Magee v. Manhattan Life Insurance Company

ERROR to the Circuit Court of the United States for the Southern District of Alabama.

This is a suit by The Manhattan Life Insurance Company of the city of New York against the plaintiffs in error, sureties on the bond of one Henry V. H. Voorhees, who was the agent of the company at Mobile, Ala.

The bond sued on is as follows:--

'Know all men by these presents, That we, Henry V. H. Voorhees, as principal, and Jacob Magee and Henry Hall, as securities, of the town of Mobile, and State of Alabama, are held and firmly bound unto the Manhattan Life Insurance Company of the city of New York in the sum of $5,000; for which payment well and truly to be made we bind ourselves, our heirs, executors, and administrators, jointly and severally, firmly by these presents.

'The condition of this obligation is such, that if the above-bounden Henry V. H. Voorhees, who has been appointed an agent of the said The Manhattan Life Insurance Company, shall faithfully conform to all instructions and directions which he, as such agent, may at any time receive from the said The Manhattan Life Insurance Company, and shall on the first day of each month remit to the office of said company all moneys received by him (not previously remitted) as such agent, less his commissions, together with his account of the same, then the above obligation to be void; otherwise to remain in full force and virtue.'

The breach assigned was the agent's withholding from the company moneys received by him subsequently to the date of the bond, as well as other moneys remaining in his hands at the time it was executed.

The defendants pleaded three pleas. Upon the first and second, issue was joined.

The third plea was as follows:--

'For a further plea, the defendants say, that, before the execution and delivery of said bond, said Henry Voorhees was largely indebted to said plaintiffs, for moneys before that time received by him belonging to plaintiffs, in conducting their business as agent in Mobile, of which these defendants had no notice; and the plaintiffs required of him the bond described in the complaint as a condition on which only they would retain him in their employment, as agent in Mobile, in conducting their business; and, besides the bond, the plaintiffs required of said Voorhees a promise or agreement that all his future commissions and interest he might acquire and earn in conducting their business afterwards, he, the said Voorhees, should pay to the plaintiffs, to be applied to his then past indebtedness, for which said plaintiffs had no security.

'The plaintiffs then well knowing, for so the fact was, that said Voorhees had no property or means of his own by or out of which his said past indebtedness could be paid. They also well knew, and so the fact was, that he could not support himself and family but by means of his future acquisitions by his labor; and therefore the appropriation of his commissions and interest in all his future acquisitions in conducting plaintiffs' business would compel him, said Voorhees, to appropriate a similar amount to his support out of moneys received by him belonging to plaintiffs.

'And they further aver that said Voorhees did promise and agree with said plaintiffs, before said bond was executed, that he would pay said plaintiffs all his commissions on the moneys that he might afterwards receive in conducting their business, to be applied to the then past indebtedness of said Voorhees to said plaintiffs. And these defendants further aver, that at the time they executed said bond, which was as the securities of said Voorhees, they had no notice or knowledge of said agreement between said Voorhees and said plaintiffs, nor any notice or knowledge that he, said Voorhees, had fallen behindhand, or had become indebted to plaintiffs; and, if they had been informed of said agreement or of said indebtedness, they would not have executed said bond.

'And these defendants further allege, that, in pursuance of said agreement, the said Voorhees did pay said plaintiffs all his commissions afterwards earned and acquired in the business of the plaintiffs, which was carried to the credit of his past indebtedness to them, in pursuance of said agreement, but retained a corresponding amount from the moneys of the plaintiffs he afterwards received, as he was compelled from necessity to do. And they further aver that said agreement and its execution, as set forth in this plea, was a fraud on these defendants, and therefore they are not bound by said writing obligatory, but the same, as to them, is void; and of this they are ready to verify.'To which plea the plaintiff demurred. The court sustained the demurrer.

The jury found for the plaintiffs below, and judgment was rendered accordingly: whereupon the defendants brought the case here, and assigned for error the judgment of the court in sustaining the demurrer.

Mr. P. Phillips for the plaintiffs in error.

The sureties were discharged, because the non-communication to them of the past indebtedness of the agent was, under the circumstances stated in the plea, an undue concealment. 1 Story's Eq., sect. 215; Smith v. Bank Scotland, 1 Dowl. 272; Railton v. Mathews, 10 Cl. & Fin. 934; Montague v. Titcomb, 2 Vern. 518; Shepherd v. Beecher, 2 P. Wms. 288; Rees v. Barrington, 2 Ves., Jr., 540; Thompson v. Bank Scotland, 2 Shaw's App. Cas. 316; Lee v. Jones, 7 C. B. N. S. 500; Phillips v. Foxhall, Law Rep. 7 Q. B. 666. And because the agreement to appropriate the commissions to such indebtedness was a material variation of the obligation on which they consented to be bound, and it tended to increase the risk they had assumed. 1 Story's Eq., sects. 218, 324; Pidcock v. Bishop, 3 B. & C. 605; North-western R.R. v. Whinray, 26 Eng. Law & Eq. 488; Miller v. Stewart, 9 Wheat. 682; Peck v. Durett, 9 Dana, 488; McWilliams v. Mason, 6 Duer, 276; Mayhew v. Boyd, 5 Md. 102; Burge on Suretyship, 15.

The defence set up in the plea is available at law as well as in equity. King v. Baldwin, 2 Johns. Ch. 556; People v. Jansen, 7 Johns. 332; Swayn v. Burke, 12 Pet. 23.

Mr. J. M. Carlisle and Mr. John D. McPherson for the defendant in error.

The acts referred to do not amount to fraud; and, as the plea does not charge an intent to defraud, it is insufficient.

When the facts set forth in the plea do not constitute fraud, the intention to defraud must be averred. Moss v. Riddle, 5 Cranch, 351.

Mere non-communication is not concealment. Concealment is a failure to communicate when one has the opportunity to communicate. There may be non-communication without concealment, and there may be concealment without fraud.

'It is now regarded as settled that there must be something which amounts to fraud to enable the surety to say that he is released from his contract on account of misrepresentation or concealment.' Story's Eq. Jur., 325 a; De Gol. on Guar., p. 362, and cases cited; Kerr on Frauds, pp. 94, 122, and cases cited; Hamilton v. Watson, 12 C. & L. 109; Burks v. Wonterlein, 6 Bush, 20; Ham v. Greve et al., 34 Ind. 18; 2 Kent, 482, 483; United States v. Boyd, 5 How. 29.

The alleged agreement between Voorhees and the company as to the application of the money remitted worked no injury to the sureties. When the money was remitted, their liability was at an end.

MR. JUSTICE SWAYNE delivered the opinion of the court.