicholson, the general manager in- the city of Syracuse of the telephone company. No inquiry in behalf of the appellant was made of him as to the Dunfee contract, although he was the man who might be expected to know its contents and the nature of John Dun-fee’s liability, which was. further assured by a-bond to the telephone company. Mr. Wood, the Syracuse representative •of the surety, company,' was a lawyer residing in that city and. must- have known of the verdict in the Byan action. A verdict of that magnitude in the county of Onondaga, it is fair to assume, would attract the notice of a resident lawyer. It seems, therefore, clear that no concealment of the Byan claim was intended by the plaintiffs, and there was none in fact.

Mr. Wood testified to conversations'with Mr. Cummins, antecedent to the giving of the bond, in regard to the reason for requiring it, and as to the responsibility of Joseph Dunfee, which tend to show misstatements and misrepresentations. Mr.' Cummins denied he ever had any conversations with á representative of the surety company. The disputed question of fact was submitted to the jury and the verdict settled the controversy in favor of the plaintiffs.

Mr. Wood also testified to false representations made by Joseph Dunfee. The deception which might have been practiced by Joseph' Dunfee is not to be imputed to the plaintiffs unless they participated in or had cognizance of the fraud,, or unless the conspiracy charged in the complaint between the plaintiffs and Joseph Dunfee has been established. (Powers v. Clarke, 127 N. Y. 417, 422 et seq.; Western N. Y. Life Ins. Co. v. Clinton, 66 id. 326, 331.)

There are other circumstances which are urged, and it seems to me magnified unduly, in order to fasten the charge of fraud upon these plaintiffs. They narrated, apparently fully and without reservation, all the facts leading up to the execution of the bond in suit and while testifying on behalf of the appellant. Their story is confirmed by the terms of the bond, and whatever disputed question of fact arose was fairly submitted to the jury and disposed of by the verdict. '

The plaintiffs were not required to establish the validity of the claim of Joseph Dunfee to this money on deposit with the same verity as he would be called upon to do in an action to recover of the executors. It is clear that Joseph made a claim to this fund, and the executors’ belief in its genuineness was fortified by the statements of John Dunfee. It was not, therefore, a demand without any foundation. The defendant gave the bond with knowledge of the claim, and it, if any one, was remiss in failing to examine as to its validity. The surety company evidently relied upon the financial responsibility of Joseph Dunfee and were willing to give the bond, expecting the principal would he able to respond, and there is very little proof to show his inability to repay the sum he received.

Beyond everything else it is to he observed that the recovery in this case is confined to the amount of the Eyan claim, with interest thereon. In any event, that was a liability against the plaintiffs by reason of the contract of their testator with the telephone company, and the bond in .controversy was intended to indemnify the plaintiffs against that payment.

Joseph Dunfee was produced as a witness for the appellants, but the examination did not extend to the question of the representations which it is claimed he made, or to any of the vital issues in controversy. On the 3d of October, 1910, an application was made by the appellants to the justice sitting at the Trial Term in the county of Onondaga for a postponement, of the trial, which was denied. An order was granted upon its motion on the seventh of October for an order for the examination before trial of the plaintiffs and Joseph Dunfee, and the examination was ordered before a referee on the 13th of October, 1910; the depositions to be taken and filed within ten days. The justice presiding at the trial modified this order, both parties appearing, by requiring the examination to be had before him at chambers October fifteenth, and limiting its scope. The Trial Term was in progress, and if the original order remained the trial of the case-would not have proceeded at the ensuing term. Joseph Dunfee was absent from the city and was not served with the modified order. On the day preceding the trial another application for the examination of-Joseph Dunfee was' made, which was denied; and these last two orders are appealed from. I think-the judge in the disposition of these applications properly exercised his discretion. The action had long been at issue, and the defendant should not have deferred the attempt to secure the deposition of Dunfee until the time of trial. ,. .

The judgment and orders should be affirmed.

All concurred.

Judgment and orders affirmed, with costs.  