
    American Credit Indemnity Company of New York, Appellant, v. Adolph Wimpfheimer and Samuel Kubie, Respondents.
    
      •Qua/ranty against: loss by insolvent debtors■—duty as to disclosure of the insolvency of a debtor — delay in giving< notice of rescission.
    
    In an action brought to procure the cancellation of a bond issued in October, 1894, by the plaintiff, a corporation which insured merchants against loss • arising out of the insolvency of their debtors, it appeared that the plaintiff had already, in October, 1893, insured the defendants for one year, expiring October 31, 1894. The bond of October, 1893, described what was meant by insolvency, and contained a condition that unless notification of a loss was
    . given within twenty days after knowledge of the insolvency of a debtor,, the claim should be barred. The bond of October,-1894, covering one year from the 1st day of November, 1894, contained the further statement, not in the bond of 'October, 1898, " except that in cases of receivership, insolvency shall date from, and amount of loss must be shown by, final decree of court in the receivership proceedings.” On October 22, 1894, to the knowledge of the defendants, a majority of the directors of a hat company, which was their debtor, petitioned for its dissolution, and on the twenty-ninth 'day of October the defendant Adolph Wimpfheimer was appointed one of its temporary receivers.
    On the 26th day of October, 1894, a person named Bab, an agent of the plaintiff, called upon the defendants in order to secure a renewal of the first bond, and had an interview with Wimpfheimer, who renewed the bond, not telling him of the hat company’s condition. Subsequently, on the 3d day of November, 1894, the defendants notified the plaintiff that a temporary receiver of the hat, company had been appointed, and that they, were its creditors'in the sum of. §6,200. On March 22, 1895, a final order was entered in the action to dissolve the hat company, and thereupon the plaintiff took steps to rescind the bond and tendered back the premium which it had received.
    
      Held, that the plaintiff had not made out a case for the cancellation of the second bond upon the ground of a fraudulent concealment;
    That the rule of full disclosure applicable to insurance policies did not apply to this contract of guaranty, and that the parties must be deemed to have been acting on equal terms;
    That the defendants were not bound to declare to Bab the indebtedness and threatened insolvency of their debtor, and were not guilty of fraud in failing to do so;
    That as the plaintiff was notified of the insolvency of the debtor to the defendants on.the 3d day of November, 1894, especially in view of the fact that there was no certainty that the final decree of court would be entered in. the receivership proceedings relative to the hat company during the life of the renewal bond, the plaintiff’s delay until March 22, 1895. to take steps to rescind, amounted to a waiver, if not to a ratification, of the renewal bond, and it was consequently guilty of laches, which estopped it from canceling the bond.
    
      Appeal by the plaintiff, the American Credit Indemnity Company of New York,.from a judgment of the Supreme Court in, favor of the defendants, entered in the office of the clerk of the county of New York on the 19th day of May, 1896, upoii the decision of the court rendered after a trial at the New York Special Term dismissing its complaint.
    This appeal was transferred from the first department to the second department.
    
      Otto llorwitz, for the appellant.
    
      A. BVumenstiel, for the respondents.
   Goodrich, P. J.;

The plaintiff is a corporation, organized under the laws of this State, having its principal place of business in St. Louis, Mo., with a branch office in the city of New York. Its business is the insuring of merchants against loss by insolvency of debtors. This particular class of insurance is of recent origin, but the principles which must govern the construction of the bond on this appeal are not new. The bond or policy issued by it guarantees to the holder indemnity against loss to the extent of a definite amount mentioned therein, over and above a net loss which must first be borne by the indemnified, which loss is termed the initial loss.” .

There are two bonds under consideration. The first was issued in October, 1893, and granted indemnity against loss resulting from insolvency of debtors as thereinafter defined to the extent of $7,500, over and above an initial loss of $3,'750, first to be borne by the defendants on their total gross sales amounting to $750,000, between the 1st day of November-, 1893, and the 31st day of October, 1894. The second bond was issued in October, 1894, and granted indemnity for $7,500, with the same initial loss, for the period between the 1st day of November, 1894, and the 31st day of October, 1895. The plaintiff brings this action to have the second bond canceled upon the grounds that the defendants were guilty of false representations to the plaintiff in order to obtain the same, and that the alleged fraud was accomplished by the concealment of material facts.

The complaint alleges that, just before the expiration of the first bond, the defendants applied for a bond against loss upon sales which had. been made by the defendants during the life term of the first bond, which were not provable thereunder, but which they' sought to have covered by the new bond>, and, in order to induce the issuance thereof, the defendants fraudulently and falsely represented that none of the credits extended upon the sales made by them, and ■which were covered or intended to be covered by the first bond, were hazardous or precarious, and that nothing had occurred, or was about to occur, which impaired or raised any question as to the solvency of any of the parties covered, or intended to be covered, by • either of the' bonds; that at the time of this application the defendants knew that the Yonkers Hat Company, to which they had sold upwards of $6^000 worth of goods during the term of the first bond, was insolvent'; that receivers had -been applied for, and that such receivers were, shortly thereafter appointed, of whom the defendant Wimpfheimer: was one; that defendants falsely and intentionally concealed and ¡suppressed such facts in order to induce the plaintiff to issue the second bond ; that' the plaintiff issued the same in ignorance of these facts, and that immediately upon the discovery of the falsity of these representations the plaintiff tendered -back the premium and demanded the surrender of the bond.

