Hartford Acc. & Indem. Co. v. Kranz

• Decision Date: 29 April 1959
• Citation: 7 A.D.2d 604,184 N.Y.S.2d 918
• Parties: HARTFORD ACCIDENT AND INDEMNITY COMPANY, Plaintiff-Appellant, v. Maxim KRANZ and Samuel Leto, Defendants-Respondents.
• Court: New York Supreme Court — Appellate Division

Page 918

184 N.Y.S.2d 918

7 A.D.2d 604

HARTFORD ACCIDENT AND INDEMNITY COMPANY, Plaintiff-Appellant, v. Maxim KRANZ and Samuel Leto, Defendants-Respondents.

Supreme Court, Appellate Division, Third Department.

April 29, 1959.

William E. J. Connor, Morris Millman and John G. Connor, Hudson, for plaintiff-appellant.

Ainsworth, Sullivan, Tracy & Knauf, Albany (William J. Murphy and Charles B. Sullivan, Albany, of counsel), for defendant-respondent Maxim Kranz.

Halter & Sullivan, Albany, for defendant-respondent Samuel Leto.

Before FOSTER, P. J., and BERGAN, COON, HERLIHY and REYNOLDS, JJ.

HERLIHY, Justice.

In June, 1955, the defendant Kranz was awarded a State contract for the construction of 8.71 miles of public highway from Redwood to the St. Lawrence County line. He thereafter agreed with the defendant Leto for excavation and drainage work amounting to approximately $300,000 providing he (Leto) obtained a surety bond. An application was made to the Albany office of the plaintiff insurance company and after some discussion Leto was advised that the plaintiff would not undertake a bond in the amount requested but might be interested to the extent of $200,000. In the presence of Wilson and Geer, in charge of the Albany office, he telephoned Kranz concerning the conference. Thereafter the defendants agreed to an excavation contract in the amount of $195,588.75 and the plaintiff issued a bond for 50% thereof. The following day (July 21) defendants entered into a second contract for drainage in the amount of approximately $150,000 and for which no bond was required. The defendant Leto, being unfamiliar with the requirements of a contract of this size, including a bond, was aided by one Leonardi known to the plaintiff and the defendant Kranz.

When Leto returned to plaintiff and applied for a lesser amount, no inquiry was made concerning the change of plans and eventually plaintiff bonded the contract.

In May of 1956 Leto was having difficulties in fulfilling the contract and Kranz made advances to him with the knowledge and consent of the plaintiff. In June the plaintiff served notice upon the defendants that it was rescinding its bond due to fraudulent concealment of vital and important facts, to wit: the second contract for drainage between the defendants.

The record establishes that in October, 1955, representatives of the plaintiff went to the job and ascertained that there existed a second agreement between the defendants for additional (drainage) work. A communication from Geer of the Albany office to the Surety Department of the home office on November 7, 1955, stated in part: 'Although it is not yet under way to any major degree, Leto has taken on another job for Kranz. It consists of more work at the same site and is approximately $150,000.00. It is unbonded. * * * At this time I would opinion that we have just about the same size work program which we did when the bond was originally under consideration.'

We are satisfied that the record failed to disclose any fraudulent concealment. He who claims fraud must prove it and it was plaintiff's obligation to prove 'representation, falsity, scienter, deception and injury'. Ochs v. Woods, 221 N.Y. 335, 338, 117 N.E. 305, 306; Reno v. Bull, 226 N.Y. 546, 550, 124 N.E. 144, 145.

In Howe Machine Company v. Farrington, 82 N.Y. 121, 125, the defendant gave a bond to the plaintiff company to indemnify Davis, one of its salesmen, for past and future indebtedness. The Court said at page 127:

'The defendant had no communication with the company before signing it. The bond in terms referred to an existing indebtedness of Davis. The defendant made no inquiry of the company to ascertain the particulars, and the company made no representation. If the defendant deemed it material to be informed of the origin, nature or extent of the existing indebtedness, he should have inquired of the company before executing the bond. The company was under no duty to seek the defendant and make the disclosure. It was bound to act with good faith toward the defendant; but to hold the surety discharged by the omission to advise him of the particulars of the previous transactions with Davis, in the absence of any inquiry on the subject, would establish a rule which would make instruments of the character of the one in question of comparatively little value.'

In Western New York Life Insurance Company v. Clinton, 66 N.Y. 326, a bond was issued conditioned on the appointment of the principal Clinton, as agent of the plaintiff, to procure life insurance, collect premiums and pay to the plaintiff all money belonging to it. Two agreements had been executed between the parties. In one of them the plaintiff appointed Clinton as an agent to procure applications and insurance and to forward premiums and renewals to the plaintiff. By a second instrument, plaintiff allowed Clinton a commission upon moneys collected on behalf of the insurance agency. In an action to recover on the bond, defendant contended it only covered the first agreement. In denying this contention, at pages 331, 332, the court said:

'Nor does it relieve the defendants from liability upon the bond, because the sureties had no knowledge of the second agreement until after the execution of the bond. Even if they were misled by the principal, at whose request the bond was executed, as to the character and extent of the obligation assumed, it...