American Surety Co. v. Pacific Surety Co.

The defendant offered evidence to prove that the plaintiff, in order to induce the defendant to give the bond in suit, made to the defendant certain false and fraudulent representations material to the risk assumed by the terms of the bond, which were relied upon by the defendant. The defense of fraud thus attempted to be established was within the allegations of the special defense, and the evidence offered in support of it was received and submitted to the jury with instructions which are not complained of. What is complained of, is the instruction of the court, in substance, that while the defense of fraudulent concealment of truth resulting from false representations was before the jury under the pleadings, one of fraudulent concealment resulting from passive silence only was not; so that if the defendant should fail to establish the making of false representations as charged, it could not assert, as a ground of defense, that the plaintiff had been guilty of fraudulent conduct in remaining silent with respect to facts within its knowledge material to the risk, when it was its duty to disclose them to the defendant.

Fraud is a fact to be specially pleaded. Practice Book, 1908, p. 250, § 160. The fraud pleaded in this case is active fraud and none other. The allegations setting up a fraud are confined to the following: First, there are those which aver that the plaintiff, in order to induce the defendant to furnish to the former the bond in suit and the indemnity thereby provided, made to the latter a variety of statements and representations about the risk, to wit: that the contract for the performance of which the plaintiff had become surety was an advantageous one, that there had been no default thereunder, that the contractor was all right in every particular, including solvency and business ability, that the plaintiff was perfectly satisfied with the risk incurred by it under its bond, that it was a safe risk and that there were no reasons why an indemnity bond to be given by the defendant would not be a safe risk. It is then alleged that each of said representations was material, that the defendant believed and acted upon them and each of them in entering into its obligation, and that each was false and known to be false when made. Then follows a statement of the alleged fact in respect to each of said representations by which it would appear that each was false and known to be false. In connection with one of these statements, and one only, it is said that the fact was that the contractor, whose contract was the subject-matter of the indemnity, was wholly insolvent at the time of the representation of his solvency, and known to the plaintiff to be so, and it is added, "which said fact was wailfully concealed." Following these several statements is the conclusion that "by virtue of said fraudulent misrepresentations and concealments the defendant was greatly damaged and would not have given said indemnity bond had the true state of facts been disclosed and had the plaintiff not been guilty of making said fraudulent misrepresentations and concealments."

The defendant hangs its right to avail itself of the defense of fraud by silence where there is a duty to speak, upon the slender thread of the use of the words "conceal" and "concealment," as stated, and the reference to the absence of a disclosure of the true state of facts, in the closing sentence. It is, however, too plain for argument, that the pleader had in mind only active fraud. He was complaining of misrepresentations of fact, and the concealment of truth referred to was not a concealment by silence, but concealment resulting from the assertion of a contrary fact. The fault found with the plaintiff was not that it did not speak and thus passively concealed truth, but that it uttered falsehood and thus actively concealed it. It was thus that the true state of facts was claimed to have been undisclosed, and not — as the defendant now urges that he had the right to show — by the passive act of silence. That this is so, is removed from the domain of doubt, when it is borne in mind that the fact, which alone is alleged to have been concealed, relates to a matter concerning which a statement — a false statement — is alleged to have been made. The fact alleged to have been concealed was the Economizer Company's insolvency: the prior averment is that it was expressly represented to be solvent. There was no room here for passive concealment by mere silence, and the pleader manifestly and necessarily had no thought of charging any fraud otherwise than by the representations already set up, and he charged none. He was charging fraud through the suppression of truth by falsehood, and not its secretion by silence. The presence in the answer of the isolated words upon which so much reliance is now placed, was, it is quite apparent, simply an accident resulting from a choice of language. They were properly used to express an idea in consonance with the allegations of the defense, but not the idea now sought to be imported into the answer through them.

The court was therefore right in not permitting the defendant, failing in its proof of false representations, to avail itself of a defense of fraud by the passive means of silence alone. This being the case, we have no occasion to consider the question, discussed at length in argument, as to the rule of duty in the matter of disclosing information possessed, which is applicable to a party in the position which the plaintiff occupied.

The cause of action upon which judgment was rendered against the plaintiff in favor of the city of New Haven accrued on July 27th, 1903, and in that judgment, which was for the sum of $14,907.56, interest from that date was included. In the present case, the jury was told that if a verdict was rendered for the plaintiff it should be for the sum of $7,500, with interest thereon to date from July 27th, 1903.

The defendant justly complains of this instruction. Recovery in an action of debt on a bond is not limited to the amount of the penalty. Interest upon the debt after it is due may be allowed, although the total sum is thereby made to exceed the penalty. Lewis v. Dwight, 10 Conn. 95,103; Carter v. Carter, 4 Day, 30, 36. The interest which may thus be recovered is, however, limited to interest from the time of breach, this being the date when the debt is said to accrue. Carter v. Carter, supra. The theory upon which this recovery of interest is permitted is that there has been an unlawful detention of money after the duty to pay it came into existence, and the interest is allowed as damages therefor.Selleck v. French, 1 Conn. 32, 33; Jones v. Mallory, 22 id. 386, 392. As between the plaintiff and the city of New Haven, it was found that the debt from the former to the latter upon the bond then in suit became due July 27th, 1903. It does not follow, as the court below seems to have assumed, that this defendant's bond to the plaintiff was broken at the same time. The test inquiry is, when did this defendant by the terms of its obligation to the plaintiff come under the duty of paying to the latter the principal sum which it has become holden to pay. Its agreement was to indemnify the plaintiff and save it harmless from and against every claim, demand, cost, charge, expense, suit, order, judgment and adjudication whatsoever, and place the plaintiff in funds to meet every claim, demand, liability, cost, charge, expense, suit, order, judgment or adjudication against it by reason of such suretyship, and before it should be required to pay the same. It can scarcely be said that the latter portion of this obligation required the defendant to place the plaintiff in funds until requested, and in this case no such request is claimed. No demand of any sort was made until the judgment in the suit by the city was rendered. Until that time the plaintiff was acting in harmony with this defendant in contesting its liability, and, as the corollary of its assertion of nonliability, was assuming a position in which there was no liability to it on the part of the defendant, and therefore no duty on the latter's part to pay it anything. Until the judgment was rendered which negatived this contention and established the plaintiff's liability to the city, there was no duty on the part of the defendant to indemnify the plaintiff by the payment of the $7,500, or any part thereof. Interest, therefore, was not recoverable on said sum as money unlawfully detained from the plaintiff. The instruction for the inclusion in the verdict of interest upon $7,500 from July 27th, 1903, to May 24th, 1906, the date of the judgment in the city's suit against the plaintiff, was, therefore, erroneous, and the verdict upon which judgment was rendered was too large by the separable and ascertainable sum of $1,271.25.

There is error, and a new trial is granted unless the plaintiff files a remittitur, as of the date of the judgment, for $1,271.25.

In this opinion the other judges concurred.