The bonds themselves show that it is 'the design and intention of the corporation to secure a continuance of business with its dealers by renewals. The first' bond provides indemnity on sales' made within -the term named therein; that no loss shall be proven after its expiration, unless it is renewed at or before its expiration; that loss resulting thereafter upon shipments made during its term may be proven under the renewal, and that ¡the company would issue a renewal on the same terms and- conditions except as to the amount of the initial loss.

At the time of the application for renewal there was some discussion as to the amount of initial loss, but finally it was fixed at the same amount as in the old bond. The second bond provides that, if it is. a renewal, losses occurring during its term on shipments made during the term of the preceding bond can be proven under such renewal. ■ -

The loss on the sale to the.Yonkers Hat Company, therefore, though arising from a sale made during the term of- the first bond, was by the conditions of both bonds provable under the latter, provided the final decree of dissolution should be entered during the term therein named. There was a manifest element of uncertainty as to the time when this would occur.

' The alleged concealment arises out of the following facts: On October 26, 1894, Bab, the agent of.the plaintiff, called at the defendants’ place of business for the purpose of securing a renewal. At this time a petition had been filed for the appointment of a receiver of the Yonkers Hat Manufacturing Company, which was indebted to the defendants in the sum of about $6,200. At this interview the defendant Wimpfheimer testified that he inquired of Bab what construction was put by the company upon receiverships, and was informed that where a receiver wras appointed the loss did not mature until the final decree in the action in which the receiver was appointed. Bab denied that there was any conversation whatever in regard to receiverships.

The significance of this conversation is to be determined by reference to the terms of the bonds. The first contains the following proposition: “ The term, insolvency of debtors, wherever used in this bond, is understood to be general assignments of, or attachments against, insolvent debtors, the absconding of debtors, or executions in favor of the indemnified, returned unsatisfied.” The second bond differs somewhat, and reads as follows : “ The term, insolvency of debtors, whenever used in this bond, is agreed to be general assignments of, or attachments against, insolvent debtors, the absconding of debtors, and executions in favor of the indemnified, returned unsatisfied, except that in cases of receivership, insolvency shall date from, and amount.of loss must be shown by, final decree of court in the receivership proceedings.”

It appears that on October 22, 1894, a petition had been filed by a majority of the directors of the Yonkers Hat Manufacturing Oompany, which was then indebted to the defendants on a sale made during the term of the first, bond, for an order dissolving the corporation, of which petition the defendants had knowledge at the time of its filing. On the twenty-ninth of October an order was made appointing the defendant Wimpfheimer and another person temporary receivers of the corporation. The plaintiff claims that the concealment of these facts, at the time of the application for the renewal, was a suppression or concealment of a material fact, which was a fraud upon the plaintiff, and resulted in the issuing of the renewal.

The original bond above quoted defined insolvency as occurring by general assignment of, or attachment against, insolvent debtors,, the absconding of debtors, or unsatisfied execution in favor of the. indemnified, while under- the terms ©:f the renewal, in addition to what has been stated, insolvency in cases of receivership was to date from, and amount of loss to "be shown by, final decree of the court in the receivership proceedings.

As each bond required loss to be an established fact, within its terms, with certain - exceptions therein stated, the intent of the defendants, at the time of the issuing of the renewal, becomes an important element in deciding the question of fraudulent concealment, because no loss- had occurred within the term of the first bond at the time of its expiration, and the defendants would be relegated to their rights under any renewal which might be obtained.

We cannot, however, find sufficient evidence to justify the allegagation of false and fraudulent representation and concealment. Fraud, in the suppression of a material fact, arises only .where one party to the contract' fraudulently and intentionally conceals from the adverse party something which he knows and the other party does not know, and which the first party was bound to state, the suppression of which has induced the adverse party to enter into the contract.

Supgyressio veri, or concealment, will amount to fraud where the concealment Is of material facts, where there is such a relation of trust and confidence between the parties that the one party is under-some legal or equitable duty to give full information to the other, and which the latter has a right, juris et. de jure, to know, and then the withholding of such information purposely may be a fraud. (Dambmann v. Schulting, 75 N. Y. 55, 62.) Where the parties deal at arms’ length on equal terms, and no particular relation of trust or confidence exists between them,-there is usually no obligation to speak, and either may remain silent and. be safe.

