Extent of Surety's Liability. Recital in will. Amount for which surety liable. both (m). A recital in a will that the testator had guaranteed CH.XVII.s.4. has been held to be a sufficient memorandum of the guarantee so as to create a debt payable out of the testator's estate (n). Where the surety has given a continuing guarantee, limited in amount, to secure the floating balance which may from time to time be due from the principal to the creditor, the guarantee is as between surety and creditor, to be construed as being primâ facie applicable to a part only of the debt, co-extensive with the amount of his guarantee-upon the ground that it is inequitable in the creditor, who is at liberty to increase the balance or not, to increase it at the expense of the surety. But where the surety has given a guarantee, limited in amount, for a debt already ascertained, which exceeds that limit, such a guarantee is not to be so construed; but the question is, whether the intention was to guarantee the whole debt, with a limitation on the liability of the surety, or to guarantee a part of the debt only (o). Where a party guarantees the due payment of a bill of exchange by the acceptor, he is liable for interest thereon if it be not paid when due (p). And where a guarantee is given for the payment of a promissory note, if it be not "duly honoured and paid" by the maker, according to its tenor and effect; the guarantor is liable, if the note be not paid by the maker when due, without any presentment to him for that purpose (q). Where a guarantee was given to D., to secure payment of the price of goods which were to be supplied by him to M.: it was held that the surety was liable for a sum of money which M. had procured from D., to enable him, M., to take up a bill which he had given to D. in the usual course of business, in payment for goods supplied by him to the latter, and which had been. dishonoured whilst in the hands of a third party (r). Interest on change. bill of ex The parties to a contract of indemnity may agree, beforehand, Liquidated damages. to estimate the extent to which the surety shall be liable, by way of liquidated damages. And if they do, the amount so agreed upon will form the measure of the surety's liability, without reference to the real damage which may have been incurred by the party to whom the guarantee was given (s). (m) See Kirby v. Duke of Marlborough (1813), 2 M. & S. 18; Pearsall v. Summersett (1812), 4 Taunt. 593. (n) Hoyle, In re, Hoyle v. Hoyle, [1893] 1 Ch. 84. (0) Per Blackburn, J., delivering the judgment of the C. A., Ellis v. Emmanuel (1876), 1 Ex. D. 157, distinguishing Hobson v. Bass (1871), L. R., 6 Ch. 792, and Gray v. Seckham (1872), L. R., 7 Ch. 680. (p) Ackerman v. Ehrensperger (1846), 16 M. & W. 99. (a) Walton v. Mascall (1844), 13 M. & W. 452. (r) Davey v. Phelps (1841), 2 M. & G. 300; 2 Scott, N. R. 564. For other cases as to the liability of sureties, see Wilson v. Craven (1841), 8 M. & W. 584; Calvin v. Buckle (1841), id. 680; Seller v. Jones (1846), 16 M. & W. 112. (s) See per Patteson, J., delivering CH. XVII. s. 4. Extent of Mode of pro cedure for remedy against surety. When the principal debtor has made default the creditor can at once, before proceeding against him, sue the surety (t), unless the surety has made an express stipulation that his own liability shall only arise on failure of legal proceedings against the principal debtor (u); though the surety when sued by the creditor can bring in the principal debtor by the Third Party Procedure (x). But if the creditor sue the principal debtor alone, a judgment against him is not judgment or evidence against the surety; the plaintiff must in a fresh action prove the surety's liability, and is not estopped from raising fresh defences not raised by the principal debtor in the first action (y), for an admission by the principal debtor does not bind the surety (z). Surety, how discharged. Fraudulent misrepresentation or concealment. SECT. 5.-Discharge of Surety by Misrepresentation, The Courts have been extremely anxious to protect the surety from fraud. And therefore, although a surety is not, of necessity, entitled to receive, without inquiry, from the party to whom he is about to bind himself, a full disclosure of all the dealings between the principal and that party (a); still if any material part of the transaction is, with the knowledge of the creditor, misrepresented to the surety (b); or if the creditor fraudulently conceal from the surety any circumstance within his knowledge, which it is material for the surety to know, although such concealment be not with a view to any advantage to himself, the guarantee will be void (c). And in the case of a continuing guarantee, any similar concealment by the creditor after the contract has been entered into, will have the like effect as regards the future liability