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CHAPTER XVII.

OF THE CONTRACT OF PRINCIPAL AND SURETY.

SECTION I.-Contracts of Suretyship, and their attendant liabilities quoad third parties -Of the nature of the contract, and its authentication in law-Requisites of the written memorandum thereof-Disclosure of the consideration on the face of a simple contract of suretyship-Inadmissibility of oral evidence to supply the consideration-Construction of the contract-Extent and duration of the liability of the surety-Bonds to secure the faithful services of clerks, collectors, &c., in annual and permanent offices and employments-Termination of the employment by the death of the employer-Discharge of the surety-Bonds to secure the fidelity of clerks to firms in partnership, and the repayment of advances-Effect of changes in the firm-Continuing liabilities on bonds-Continuing guarantees-Avoidance of the contract by reason of fraud or concealment between the creditor and the principal-Discharge of the surety by the extinguishment of the primary obligation, or by giving time to the principal.

SECTION II.-Liability of the Principal to the Surety and of Co-sureties inter se.-Satisfaction of the principal debt or obligation by the surety — Indemnification of the surety by the principal-Liabilities of co-sureties inter se. Contribution between them to the common

liability.

SECTION I.

OF THE CONTRACT OF SURETYSHIP AND ITS ATTENDANT LIABILITIES

AS REGARDS THIRD PARTIES.

Nature of the contract.-The contract, or undertaking of a surety, is a contract by one person to be answerable for the payment of some debt, or the performance of some act, or duty, in case of the failure of another person, who is himself primarily responsible for the payment of such debt, or the performance of the act covenanted, or agreed to be done.

To the contract and engagement of suretyship it is essential that there be a principal or third party primarily liable, for there can be no accessary without a principal; (a) if, therefore, no contract has been entered

(a) L'obligation d'un fidéjusseur n'est autre chose qu'un simple accessoire a l'obligation du debiteur principal, laquelle a pour cause c'elle de

l'obligation du debiteur principal. Pothier, (OBLIGATIONS,) No. 446, 449. Instit. lib. 3, tit. 21, § 5.

into with the third party on whose account the covenantor or promisor professes to act as surety, no liability attaches to the latter, as he cannot be made primarily liable upon a contract by which he has expressly imposed upon himself only a secondary liability as surety.

From the terms and language of a contract, a doubt often arises as to whether the contract is the contract of a surety coming in aid only of a principal debtor or contractor, and undertaking a secondary liability upon the default of the principal, or whether it is the contract of a principal and sole contracting party stipulating for some benefit or advantage for a third party, who is not bound by the contract, and on whom no liability whatever attaches. When a man wishing to procure credit for his friend, writes a letter to a shopkeeper, requesting him to supply such friend with goods, saying, "If he does not pay you I will," the undertaking is the undertaking of a surety. If he says, "I will be answerable,' or 'I will see you paid,' the expressions are equivocal, and then we ought to look at the surrounding circumstances, to see what the contract really was." (b) If upon examination of those circumstances it should appear that the party to whom the goods have been furnished has been treated as the debtor and principal contracting party, if the credit has been given to him in the tradesman's books, and he has been applied to for payment, then the promisor can only be made liable as a surety in default of such debtor and principal contracting party.

Authentication of the contract.-According to the Roman civil law, the engagement of a surety could only be contracted by STIPULATION. By our own common law it might be contracted orally, but the legislature has thought fit to require the engagement to be authenticated by writing; and it has been enacted, as previously mentioned, by the fourth section of the Statute of Frauds, 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 by him lawfully authorized. The written memorandum must disclose either in express terms, or by necessary implication, the consideration or inducement for the making of the promise, as well as the promise itself.(c)

Construction of the contract.-Extent and duration of the liability of

(b) Bayley, B., ante, 100, 101, 147.
(c) Ante, 95, 106-118. Willington v.

Browne, 15 Law, J., N. s. (Q. B.) 23.

the surety.If the surety has bound himself by a penal obligation under seal for the performance of some contract, act, or duty, by his principal, the condition of the obligation is always restrained by the recitals; and where the time for which the surety is to be bound is marked out in the recitals, it cannot afterwards be extended by any general words. (d) If the recital sets forth the appointment of the party, on whose behalf the surety con sents to become bound, to some office or employment, and the condition of the bond is for the good conduct and faithful service of the party in such office or employment, the liability of the surety will be coextensive with the duration of the office; if the office is an annual office, the liability will not extend beyond the current year of office; if it is a fixed and permanent employment for the life of such party, the liability of the surety will continue during the whole of the life of the latter; if on the other hand the duration is uncertain, if it is holden at the will of the employer, or durante bene placito, the liability will be as indefinite and uncertain as the time of the employment. Moreover, if a bond be given to secure the faithful services of the principal in one office or employment, it will not extend to a different office or employment; and a surety who becomes responsible for the good conduct of his principal as a clerk, will not be bound for him if he is afterwards employed as "a manager." (e)

In an action upon a bond given by a surety to the post-master-general, to secure the faithful service of a deputy-post master, it appeared by the recitals of the bond, that the post-master-general had deputed Jenkins to be deputy-post-master" for the term of six months following," and the condition was, that Jenkins should, during all the time he continued deputy-post-master, faithfully and diligently perform and execute the duties of the office, and observe all such orders and instructions as the plaintiff, the post-master-general, should from time to time give or send to him; and it was held, that the words of the condition, "during all the time that he should continue deputy-post-master," were cut down and restricted by the words of the recital, which stated, that Jenkins had been appointed "to execute the said office for the term of six months next following;" and as it appeared from the record that the action had been brought against the defendant, the surety, in respect of a defalcation by the deputy after the expiration of the said six months, the court ruled. that the plaintiff was not entitled to recover.(ƒ) And Twysden, J. cited

a case between Horton and Day, where in an obligation it was recited, that

(d) Ellenborough, C. J., Sansom v. Bell, 2 Campb. 39.

