Chap. IX. § 1 (ii). No action on guaranty unless in writing. Written guarantee shall not be invalid by ii. Statute of Frauds.-The Statute of Frauds (g) enacts that: "No action shall be brought whereby to charge. the defendant upon any special promise to answer for the debt, default, or miscarriage of another person unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith, or some other person thereunto by him lawfully authorized." Formerly, if such an undertaking was made by writing not under seal, the consideration must have appeared on the face of the writing (h); but now by sect. 3 of the Mercantile Law consideration Amendment Act, 1856 (i), it is enacted as follows: reason that the does not a written Parol evidence of con "No special promise to be made by any person after the passing of this Act, to answer for the debt, default or miscarriage of another person, being in writing and signed by the party to be charged therewith, or some other person by him thereunto lawfully authorized, shall be deemed invalid to support an action, suit, or other proceeding to charge the person by whom such promise shall have been made, by reason only that the consideration for such promise does not appear in writing or by necessary inference from a written document." Although parol evidence is admissible to supply the considerasideration, &c. tion for a guaranty, it cannot be admitted to explain the promise, which must still be in writing (k). deration does not appear on the face of the be clearly proved by parol evidence (7). And if the consiguaranty, it must If the guaranty is given by a separate instrument, parol evidence is admissible to identify the security in respect of which the promise is made (m) or the amount of the debt intended to be guaranteed (n), or whether it was intended to be a continuing guaranty to cover further advances (o). Contract of suretyship requires SECTION II. AVOIDANCE OF CONTRACT OF SURETYSHIP. i. Of Suretyship Contracts void ab initio.-The contract of suretyship requires that all parties to it should mutually exer (g) 29 Car. II. c. 3, s. 4. See Mallet (k) Holmes v. Mitchell, 7 C. B. N. S. (1) Glover v. Halkett, 2 H. & N. 489. (m) Shortrede v. Cheek, 1 A. & E. 57. (n) Bateman v. Phillips, 15 East, 272. See Brunton v. Dullens, 1 F. & F. 450. (0) Grahame v. Grahame, 19 L. R. Ir. 249. Chap. IX. § 2 (i). cise the utmost good faith (p). The contract will be void in its inception, unless the fullest information is afforded to the surety as to all material facts affecting his obligations and utmost good liabilities, and unless the instrument strictly and literally em- faith between all parties. bodies the terms on which he agreed to assume such obligations and liabilities. So, also, a contract of suretyship, though originally valid, will be avoided by any subsequent transaction between the creditor and the principal debtor which may affect the remedies or liabilities of the surety. avoided ab tion. Thus, the contract will be void ab initio if, with the knowledge Contract or assent of the creditor, any material part of the transaction initio by misbetween the creditor and the debtor is misrepresented to the representasurety, and the misrepresentation be such that, but for the same having taken place, either the suretyship would not have been entered into at all, or, being entered into, the surety's liability might be thereby increased (q). of material So, if a private bargain is entered into between the creditor Concealment and principal debtor which may have the effect of varying the fact will avoid responsibility or position of the surety, the withholding the know- contract. ledge of that bargain from the surety will vitiate the contract of suretyship. So, where the bargain was that the vendee of goods should pay beyond the market price of goods supplied to him 10s. per ton, which was to be applied in payment of an old debt due to the vendor, and the payment for the goods was guaranteed by a third person as follows:-"I will guarantee you in the payment of 2007., value to be delivered to T. in Lightmoore pig iron," but the bargain was not communicated to the surety, it was held, that the concealment was a fraud on the surety, and rendered the guaranty void (r). In order, however, to vitiate the contract, the concealment Fact