of the surety. If, therefore, the surety engage for the honesty of a servant, and the opinion of the judges in H. L., (t) De Colyar on Guarantees, 2nd ed., (u) See Holl v. Hadley (1835), 2 A. & E. 758, and London Guarantee Co. v. Fearnley (1880), 5 App. Cas. 911. (x) R. S. C. (1883), Örd. XVI., rr. 48— 55, and see notes thereto in the Annual Practice. (y) Ex parte Young (1881), 17 Ch. D. 668, C. A., following the American (N. Y.) case of Douglass v. Howland (1840), 24 Wendell, 35. (z) Evans v. Beattie (1803), 5 Esp. 26. (a) Hamilton v. Watson (1845), 12 C. & F. 109. (b) Stone v. Compton (1838), 5 Bing., N. C. 142. (c) Hamilton v. Watson (1845), 12 C. & F. 109; North British Insurance Co. v. Lloyd (1854), 10 Exch. 523; Railton v. Mathews (1844), 10 C. & F. 934. What is evidence of fraud in such cases, see Lee v. Jones (1864), 17 C. B., N. S. 482, Ex. Ch. And per Fry, J., Davies v. London, &c., Marine Insurance Co. (1878), 8 Ch. D. 469, 475. the master discovers that the servant has been dishonest, and instead of dismissing him, continues him in his employment without notice to the surety; the surety will not be liable for the subsequent default of the servant (d). So, if a person execute an instrument as surety, upon the faith that another person will become a party to it as his co-surety, and the proposed co-surety refuses to join in the instrument; the surety who executed the instrument will be discharged, unless he has expressly waived the objection (e). The alteration of the instrument of suretyship by an intended co-surety will have a more extended effect, and may result in a complete discharge of all the sureties, as appears from Ellesmere Brewery Co. v. Cooper. There four persons, as sureties for a principal, executed a joint and several bond of suretyship, by the terms of which the liability of two of them was limited to 50l. each, and that of the other to 251. each. One of those whose liability was limited to 50l., after the other three had executed the bond, executed it himself, but added to his signature the words 251. only. The obligee accepted the bond so executed without objection. It was held that the effect of this alteration was to discharge the three first signatories, and further, that as the last signatory only undertook the liability of 25l., not as a separate and independent liability, but as part of a contract in which three others were joining him, against whom in certain eventualities he would have rights of recourse, but who turned out really not to be liable, he was not liable even for the 25l. (ƒ). CH. XVII.s.5. Failure of intended co execute. Alteration of instrument by intended co-surety. Ellesmere Brewery Co. v. Cooper. So, if a principal's default were committed with the connivance Creditor conof the creditor; or if the creditor wilfully shut his eyes to the principal's default which the principal was about to commit, this would default. discharge the surety (g). formance of conditions by creditor. Laches of So where a party agrees to become surety, in consideration of Non-persomething to be done by the creditor; if the creditor omits to do what was so agreed to be done by him, the surety is discharged (h). So, if a party agree that, on being allowed a commission, he will indorse a bill to be given for goods to be supplied to a third person; the liability to indorse the bill does not arise, unless the (d) Phillips v. Foxall (1872), L. R., 7 Q. B. 666; Sanderson v. Aston (1873), L. R., 8 Ex. 73, but acquiescence in mere irregularity of accounts, where no dishonesty was suspected, is not such connivance as will discharge the sureties, Durham (Mayor, &c., of) v. Fowler (1889), 22 Q. B. D. 394, and see Mansfield Union (Guardians of) v. Wright (1882), 9 Q. B. D. 683, C. A. (e) Evans v. Bremridge (1855), 25 L. J., Ch. 102 and 334, App., but it seems doubtful whether this would be (f) Ellesmere Brewery Co. v. Cooper, (g) Per Wood, V.-C., Dawson v. Lawres (1854), 23 L. J., Ch. 434. (h) Lawrence v. Walmsley (1862), 31 L. J., C. P. 143. creditor. tation, &c. CH. XVII. s. 5. creditor tender it to the surety for indorsement, within a reasonDischarge of able time (i). Where a broker, on purchasing goods for his Surety by Misrepresen- principal, agreed, for a percentage, to indemnify him against any loss on a resale; it was held that the undertaking was discharged, by the fact of the principal having had a fair opportunity of selling to advantage, of which he neglected to avail himself; and that the broker was not liable on a subsequent resale at a loss (k); and where the surety is answerable for the payment of a sum of money by the principal, and the creditor accepts such payment otherwise than in money, e.g., in country bank-notes, the surety is not liable if the notes be not paid (). Payment by principal. By discharg But a defence by laches will not be good unless it is proved that