Contracts of life and marine insurance stand on somewhat different grounds from other contracts. Mr. Parsons says: “ For, although one may have a right to be silent under ordinary circumstances, there are many cases in which the very propositions of a party imply that certain, things, if not told, dó not exist. This is peculiarly the case in contracts of insurance, where the insured is bound to state all facts within his knowledge which would have an influence upon the terms of the contract and are not known, or may be supposed by him not to be known, to the insurer. In these cases, and in others which come within this principle, the svppressio veri has the same effect in law as -the expressio falsi! (2 Pars, on Cont. 777.) But this rule is peculiar to such policies. I find no authority for extending it to all other contracts, and there is authority to the contrary.

“ The rule which prevails in assurances upon ships and lives, that all material circumstances known to the assured must be disclosed, though there he no fraud in the concealment, does not extend to the case of guarantees. In the latter case the concealment, to vitiate the guarantee, must be fraudulent.” (The North Br. Ins. Co. v. Lloyd, 10 Exch. 522.)

We think it is going too far to say that the creditor is, in all cases and without being inquired of, hound to communicate everything that it is important for the surety to know and that would increase his risk. Under such a rule no one would ever know when he could rely on a bond, and it would lead to a good deal of litigation.

Besides, the duty of the defendants, when applying for a renewal of the bond, stands upon a different basis from their duty in applying for original insurance. The first bond contains a provision for a renewal thereof and for payment thereunder of losses on sales made within the term of the first bond, and it was the plan and desire of the company to secure the continuance of its business by renewals, and the defendants elected to secure such renewal.

They were not bound to declare the indebtedness and threatened insolvency of the Yonkers Hat Company and were not guilty of fraud in failing to do so, all the more, that when the facts were declared on the third of November the plaintiff did not then elect to cancel its second bond.

On the 3d of November, 1894, as required by the bond, the defendants notified the plaintiff that a temporary receiver of the Yonkers Hat Company had been appointed, and that they were creditors of that company .for the sum of $6,200. But it was not until the 22d of March, 1895, when the final order had been .entered in the suit for dissolution of the Yonkers Hat Company, that the plaintiff took steps to rescind, when' it tendered hack $225, the premium named in the bond, and gave notice of its intention to rescind the same.

■ It appears that there • was considerable difference of opinion between the parties as to whether the loss occurred under the first or second bond, and this difference appears to have existed in the minds of-the parties at the time of the renewal.

The plaintiff claims that the defendants, at the time of the issuing of the second bond, knew of- the failure of the Yonkers Hat Com- ' pany, and fraudulently and willfully concealed it from the plaintiff for the purpose of inducing the latter to renew the bond, whereas, if that fact had been known to the plaintiff, it would not have renewed, it. It must be observed, however, that at the time of the ' issuing of the second bond it was not. certain that the entry of the final decree dissolving the corporation would' occur within the life of such renewed bond. The fact that such decree was actually entered during the. life of that bond does not change the condition of things which existed at the time of the renewal. At any rate, notice was given to the plaintiff, on -the third of November, of the existence of the debt of the Yonkers (Dompany and of the appoint* ment of temporary receivers, at which time, or within a reasonable time thereafter, the plaintiff was bound to exercise the right of rescis* sion if it so elected. It preferred, however, to stand by and speculate ' as to the chances, and to wait, until by a final decree^ whenever that might occur, the loss of the defendants became established within the life term of its bond, when, for the first time, it claimed to exercise its right to rescind. The company knew that the claim was barred by the terms of the first bond, because no claim for this loss had been made under it5 although the bond itself provided that, unless notification of any loss was given within twenty days after knowledge of the insolvency of the debtor, the claim therefor should be forever- barred, 'and we may assume that it had this" clause-well in mind at the time of the renewal.

The delay' of five months was unauthorized and unjust to the defendants. The. plaintiff assumed the risk of final loss occurring during the life of the renewal, and upon its failure to rescind the defendants- relied to their1 injury. Thjsy did not, as-they might have: done, obtain other indemnity from another similar company in which Jihey were alio insured (tills fact appears in the evidence), and this omission resulted from the failure of the plaintiff to notify them of its intention to rescind the bond. After the loss had occurred, and the liability of the plaintiff had become a fixed fact, within the life of the bond, it was too late to exercise the right of rescission. Such delay was a waiver of the right to rescind, if not a ratification of the renewal, and the plaintiff was guilty of laches, which estopped it to cancel the bond.

We find, therefore, that there was no fraudulent suppression of a material fact by the defendants, and that the plaintiff was guilty of. laches in its attempt to rescind the contract, which has amounted to a waiver of such right, and that the judgment of the Special Term ■ will not he disturbed.

We do not express any opinion as to whether the plaintiff is liable for the loss in question or as to which bond the loss is subject.

The judgment should be affirmed, with costs.

All concurred, except Bartlett, J., not sitting.

Judgment affirmed, with costs.  