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capacity aforesaid, by reason of his having received and collected in the course of failed to pay over to the plaintiff cer- and during the continuance of his said tain moneys received and collected by him service and employment divers sums of in the course and during the continuance money from customers of the plaintiff, for of his said service and employment from and on her account, which said sums of certain customers of the plaintiff for and money so received and collected as aforeon her account; and that all conditions said, it was the duty of the said John were performed and fulfilled, and all things Smith to pay over to the plaintiff, and happened and were done, and all times that John Smith, in violation of the said elapsed necessary to entitle the plaintiff to duty, failed to pay over to the plaintiff maintain this action, in respect of the large sums of the said moneys so collected breaches hereinafter assigned. Yet neither and received as aforesaid, and embezzled the said John Smith nor the defendant the same, and the plaintiff sustained a loss have ever made good or repaid to the by the said breaches of the said duty by plaintiff the said loss to the extent of 501., the said John Smith, to wit, to the amount so sustained by her as aforesaid, and by of 571., all of which said breaches of duty reason of the premises the plaintiff has were to the extent of 501. covered and lost the said last-mentioned moneys, and secured by the agreement of the defendant the interest, gains and profits which she in the declaration mentioned, and to make might and would have gained and ac- good which to the extent of 501. the dequired from the use and employment fendant was under the said agreement thereof. And the plaintiff also sues the liable; and the defendant saith that the defendant for money payable by the de- plaintiff discovered and became aware of fendant to the plaintiff, for money found the said breaches of duty and embezzleto be due from the defendant to the plain- ments by the said John Smith on or about tiff on accounts stated between them. the 20th day of November, 1869, and the

Pleas-First, to the first count, and as plaintiff, without communicating to the to so much of the plaintiff's claim therein defendant or informning him of the said as arises in respect of moneys received breaches of duty, defalcations and embezand collected by the said John Smith, in zlements of the said John Smith or any the course and during the continuance of or either of them, agreed with the said his said service and employment from cer

John Smith that he should continue in tain customers of the plaintiff, for and on the said service, and in the performance account of the plaintiff

, after the making of the said duty of collecting and receivof the said agreement on June 8th, A.D. ing moneys for and on behalf of the 1869, and prior to the 12th of November, plaintiff as aforesaid, and should pay to the A.D. 1869, brings into Court the sum of plaintiff a sum of 31. per month in liqui101., and says that that sum is sufficient. dation of the said sum of 571., then due

Second, And for a further plea to the and owing by the said John Smith in resaid first count, and to the residue of the spect of the said defalcations, breaches of plaintiff's claim therein set forth, the de- duty and embezzlements aforesaid ; and fendant says that the sums of money thereupon the said John Smith agreed to therein comprised were not received and continue and so continued in the said sercollected by the said John Smith in the vice of the plaintiff, in the performance of course of his said service and employment the said duty in collecting and receiving from certain customers of the plaintiff's, moneys for and on behalf of the plaintiff for and on her account as alleged.

as aforesaid, until the 4th day of April, Third, And for a further plea to the 1871, and during the said service so consaid first count, and to the said residue of tinued from the said 20th day of Novemthe plaintiff's claim therein set forth, by ber, 1869, the said John Smith paid large way of defence upon equitable grounds, sums of money to the plaintiff in reducthe defendant says—That after the tion and discharge of the said defalcations, making of the said agreement on the 8th breaches of duty and embezzlements, to day of June, 1869, and prior to the 20th wit, 431. And after the discovery of the of November, 1869, the said John Smith said defalcations, breaches of duty and embezzlements as aforesaid, and after the said bound to do. In Black v. The Ottoman arrangement for liquidation of the said Bank (1), Lord Kingsdown delivered the sum by the said John Smith, and during judgment of the Court. His Lordship, the continuance of the said John Smith after referring to the decisions said, at in the said service, and in the discharge p.

483: : “From these cases it is clear that of the said duty of receiving and collect- upon the point now in dispute, the rule at ing moneys for and on behalf of the

law and in equity is the same; that the plaintiff as aforesaid, the said John Smith

