« EelmineJätka »
said that such a contract can only be upheld in the case of there being the fullest disclosure by the intending creditor. I do not think that that proposition is sound in law. I think that, on the contrary, that contract is one in which there is no universal obligation to make disclosure, and therefore I shall not determine this case on that view" (1).
The same judge however went on to say, that he considered that the contract of suretyship was, as expressed by Lord Westbury, one which 'should be based upon the free and voluntary agency of the individual who entered into it," and that in Lord Eldon's words "it was a contract in respect of which a very little was sufficient. Very little said which ought not to have been said, and very little not said which ought to have been said, would be sufficient to prevent the contract being valid."
It was laid down in the old leading case of Dering v. Earl of Doctrine of Winchilsea, decided more than one hundred years ago, that the doctrine of contribution between sureties is "bottomed and fixed " on general principles of justice, and does not spring from contract, though contract may qualify it. It is the result of general equity on the grounds of equality of burdens and benefit. Accordingly in that case it was decided that where three sureties were bound by different instruments for different amounts, but for the same principal and the same engagement, they were all bound to contribute.
It must be borne in mind that, as was pointed out in a recent case, the equality here spoken of is not necessarily equality in its simplest form, but what has sometimes been called "proportionate equality." The ultimate burden, whatever it may be, must be borne by the co-sureties in proportion to the shares of the debt for which they have made themselves responsible. Each surety must bring into hotchpot every benefit which he has received in respect to the suretyship which he undertook (2).
It was a rule of equity that where there were several sureties and one became bankrupt, if another of them paid the entire debt he could in equity enforce a rateable contribution from his solvent co-sureties, while at common law he could only enforce from each a proportionate part having regard to the original
(1) Per Fry, J., in Daries v. London and Provincial Marine Insurance Co., 8 Ch. D. 469: see The North British Insurance Co. v. Lloyd, 10 Ex. 523; Hamilton v. Watson, 12 C. & F. 109, 119.
(2) Steel v. Dixon, 17 Ch. D. 285, and notes thereto in Brett's Leading Cases in Equity, p. 259, et seq., and see Ramskill v. Edwards, 31 Ch. D. 100, 109; Berridge v. Berndge, 44 Ch. D. 168.
number. Similarly where one surety died, at common law the only action for contribution was against the survivors, while in equity contribution could be enforced against the estate of the deceased surety. The rules of equity upon this point, as already pointed out, now prevail.
It has been decided that a surety is not entitled to call upon his co-surety for contribution until he has paid more than his proportion of the debt due to the principal creditor, even though the co-surety has not been required by the creditor to pay anything, provided that the co-surety has not been released by the creditor (1).
A surety may be discharged in a great many ways which are however reducible to three classes: (1) Where there has been misrepresentation, or where the creditor has omitted to disclose that which the Court considers that he ought to have disclosed. (2) Where the contract between the parties has been varied without the consent of the surety. Thus in a case where the surety had executed a bond under circumstances which practically amounted to a representation that it had been executed by his co-surety, and this was not the case, it was decided that the surety was discharged. (3) The surety may be discharged where the creditor enters into an arrangement without his consent, which materially affects his position (2).
The law on this subject was well summarised by Lord Blackburn, then Mr. Justice Blackburn, as follows:-"It has been established for a very long time, beginning with Rees v. Berrington to the present day, without a single case going to the contrary, that on the principles of equity a surety is discharged when the creditor, without his assent, gives time to the principal debtor, because by so doing he deprives the surety of part of the right he would have had from the mere fact of entering into the suretyship, namely, to use the name of the creditor to sue the principal debtor, and if this right be suspended for a day or an hour, not injuring the surety to the value of one farthing, and even positively benefiting him, nevertheless, by the principles of equity, it is established that this discharges the surety altogether. The reason given for this, as stated in Samuell v. Howarth, by Lord Eldon, is, because the creditor, by so giving time to the principal, has put it out of the power of the surety to consider whether he will have recourse to his remedy against the principal or not, and because
(1) Ex parte Snowdon. Snowdon, 17 Ch. D. 44.
(2) See De Colyar on Guarantees (2nd ed.), 323.
he in fact cannot have the same remedy against the principal as he would have had under the original contract. And he adds: "The creditor has no right, it is against the faith of his contract, to give time to the principal, even though manifestly for the benefit of the surety, without the consent of the surety" (1).
When there is a release of the debtor, or time is given to the debtor, and the rights of the creditor against the surety are reserved, the surety is not discharged (2).
The subject of the reservation of the rights of the principal creditor against the surety may be illustrated by a case which came before the Court of Appeal in 1887 (3).