concealed must must be of a fact which materially varies the position of the be material. surety from that which he might naturally expect to hold. So, where a surety guaranteed a cash account opened by the principal debtor to the amount of 7507., and the money was applied in discharge of a debt of that amount owing by the principal debtor to the same creditor, of the existence of which debt the surety was not informed, it was held that the creditor was (p) Davies v. London and Provincial Marine Insurance Co., 8 Ch. D. 469, C. A. (g) See Stone v. Comton, 5 Bing. N. S. 142, 157; Smith v. Bank of Scotland, 1 Dowl. 272; Railton v. Matthews, 10 Cl. (r) Pidcock v. Bishop, 3 B. & Cr. 605. Chap. IX. § 2 (i). Creditor, when bound to make inquiries as to fraud. Application of the rule to mortgages of life policies. Alteration of conditions of contract. under no obligation to disclose the purpose for which the money was intended to be applied, and that the concealment of the existing debt did not avoid the contract of suretyship (s). So, where a person procured an advance of 5007., for the repayment of which two other persons became sureties, and, in pursuance of a previous agreement, the borrower handed over 1257. out of the 5007. as a loan to one of the sureties without the knowledge of the other surety, it was held that there was no such concealment of a material fact as to prejudicially affect the position of the latter (†). A creditor is not, as a general rule, bound to inquire into the circumstances under which a person becomes surety to him for a debt, unless the circumstances are of such a nature that they ought to raise a reasonable ground of suspicion in his mind that the surety has been induced to assume his obligations by fraud on the part of the debtor; under such circumstances the creditor is bound to make inquiries (u). The rule that the fullest disclosure must be made to the surety would seem to be applicable with the utmost strictness when a third party concurs in a mortgage of a policy of life assurance for the purpose of guaranteeing the payment of the mortgage moneys, and the punctual payment of the premiums; for in such cases the creditor and the assured have full knowledge of all circumstances affecting the health of the assured, and other matters with regard to which the surety cannot readily obtain information (x). ii. Of the Discharge of the Surety by Subsequent Transactions.-The contract of suretyship is construed in the strictest manner, so that the surety will only be bound according to the strict letter of his engagement (y). If it is in any way altered without his consent, even for his benefit or innocently, he is entitled to be discharged (z). He is discharged by an arrange Labouchere, 3 De G. & J. 593. (y) Stamford, &c. Bkg. Co. v. Ball, 4 De G. F. & J. 310; Blest v. Brown, 4 De G. F. & J. 367, 376. (z) Blest v. Brown, sup. ; Samuel v. Howarth, 3 Mer. 272; Gardner v. Walsh, 5 E. & B. 83; Polak v. Everett, 1 Q. B. D. 669; Holme v. Brunskill, 3 Q. B. D. 495. ment between the mortgagee and the mortgagor affecting a fund which the surety had a right to rely on (a). Any departure from the conditions will discharge him, even though he is not thereby prejudiced (b). Chap. IX. § 2 (ii). release of principal surety. An absolute release of the principal debtor of course dis- Absolute charges the surety by extinguishing the debt; and in such a case the creditor cannot reserve any rights against the surety, discharges as the debt is gone, so that no rights of action with regard to it can remain (c). Although, of course, payment off of the debt by the principal Effect of paydischarges the surety from all obligations in respect of it, yet a payment which is subsequently set aside for fraudulent preference is not a satisfaction of the debt so as to discharge the surety (d). ment of debt subsequently set aside. If the creditor enters into a binding contract with the principal Effect of debtor to give him further time to pay, without the concurrence giving time to principal of the surety, the surety is discharged, because the creditor has debtor. put it out of his own power to enforce immediate payment, which the surety would have a right to require him to do (e). A parol agreement for good consideration to give time to the Parol agreeprincipal