
    D. Everett Damon and Others, Copartners Doing Business under the Firm Name and Style of George Damon & Sons, Appellants, v. The Empire State Surety Company, Respondent.
    Second Department,
    April 10, 1914.
    Guaranty and suretyship — undertaking securing performance of contract — concealment of facts — when obligee cannot recover of surety.
    A person when applying to a surety company for a bond to secure the proper performance of a contract made with the plaintiff is not the agent of the latter, and the plaintiff is not bound by any fraudulent representations in which he did not participate, or which were made without his knowledge.
    But an obligee before accepting the bond of the surety must make disclosure of facts within his knowledge, if concealment would amount to a suppressio veri and thereby become fraudulent. Nor is it necessary that the concealment should inure to the benefit of the obligee, provided it operates to the prej udice of the surety.
    Thus, where a manufacturing company, which had already made complete default in the performance of a contract with the plaintiff and had already accepted the plaintiff’s notes as payment for the goods to be manufactured, and one of the notes had been dishonored, all of which facts were known to the plaintiff, applied to the defendant, a surety company, for a bond to secure the payment of a contract bearing a later date, but which in fact was a mere extension of the prior contract, and spoke of notes as being accepted at the later date, one of which had been discounted and the proceeds returned to the plaintiff, there was a concealment of the facts amounting to fraud, and the plaintiff cannot recover of the surety.
    Appeal by the plaintiffs, D. Everett Damon and others, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of Kings on the 16th day of February, 1910, upon the dismissal of the complaint by direction of the court at the close of plaintiffs’ case.
    
      
      Almet Reed Latson [Evan L. Tamblyn with him on the brief], for the appellants.
    
      M. J. Wright, for the respondent.
   Carr, J.:

This case was submitted on March 5, 1914, without oral argument. The action was brought to recover on a surety bond. It was tried in Kings county on February 10,1910. The complaint was dismissed at the close of the plaintiffs’ proofs. Judgment of dismissal was entered on February 16, 1910, notice of appeal filed March 16, 1910, the appeal papers perfected on April 1,1910, and case ordered filed on May 13,1910. It comes now before us for consideration for the first time four years after the appeal was taken, and is then submitted without oral argument. The bond on which the action was brought is set forth in the record in ipsissimis verbis. This bond was given to secure the plaintiffs against damage on a written contract, forming a part of the bond, between the Nichols & Langworthy Machine Company and the plaintiffs. The proofs taken were very short, and consisted of the testimony of but one witness, one of the plaintiffs. The defendant rested upon its cross-examination of this witness to establish its defense. In dismissing the complaint the trial court rendered no opinion, oral or otherwise. The defense was fraud arising out of fraudulent concealment of material facts when the plaintiffs accepted the bond in question from the defendant. The plaintiffs, prior to - the acceptance of the bond, had no direct dealings with the defendant. It was the machine company that applied for the bond. The machine company was not the agent of the plaintiffs, and they are not bound by any fraudulent representations in which they did not participate or which were made without their knowledge. (Western N. Y. Life Ins. Co. v. Clinton, 66 N. Y. 326; Ludekens v. Pscherhofer, 76 Hun, 548; Howe Machine Co. v. Farrington, 82 N. Y. 121; Powers v. Clarke, 127 id. 417.) At the same time, it is well recognized that the obligee before accepting the bond of the surety is called upon to make such disclosures of facts within his knowledge, of which the concealment would amount to a suppressio veri and thereby become fraudulent, and it is not necessary that this concealment should inure to the benefit of the obligee, provided it operates to the prejudice of the surety. The most familiar example of this rule is to be found in cases where an employer, knowing of the prior dishonesty of an employee but concealing that knowledge, accepts an indemnity of suretyship for the future good conduct of the employee. (United States Life Ins. Co. v. Salmon, 91 Hun, 535; 157 N.Y. 682; Dinsmore v. Tidball, 34 Ohio St. 411; Sooy v. State, 39 N. J. Law, 135.) This rule has a broader application than to mere employees or agents. The written contract between the plaintiffs and the machine company bore date May 28, 1909. It purported to speak of an agreement made as of said date. There was no expression in it to indicate that it was but a renewal agreement of a contract previously made and as to which there had been a default in performance by the machine company. It related to the manufacture and delivery of certain maphinery. It recited as follows: “In full payment of the above machines, we accept two N otes, one of which is dated January 20th, 1909, amount $1,156.25, which will be due on July 20,1909. The second Note is dated May 28th, 1909, amount $1,156.25, due August 28th, 1909.” This contract bore an indorsement of acceptance by the plaintiff D. Everett Damon. The defendant surety company was entitled to assume that a contract was made on May 28, 1909, and two notes then delivered by the plaintiff, the proceeds of which, by sale or discount, would be' available to the machine company to enable it to perform. It appeal’s from the testimony of the plaintiffs’ only witness that • this agreement of May twenty-eighth was but an extension of a prior agreement made in the preceding January, and as to which the machine company was in the complete default. The agreement of May refers to two notes which “ we accept.” The word “accept” is used in the present tense, and the defendant surety company was entitled to assume that these two notes were accepted on or about the date of the May agree-, ment. Under the agreement of January, the plaintiffs had delivered two notes, the first of which had been discounted by the machine company and had gone into the hands of third parties. The plaintiffs had neglected to pay this note at its maturity. The machine company was then in default under the January contract. After some negotiations the paper dated Hay twenty-eighth was prepared. The plaintiffs insisted upon security from the machine company, and a provision to that effect was inserted in the latter paper. The plaintiffs did give a note, dated Hay 28, 1909, but they procured the machine company to have it discounted immediately, and they received hack the proceeds of the discount, which they held until the surety bond was issued on June 8, 1909, whereupon they applied said proceeds to take up their unpaid note of January, 1909. The result of this manipulation was that, at the time the surety bond was issued, the machine company had no notes of the plaintiff to aid it in the performance required from it. The plaintiffs had practically but one note outstanding, as they had funds of the machine company, realized from the discount of the Hay note, which were received to take up the January note, which they did so take up the moment they received the defendant’s bond. We think that their concealment of these circumstances was a suppressio veri and fraudulent. In the following July the machine company became bankrupt.

The judgment is affirmed, with costs.

Jenks, P. J., Thomas and Putnam, JJ., concurred; Burr, J., taking no part.

Judgment affirmed, with costs.  