there was an obligation on the plaintiff to perform what was neglected (m). Neither can laches be imputed to the Crown (n). Payment by the principal will, of course, discharge the surety. But where, after making such a payment, the principal became bankrupt, and his assignees avoided the payment as having been made by way of fraudulent preference; it was held that the surety was not discharged (o). Any binding agreement with the principal, founded on a good ing principal. consideration, whereby he is discharged, discharges the surety also (p). Accordingly, a release to the principal operates as a release to the surety and an agreement to release has the same effect (g). So, the extinguishment of the debt against the principal, by taking a composition thereon from him, or from a third party on his behalf, whereby all further claim against him ceases, will discharge the surety (r); unless there be a reserve of remedies by the creditor against the surety (s), or the surety has agreed to remain liable, notwithstanding the discharge of the principal (t). So, a covenant to give time to, or not to sue, the principal will discharge the surety, unless it be qualified by a proviso reserving the rights of the creditor against the surety (u). (i) Payne v. Ives (1823), 3 D. & R. 664. (k) Curry v. Edensor (1790), 3 T. R. 524. (1) Guardians of the Lichfield Union v. Green (1857), 1 H. & N. 884. (m) R. v. Fay (1879), 4 Ir., L. R. 606, App. (n) R. v. Fay, ubi supra. (0) Pritchard v. Hitchcock (1843), 6 M. & G. 151; Pretty v. Cooke (1871), L. R., 6 Q. B. 790. (p) Per Parke, B., Moss v. Hall (1850), 5 Ex. 46, 49. (q) Hawkshaw v. Perkins (1818), 2 Swanst. 539. (1) Jones v. Lewis (1825), 4 B. & C. 506. (s) See Cragoe v. Jones (1873), L. R., 8 Ex. 81; Kearsley v. Cole (1846), 16 M. & W. 128, 135; Davidson v. M'Gregor (1841), 8 M. & W. 755, 768; Nichols v. Norris (1832), 3 B. & Ad. 41. (t) Couper v. Smith (1838), 4 M. & W. 519. (u) Price v. Barker (1855), 4 E. & B. 760; Bailey v. Edwards (1861), 4 B. & S. 761, 774. So, any alteration, however bonâ fide, by the creditor and the principal, without the assent of the surety, of the terms of the original agreement, so far as they relate to the subject-matter in respect of which the surety became responsible for the principal, will exonerate the surety, unless it be self-evident that the alteration is unsubstantial, or one which cannot be prejudicial to the surety. And when the alteration is not of this character, the Court will not, in an action against the surety, inquire as to the effect of it, or allow the question whether the surety is discharged or not, to be determined by a finding as to its materiality (x). But where there is a mortgage of farming stock, and the mortgagor with consent of mortgagee from time to time and in the due course of management sells cattle and stock part of the security, such sale being contemplated by the mortgage deed will not relieve the mortgagor's sureties (y). If, therefore, there be an agreement between A. and B., that A. shall guarantee a debt due to B. from C., in consideration of B. agreeing to accept payment thereof by instalments; A. will not be liable, if the agreement between B. and C. contain a proviso, that the whole debt shall be recoverable at once, in the event of C. making default in payment of any one instalment (≈). A private agreement between the vendor and vendee of goods, for the price whereof the defendant had become liable as surety, that the vendee will pay a sum beyond the market price, to be applied by the vendor towards an old debt due to him from the vendee, discharges the surety from all liability on his guarantee (a). So where D., and the defendant as his surety, gave their joint and several promissory note to D.'s bankers, as a security for the floating balance which might from time to time be due to them from D.: the defendant was held to be discharged from his liability on the note, by the bankers having placed it to the credit of D.'s account (b). So where A., as surety for B., gave to C. a promissory note, upon an agreement that C. should advance the amount to B. by draft at three months' date; and C. made the advance immediately, and not by draft at three months: it was held that the surety was released (c). And so, an agreement to (x) Holme v. Brunskill (1877), 3 Q. B. D. 495, C.A.; and see Bolton v. Salmon, [1891] 2 Ch. 48, per Chitty, J. (y) Taylor v. Bank of New South Wales (1886), 11 App. Cas. 596, J. C., where Holme v. Brunskill (1877), 3 Q. B. D. 495, C. A., and Polak v. Everett (1876), 1 Q. B. D. 669, C. A., are discussed, and see too Ward v. National Bank of New Zealand (1883), 8 App. Cas. (2) Clarke v. Green (1849), 3 Ex. 619. (b) Archer v. Hudson (1844), 7 Beav. 551. (c) Bonser v. Cox (1844), 6 Beav. 110. CH. XVII. S. 5. Altering the contract, as between the terms of the creditor and the principal. |