mere passive inactivity of the person to received and collected the moneys for and whom the guarantie is given, his neglect on account of the plaintiff comprised in to call the principal debtor to account in the residue of the plaintiff's claim to the reasonable time, and to enforce payment first count mentioned and herein pleaded against him, does not discharge the surety; to. And the defendant further saith, that that there must be some positive act done during the whole of the time the said by him to the prejudice of the surety, or John Smith received and collected the such degree of negligence, as in the lan. said sums of money in manner aforesaid, guage of Vice-Chancellor Wood in Dawherein pleaded to, he the defendant was son v. Lawes (2), “to imply connivance wholly ignorant of the said defalcations and amount to fraud.'” The plea now and breaches of duty and embezzlements demurred to does not shew either conni. prior to the said 20th of November, 1869. vance or fraud. The cases are collected And the defendant further saith, that by in the notes to Rees v. Berrington (3), and reason of the non-disclosure to him by the the learned author writes as followsplaintiff of the said defaults and embez- “Upon the same principle, a person who zlements, he was prevented from imme- becomes surety for the honesty of a perdiately revoking the said guarantie, and son entrusted with money, will not be from at once compelling the said John discharged, although there may have been Smith to pay him, the defendant, the considerable delay in the employer in ex. moneys he was liable under the said amining his accounts, or in giving notice agreement to pay the plaintiff, as he, the to the surety of any embezzlement which defendant, otherwise would. And the de- he may have discovered .... unless there fendant further saith, that the plaintiff has been an industrious, that is to say, a continued the said John Smith in the said fraudulent concealment of the embezzle. service and in the performance of the ment on the part of the employer.” For said duty after the discovery of the said this latter proposition he refers to Peel first-mentioned defalcations and embezzle- Tatlock (4); Goring v. Edmunds (5). The ments without communicating the same continuance of John Smith in the emto the defendant, contrary to good faith, ployment of the plaintiff was a mere inand the true intent and meaning of the dulgence, and the plaintiff was not bound said agreement.

by his original contract with the defend. Fourth, And to the residue of the de- ant to inform him of the embezzlement by claration, Not guilty.

John Smith. [He also referred to Smith r. Demurrer to the third plea, and joinder The Bank of Scotland (6) as an authority in demurrer.

which would be relied on by the defendant.]

Willis, contra.-It is to be observed that F. M. White (on April 23), in support the money sought to be recovered from of the demurrer. - The question is whether, the defendant is money which was received under these circumstances, the defendant is discharged from his liability as surety.

(1) 15 Moore P.C. 472. It is submitted that he is not. The princi.

(2) 1 Kay, 280; s. c. 23 Law J. Rep. (N.s.)

Chanc. 434. ple established by the decisions which have

(3) 2 Ves. jun. 540 ; s. c. 2 Tudor's Leading taken place upon the subject is, that a Cases, 814. surety is discharged if the person to whom (4) i Bos. & P. 419-423. he is bound calls upon him to do some

(5) 6 Bing. 94; 8. c. 7 Law J. Rep. (N.s.) C.P.

235. thing different from that which by his

(6) 1 Dow, Appeal Cases in the Horse of original contract of suretyship he was Lords, 272.

by John Smith after the suretyship had a view to security against future transcommenced. There is no case which ex- actions of the agent.” It is submitted actly applies to the present question. It that this doctrine would be extended to a is admitted that a surety is not dis- case like the present, and that, after the charged by the simple negligence of the suretyship has commenced, the employer creditor; there must be some conniv- is bound to make known to the surety ance, but the plea shews that after the any instances of dishonesty with which plaintiff knew of the dishonesty of John he becomes acquainted - Lee v. Jones Smith, she continued to employ him and (7). In 1 Story's Commentaries on Equity allowed him to commit additional acts Jurisprudence, sg. 323, 324, it is stated as of dishonesty without giving notice to follows: “On the whole the doctrine may the defendant of what he had done. In be generally stated that wherever confiSmith v. The Bank of Scotland (6), the dence is reposed, and one party has it in appellants had bound themselves in a his


in a secret manner for his own bond of cautionary to the Bank of Scot- advantage, to sacrifice those interests land for one Paterson, the bank agent at which he is bound to protect, he will not Thurso. Paterson mismanaged the affairs be permitted to hold any such advantage. of the bank, and became bankrupt, where- The case of principle and surety, however, upon the respondents proceeded to enforce as a striking illustration of this doctrine, the bond against the appellants. Pay- may be briefly referred to. The contract ment was resisted, the appellants con- of surety imports entire good faith and tending that at the time the bond in confidence between the parties in regard question was taken by the respondents, to the whole transaction. Any concealthey were aware of or had strong reason

