Southwestern Co. v. Wynnegar

■ Potter, J., delivered the opinion of the court. This is a suit brought by the Southwestern Company, a book publishing corporation of Nashville, Tenn., against T. J. Wynnegar on a letter of credit executed by T. J. Wynnegar and J. J. Taylor, as sureties guaranteeing the account of Paul Wynnegar for books, cash, etc., which the said Southwestern Company agreed to furnish and furnished to Paul Wynnegar. The only question to be determined in this case is whether or not the sureties on the letter of credit sued on are released from liability thereon, because at the time the [415] letter of credit under consideration was executed the principal in the case, Paul Wynnegar, was already indebted to appellant in a large sum on account of default in a previous contract, and for which previous contract the same sureties were responsible in the sum of six hundred dollars, which fact was not disclosed to appellee or his cosurety; no inquiry with reference thereto having been made. It was contended in the court below that the failure on the part of the appellant to notify these sureties that their principal had defaulted on the first contract was a fraudulent concealment, and that therefore the letter of credit in question was void as to the sureties, and the trial court accepted this view of the case and gave, a peremptory instruction in favor of the defendant. ¥e think this was error. ..In his brief counsel for appellee relies on the text, 32 Cyc. 66, section (IY), subsection (B), which is as follows: “Knowledge of a prior default of the principal known to agents of the obligee at the time a .surety executed' a bond making himself liable therefor, will prevent an action being maintained thereon; but the general rule is that knowledge by a public agent of prior defaults of a public officer will not affect the liability of sureties on the bond of such officer, as a public agent has no authority to represent the state or county in such matters.” The only case cited in support of the text is the case of Franklin Bank v. Cooper, 39 Me. 542; but that is a case wherein the principal at the time the bond was executed was an embezzler, and his acts of dishonesty were known to the officers of the bank and not to the surety. This is a different case. The principal in this case, it is true, was insolvent and indebted to the Southwestern Company, but no inquiry was made with reference to whether or not he was so indebted by the sureties. This principal had committed no criminal offense and had been guilty of no act of dishonesty, and the Southwestern Company had reason to believe that the previous indebt [416] •edness would probably be paid by him. In the case of Sebald v. Citizens’ Deposit Bank, 105 S. W. 130, 31 Ky. Law Rep. 1244, 14 L. R. A. (N. S.) 377, the court held that mere knowledge on the part of the payee of a note uncommunicated to the surety of the insolvency of the maker at the time the note is executed will not release the surety from liability thereon. And to the same effect are the cases of Ham v. Greve, 34 Ind. 18, Farmers’ & D. Nat. Bank v. Braden, 145 Pa. 473, 22 Atl. 1045, First Nat. Bank v. Johnson, 133 Mich. 700, 95 N. W. 975, 103 Am. St. Rep. 468, Bank of Monroe v. Gifford, 72 Iowa, 750, 32 N. W. 669, and Noble v. Scofield, 44 Vt. 281, all digested in the note to the above-cited case. 7 While the precise question here presented may not have been the issue in the above cases, the same principle is, for if, when a creditor knows of the insolvency of his principal, he is under no duty without inquiry to disclose such insolvency, though such insolvency is not known to the surety, it follows that the creditor is under no obligation without inquiry to disclose to the principal that the surety has not paid a particular indebtedness, and especially is this true when the surety is also a surety for the previous indebtedness on another contract, for the creditor has the right to presume that the surety, not having made any inquiry of him,- had ascertained from his principal the state of the previous contract. The granting of the peremptory instruction for the defendant was error. Reversed and remanded.