The acceptor of a bill of exchange for £100 being sued thereon by the holders, paid into Court the sum of £30 in satisfaction of the whole cause of action. The holders then wrote to the acceptor to say that the indorsers had arranged to pay the balance of £70, and that they would sue the acceptor therefore. After writing this the holders of the bill gave due notice that they accepted the £30 in satisfaction of the claim in respect of which it had been paid into Court. It was decided that what had been done did not indicate any intention to give the acceptor an absolute discharge, but that on the contrary, all rights against him were reserved, and that accordingly the indorsers of the bill could sue the acceptor.
It is provided by the Mercantile Law Amendment Act, 1856, (19 & 20 Vict. c. 97), that a surety who pays off a debt secured to him by judgment or bond is entitled to have assigned to him every judgment, specialty, or security which shall be held by the creditor in respect of such debt, whether such securities shall or shall not at law be deemed to be satisfied by payment of the debt (4).
It was decided in an old case that, it being unreasonable that a man should "always have a cloud hanging over him," a surety is entitled as soon as the money is payable, though no action or proceedings be taken against him, to come to the Court and compel the principal to discharge the debt (5).
(1) Per Blackburn, J., in Polak v. Everett, 1 Q. B. D. 673; citing Samuell v. Howarth, 3 Mer. 272.
(2) Green v. Wynn, L. R. 4 Ch. 204, 206; Owen v. Homan, 4 H. L. C. 997; Webb v. Hewitt, 3 K. & J. 442.
(3) Jones & Co. v. Whitaker, 57 L. T. (N.S.) 216.
(*) See Forbes, Forbes v. Jackson, 19 Ch. D. 615, and cas.s there referred to; Lightbown v. Mc Myn, 33 Ch. D. 375, where it was held that
the surety's rights were not affected
(5) Ranelaugh v. Hayes, 1 Vern.
tion of rights against surety.
Mercantile Law Amend
ment Act, 1856.
The law on the subject of the relations between principal and surety has been made the subject of consideration by the Courts on several occasions in recent cases. It has been decided that the rights of a surety against his principal are not exactly the same as those of the creditor. Accordingly, although the law is that a creditor who has recovered judgment against one partner cannot sue another partner, the rule does not take away the rights of a surety for one partner to sue another partner (1). Surety to It was decided in a case which came before the Court in 1888 (2), that a surety to the Crown, who has paid the debt of his deceased principal, is entitled to the Crown's priority in the administration of his principal's estate. "What the Crown," the Court said, "could have recovered was payment of the debt in priority of the other creditors, and the surety is now entitled to that priority."
In a case decided in 1889, where an action was brought in respect of a mortgage debt against the personal representatives of a surety, it was decided that the payment of interest by the mortgagor prevented the Statute of Limitations from running in favour of the surety, and that the right of action against his estate was not barred (3).
(1) Baddeley v. Consolidated Bank,
(2) In re Lord Churchill. Manisty
Alison v. Frisby,
43 Ch. D. 106. See Re Wolmershausen, 38 W. R. 537, a case under 21 Jac. 1, c. 16, where it was held that the surety was discharged and where Re Frisby is considered.
PENALTIES AND FORFEITURES.
on which the Court
The principle upon which the Court proceeds in relieving Principle against a penalty was well stated by Lord Thurlow (who pronounced it to be "too strongly established in equity to be shaken") in a leading case (1) as follows:-" The rule is that, where a penalty is inserted merely to secure the enjoyment of a collateral object, the enjoyment of the object is considered as the principal intent of the deed, and the penalty only as accessional, and therefore only to secure the damage really incurred." It has been long established that although the parties use the words "liquidated damages" or "penalty," such words are not to be disregarded, but are by no means conclusive. Thus in the celebrated case of Kemble v. Farren (2), where the sum of £1000 was declared by the agreement to be liquidated, and not a penalty or in the nature thereof, it was held to be a penalty, and Chief Justice Tindal in delivering judgment, said, "We see nothing illegal or unreasonable in the parties, by their mutual agreement, settling the amount of damages, uncertain in their nature, at any sum they may agree."
The law on the subject of whether a sum of money payable "Penalty" on breach of a condition is to be treated as a penalty or as and "liquiliquidated damages was much considered in a case which came before the Court of Appeal in 1882. In this case the law was summed up in a series of propositions of which the following are the most important :
Where a sum of money is stated to be payable either by way of liquidated damages or by way of penalty for breach of stipulations, all or some of which are, or one of which is for the payment of a sum of money of less amount, the sum stipulated to be paid is treated as penalty, only the actual damage can be recovered.
“Where a deposit is to be forfeited for the breach of a number of stipulations, some of which may be trifling, some of which
(1) Sloman v. Walter, 1 Bro. C. C. 418.