State Bank of Albany v. McDonnell

• Decision Date: 16 November 1972
• Citation: 40 A.D.2d 905,337 N.Y.S.2d 697
• Parties: STATE BANK OF ALBANY, Respondent-Appellant, v. David H. McDONNELL et al., Defendants, and William S. Iannello et al., Appellants-Respondents.
• Court: New York Supreme Court — Appellate Division

Page 697

337 N.Y.S.2d 697

40 A.D.2d 905

STATE BANK OF ALBANY, Respondent-Appellant, v. David H. McDONNELL et al., Defendants, and William S Iannello et al., Appellants-Respondents.

Supreme Court, Appellate Division, Third Department.

Nov. 16, 1972.

McNamee, Lochner, Titus & Williams, Albany (Stephen Reynolds, Albany, of counsel) for respondent-appellant.

Joe Schapiro, Hamilton (John R. Davison, Albany, of counsel), for appellants-respondents.

Before HERLIHY, P.J., and STALEY, SWEENEY, SIMMONS and KANE, JJ.

MEMORANDUM DECISION.

Cross appeals from an order of Supreme Court, entered in Albany County, which denied the motion of the defendants Iannello for summary judgment and the plaintiff's cross-motion for the same relief.

The Iannellos were joint owners of a farm in Smyrna, New York which they sold to defendants McDonnell for a total consideration of $300,000. The plaintiff held real property and chattel mortgages on the property executed by the Iannellos and which were assumed by McDonnells as part of the purchase price. In addition, the bank took notes of $50,000 and $15,000 from the McDonnells secured by a chattel mortgage on their own chattels. These funds were advanced to pay part of the purchase price, to pay prat of the Iannellos' mortgage installments while McDonnells were in possession pending the closing, and to liquidate prior liens and claims on McDonnells' chattels so that the bank would have a first lien. Subsequent to the conveyance, the bank loaned McDonnells $12,000 to meet current expenses and took back an unsecured note.

At the time of closing, the bank insisted that Iannellos guarantee McDonnels' debts for a period of three years. While the Iannellos dispute the intent of the parties, the note is clear on its face--it is an unconditional guarantee of payment of past and future debts for three years from the date of closing.

With respect to the first cause of action, there cannot be the slightest doubt that the Iannellos knew what they were guaranteeing because this was an assumption of the Iannellos' debt. The remaining causes of action were clearly secured by the terms of the guarantee.

The Iannellos argue that the non-disclosure by plaintiff to them of McDonnells' prior financial condition and past debts amounted to a fraudulent misrepresentation voiding the guarantee. The trial court found questions of fact on this issue which required a trial.

There are two reasons why this defense fails. First, the defendants have not pleaded fraud. (CPLR 3018, subd. (b).) Second, there was no duty on the plaintiff to advance informative to Iannellos. Absent a clear showing that the bank was guilty of fraudulent concealment or misrepresentation or circumstances inconsistent with a bona fide transaction, the surety undertaking may not be avoided. Bostwick v. Van Voorhis, 91 N.Y. 353; Howe Machine Co. v. Farrington, 82 N.Y. 121; Security Nat. Bank of Long Is. v. Compania Anonima De Seguros, 21 Misc.2d 158, 190 N.Y.S.2d 820, affd. 10 A.D.2d 872, 199 N.Y.S.2d 532. The bank's duty was to disclose only those facts within its knowledge which were of such vital importance to the risk as to make it obvious that non-dsclosure would, in effect, amount to a contrary representation to the surety. The defense of fraud fails unless there was concealment of material facts which were so important that if...