ment of material facts, or any express or to suspect the misconduct or insolvency implied misrepresentation of such facts, of Paterson. The Court of Session pro- or any undue advantage taken of the nounced against the appellants, but the surety by the creditor, either by surprise, House of Lords remitted the case to them. or by withholding proper information, will In the course of the argument, Lord undoubtedly furnish a sufficient ground to Redesdale said, Supposing the report invalidate the contract. Upon the same shewed that Paterson was no longer trust- ground the creditor is, in all subsequent worthy, and the bank had trusted him transactions with the debtor, bound to notw thstanding, upon decided cases the equal good faith to the surety." See also prior security would be discharged from The North British Insurance Company v. all the consequences of subsequent trans- Lloyd (8). In Shepherd v. Beecher (9), actions as contrary to the faith of the where a father was surety for his son who contract." Black v. The Ottoman Bank embezzled the moneys of his employer, he (1) was a different case from the present; was held liable on his bond for the son's

case of negligence simply. embezzlement, though there had been a Again, in Smith v. The Bank of Scotland previous embezzlement, but there notice (6), Lord Eldon said, “If an agent had been given to the father, who did had been guilty of embezzlement, or other nothing more than request the employer improper conduct unknown to his em- not to trust his son with any cash, or at ployer, the cautioner would be liable. But least that he would do so very sparingly. if a man found that his agent had betrayed [He also referred to Frank v. Edwards his trust, that he owed him a sum of (10), Skillett v. Fletcher (11), Pybus v. money, or that it was likely that he was in his debt, if, under such circumstances, he required sureties for his fidelity, hold

(7) 17 Com. B. Rep. N.S. 482 ; s. c. 34 Law J,

Rep. (N.s.) C.P. 131. ing him out as a trustworthy person, (8) 10 Exch. Rep. 523 ; s. c. 24 Law J. Rep. knowing or having ground to believe that (n.s.) Exch. 14. he was not so, then it was agreeable to

(9) 2 P. Wms. 288. the doctrines of equity, at least in Eng

(10) 8 Exch. Rep. 214 ; 8. C. 22 Law J. Rep. land, that no one should be permitted to

(N.s.) Exch. 42.

(11) 35 Law J. Rep. (N.s.) C.P. 154 ; 8. c. Law take advantage of such conduct even with Rep. í C.P. 217. New SERIES, 41.-Q.B.

2 Q

it was


Gibb (12), The North Western Railway fore, the defendant guaranteed and proCompany v. Whinray (13), Offord v. mised the plaintiff to make good and Davies (14), Gordon v. Calvert (15).] be answerable to her for any loss, not ex

F. M. White in reply.—The question is ceeding 501., which she might at any whether there was an implied bargain time sustain through any breach by between the plaintiff and the defendant Smith of his duty during the continuance that if John Smith became dishonest to of such service, and it alleges a breach, the knowledge of the plaintiff, she, the in the usual form, that Smith failed to plaintiff, was bound to communicate the

pay over sums of money to the amount of fact to the defendant. The cases already 501., which he had collected on behalf of referred to shew that the surety is not the plaintiff. discharged by the mere concealment by In answer to this declaration, the dethe employer of the acts of the servant. fendant divides the time during which the The plea does not shew anything more service lasted, and during which the loss than a concealment of the fact. It is was sustained, into two periodssubmitted that that is no defence to the First, from the 8th of June, 1869, when action. (He also referred to Creichton v. the contract was made, to the 20th of Rankin (16), Mactaggart v. Watson (17), November, 1869; and, secondly, from the and Price v. Kirkham (18).]

last mentioned day to the 4th day of Cur. adv. vult.

April, 1871, when the service terminated.

As to the first period, the defendant The following judgments were de- admits his liability for loss incurred by livered on July 6.

the acts of the servant during that period, Quarn, J.-This is an action brought and he has paid 101. into Court, which he by the plaintiff on a contract whereby the alleges is sufficient to reimburse the plaindefendant guaranteed the honesty of one tiff for such loss. John Smith, a servant in the employ of As to the second period, he pleads a the plaintiff, to the extent of 501. The plea on equitable grounds, which is to contract is set out in the declaration, and this effect: that the servant had been recites the employment of Smith, and

guilty of defalcations in the course of his that it was his duty to collect money for service between the 8th of June and the the plaintiff, and account to her for all 20th of November, 1869, which the plainsums of money so collected, and that the

tiff had discovered on the latter day, and plaintiff had, before the giving of the that the plaintiff then, without commuguarantie, held in her hands a sum of

nicating such discovery to the defendant, money belonging to Smith, as a security and while the defendant was ignorant of for the proper performance by Smith of

the servant's dishonesty, agreed with the his duty, which sum the plaintiff had servant to continue him in her employ as agreed to pay back to Smith on before, and the servant on the other ceiving the defendant's guarantie. The hand agreeing to pay to the plaintiff 31. declaration then proceeds to allege that, a month on account of previous dein consideration that the plaintiff would falcations. The plea then alleges that pay over to Smith the money so held, the servant was continued in the plainand continue him in the service of the

tiff's service accordingly on those terms. plaintiff in the same capacity as be- And then the plea goes on to state that

the loss, in respect of which the plea is (12) 6 E. & B. 902; s. c. 26 Law J. Rep. (N.s.)