debtor, being enforceable in equity, will discharge the ment to give surety, although the principal is bound by deed (ƒ). A parol agreement to alter the contract, between the creditors and principal debtor, was no answer at law to an action on a bond against a surety, but a Court of Equity would, in such case, have interfered (g). time. must be There must, however, be a clear and binding contract with Agreement the principal debtor to give time in order to discharge the to give time surety (h). An agreement without consideration is not bind- binding. ing, and will not discharge the surety (i). So, also, mere for (a) Gen. Steam, &c. Co. v. Rolt, 6 Jur. N. S. 801. See Mortgage Insurance Corp. v. Pound, 65 L. J. Q. B. 129. (b) Lawrence v. Walmesley, 31 L. J. C. P. 143. (c) Commercial Bank of Tasmania v. Jones, (1893) A. C. 313. (d) Petty v. Cooke, L. R. 6 Q. B. 790. (e) Bank of Ireland v. Beresford, 6 Dow, 238; Oakeley v. Pasheller, 4 Cl. & F. 207. See Nisbet v. Smith, 2 Bro. C. C. 579; Rees v. Berrington, 2 Ves. jun. 540; Strong v. Foster, 17 C. B. 219; Oriental Financial Corp. v. Overend, Gurney & Co., L. R. 7 Ch. 142; (f) Blake v. White, 1 Y. & C. Ex. (g) See Davey v. Prendergrass, 5 B. & Ald. 187, and cases in note to Heath v. Key, 1 Y. & J. 434. (h) Heath v. Key, supra; Clarke v. Birley, 41 Ch. D. 422. (i) Blake v. White, 1 Y. & C. Ex. 420; Clarke v. Wilson, 3 M. & W. 208; Lyon v. Holt, 5 M. & W. 250; Tucker v. Laing, 2 K. & J. 749. Chap. IX. bearance from suing the principal debtor, without a positive and binding contract to that effect between him and the creditor, will not discharge the surety (k). § 2 (ii). Conditional agreement to give time. Alteration of period of mortgage. A conditional agreement does not discharge the surety where the agreement does not become binding, from the condition not being performed (1). Where a consolidated mortgage contains a covenant by the redemption of principal debtor to pay the mortgage debt at a later date than that fixed by the deed to which the surety was a party, this necessarily suspends the remedy against the principal debtor, and consequently amounts to a giving of time which will discharge the surety (m). Additional security for debt. Release of principal from The giving of additional security by the principal debtor to the creditor is not necessarily of itself a giving of time to the principal (n). But the taking in lieu of an equitable mortgage by deposit of a legal mortgage for a larger amount, with a covenant for payment of the principal at a later date, was held to amount to a giving of time to the principal debtor so as to discharge a surety who had guaranteed the repayment of the original loan (0). Where a surety guaranteed the payment of premiums of a liability under mortgaged policy, the release by the mortgagee of the mortgagor from personal liability under his covenants to pay the premiums was held to discharge the surety (p). covenant. Exception to rule where remedies of surety are not affected. The surety will not be discharged by a contract with a stranger to give time to the principal debtor, nor by the taking further security from the principal, provided the creditor's remedy under the existing security be not thereby suspended (9). Nor was the surety in a simple contract security discharged by the principal debtor giving a specialty, by way of further security, to the creditor, though the creditor agreed to give the debtor time on the specialty (~). (k) Samuel v. Howarth, 3 Mer. 278; Wright v. Simpson, 6 Ves. 734; Bell v. Banks, 3 Man. & Gr. 258; Bonser v. Cox, 13 L. J. Ch. 261; Heath v. Key, 1 Y. & J. 434; Hollier v. Eyre, 9 Cl. & F. 57. (1) Price v. Edmonds, 10 B. & C. 578. (m) Bolton v. Buckenham, (1891) 1 Q. B. 278, C. A.; Bolton v. Salmon, (1892) 2 Ch. 48. (n) Overend, Gurney & Co. v. Oriental Financial Corp., L. R. 7 H. L. 348. (0) Munster and Leinster Bank v. France, 24 L. R. Ir. 82, C. A. (p) Lowes v. Maughan and Fearon, 1 C. & E. 340. (q) Fraser v. Jordan, 8 E. & B. 312. See Croydon Commercial Gas Co. v. Dickinson, 2 C. P. D. 46. So also the acceptance of a new bill as a collateral security does not discharge the drawer: Pring v. Clarkson, 1 B. & C. 14; Bedford v. Deakin, 2 B. & Ald. 210. (r) Twopenny v. Young, 3 B. & C. 208; Bell v. Banks, 3 Man. & Gr. 258. |