(e) Anderson v. Thornton, 3 Ad. & E., N. s.,

276.

(f) Lord Arlington v. Meyricke, 2 Wms.; Saund. 411, a.

F F

a sheriff had appointed the defendant bailiff of a hundred within his county, and the condition of the obligation was, that the defendant should 'duly execute all warrants to him directed;' and it was adjudged that the words all warrants' should be intended to be only all warrants which were directed to the defendant as bailiff of the said hundred, and not other warrants.(g) And so here the words, during all the time,' shall be intended but only during the said six months recited in the condition." (h)

So again, where the obligation recited the appointment of a collector to collect certain revenues from time to time for twelve months, and the condition was, that he should, from time to time, and at all times thereafter during the continuance of such his employment, use due diligence in collecting and receiving all rents and sums of money which should annually grow due, and truly pay and account for the same, it was held, that the obligation was confined to the period of twelve months mentioned in the recital. () And although the recital of a bond, setting forth the appointment of the principal to a certain office or employment, does not state the nature or duration of the office, or in any way limit the period of the service, for the honest and faithful performance of which the surety binds himself; yet if the office is in point of fact an annual office, and there is a fresh deputation and appointment each year, the surety is only answerable for the execution of the duty for the current year. The consequence of giving to the condition a more enlarged construction would prolong the responsibility of the surety to an indefinite period, and probably for the whole life of the party for whom he has consented to become bound, whatever may have been the misconduct of the latter; and as there are no means at common law by which the surety can redeem himself from this interminable liability, the courts have wisely narrowed the construction of the condition to the actual term of the office or employment mentioned in the recital. "I do not mean to say," observes Bayley, J., " that a bond conditioned for a longer period would be absolutely void; but merely that there ought to be very strong words to show that clearly to be the intention." "A responsibility beyond the current year," further observes Lord Ellenborough, "would be of so grievous and burdensome a nature to the surety, that it requires to be established by clear and certain words." (k)

(g) See this case reported Al. 10; Sty. 18; and The African Company v. Mason, cited 1

Str. 227.

(k) Lord Arlington v. Meyricke, 2 Wms.

Saund. 411, a.

(i) Liverpool Water Works Company v. Atkinson, 6 East, 512.

(k) 2 B. & Ald. 439; 2 M. & S. 370.

It has accordingly been holden, that where the recital of a bond states that the principal" has been for some time past and still is collector of taxes" for a certain district, and the bond is conditioned for the due payment by him "at all times thereafter" to the receiver-general of taxes, of all sums of money that he should from time to time collect and receive from the inhabitants; and it appears that such collector is appointed for one year, and so on from year to year, his surety upon the bond is only answerable for him during the continuance of the single appointment under which he is acting at the time of the execution of the bond, and cannot be made. liable for his defalcations on his appointment in the ensuing year. (7)

But if the surety by express words plainly manifests an intention to be bound for the faithful service, and good conduct of the party, not only for the current year of office, but for all succeeding years under any fresh appointment, the obligation will of course continue in force as long as the obligee may think fit to continue the employment. Thus where a bond reciting the appointment of the principal to an office was conditioned for the due fulfilment by him of the duties thereof, "during such time as he shall continue in the said office, whether by virtue of his said appointment, or of any re-appointment thereto," it was holden that the obligation was not confined to the current year of office, but extended to all subsequent years, during which the party was continually reappointed. (m) And the surety may, by the terms of an express contract under seal, render himself responsible for past, present, and future receipts and payments, and preceding debts and defaults, as well as those that are to come, provided the intention of the parties to that effect be expressed with a precision not to be mistaken. (n) And if the duration of the office or employment to which the party is stated to have been appointed is indefinite and uncertain; if it is holden, or continues, durante bene placito, and there is nothing in the language of the recital or of the condition directly or indirectly limiting the period of liability, the extent and duration of the obligation of the surety are then as indefinite and uncertain as the period of employment, and will continue as long as the employment lasts, though it should be for the whole life of the principal or party employed.(o)

The civil and continental law enables the surety, when no time at all

(1) Wardens of St. Saviour's v. Bostock, 2 N. R. (5 B. & P.) 180. Hassell v. Long, 2 M. & S. 363. Peppin v. Cooper, 2 B. & Ald. 431. Leadley v. Evans, 9 Moore, 102. The offices of churchwardens and overseers are annual by statute, and the courts will take judicial notice of

the fact, ib. 107; Best, C. J.

(m) Augers v. Keen, 1 M. & W. 390. (n) Saunders v. Taylor, 9 B. & C. 35, 41. (0) Curling v. Chalklin, 3 M. & S. 509, 511. M Gahey v. Alston, 1 M. & W. 386.