pleaded, was occasioned by acts of disQ.B. 41. (13) 10 Exch. Rep. 77; . c. 23 Law J. Rep.

honesty committed by the servant during (N.s.) Exch. 261.

the continuance of the service, as so (14) 12 Com. B. Rep. N.S. 748; 8. c. 31 Law agreed on, after the 20th of November, J. Rep. (N.s.) C.P. 319.

and between that time and the termination (16) 2 Sim. 258.

of the service, the defendant during that (16) 7 Cl. & F. 325, 346, 347. (17) 3 Cl. & F. 525.

time being wholly ignorant of the pre(18) 3 Hurl. & C. 437; 8. c. 34 Law J. Rop.

vious defalcations of the servant; and (N.s.) Exch. 35.

that, by reason of the plaintiff not giving


the defendant notice of such defalcations, agreeable to the doctrines of equity that he was prevented from revoking the no one should be permitted to take ad. guarantie.

vantage of such conduct even with a view To this plea the plaintiff has demurred, to security against future transactions of and the question argued before us was, the agent.” In the latter case, Lord whether the plea afforded a good defence Cottenham cites, with approbation, the to so much of the cause of action as it opinion of Lord Eldon in Smith v. The was pleaded to, viz., the loss occasioned Bank of Scotland (6), and Lord Campbell by the defalcations of the servant com- adds, "If the defenders had facts within mitted between the 20th of November and their knowledge which it was material the end of the service.

the sureties should be acquainted with, We are of opinion that the plea is good; and which the defenders did not disclose, we think that in a case of a continuing in my opinion the undue concealment of guarantie for the honesty of a servant, if those facts discharges the surety. the master discovers that the servant has We do not think that the principles of been guilty of acts of dishonesty in the law as laid down in these cases have course of the service, to which the been materially altered by the decision of guarantie relates, and if, instead of dis- the House of Lords in the subsequent missing the servant, as he may do at once case of Hamilton v. Watson (20), or by and without notice, he chooses to con- that of the Court of Exchequer in The tinue in his employ a dishonest servant,

North British Insurance Company v. Lloyd without the knowledge and consent of (8). In the former case, the principle the surety, express or implied, he cannot above mentioned was not denied, but the afterwards have recourse to the surety to question that arose was as to its appli. make good any loss which may arise from cation to the facts of that particular case, the dishonesty of the servant during the and Lord Campbell states that the subsequent service.

criterion for the necessity of voluntarily Suppose that the state of facts which disclosing any particular fact in cases of has arisen here in the course of the service, this kind may be,“ whether the fact not bad existed before, or at the time when communicated was one that could not the guarantie was given, in other words, naturally be expected to have taken place that the servant had previously com- between the parties to the transaction.” mitted defalcations in the plaintiff's service, In The North British Insurance Com. and had agreed to repay them at the rate pany v. Lloyd (8) the Court of Exof 31. a month, and that this fact had chequer held that the rule as to the effect been concealed by the master from the of concealment in Marine Insurance cases defendant when he gave the guarantie, did not apply to contracts of suretyship, it cannot, we think, be doubted that á and that, in the latter cases, the confraud would have been committed on the cealment must be fraudulent in order to surety, which would have relieved him avoid the contract. The majority of the from all liability on the contract. This, judges in the Exchequer Chamber held in we think, is established by the judgments " Lee v. Jones (7) that a concealment by of the House of Lords in Smith v. The the creditor that, at the time of the conBank of Scotland (6), and in Railton v. tract, the principal debtor was already Matthews (19). In the former case, Lord indebted to the creditor in a considerable Eldon says, “If a man found that his amount, of which the surety was ignorant, agent had betrayed his trust, that he was evidence to go to the jury of such a owed him a sum of money, or that it was fraud on the surety as would discharge likely he was in his debt; if, under such him from liability. circumstances, he required sureties for It depends (as observed by Black. his fidelity, holding him out as a trust- burn, J., in the case last cited) “ on the worthy person, knowing, or having ground nature of the transaction in each case, to believe, that he was not so, then it was whether the fact not disclosed is such,

(19) 10 Cl. & F. 934.

(20) 12 Cl. & F. 109.

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