PART VIII.

CONTRACTS OF SURETISHIP.

CHAPTER I.

GENERAL RULES APPLICABLE TO THE CONTRACT OF SURETY.

SECT. 1.-Nature and Constitution.

CAUTIONARY obligations were invented for the purpose of enabling one man to be responsible that another shall fulfil a certain obligation, and so of giving the person entitled to demand fulfilment of it a better chance of its being performed. Where the obligation is for the payment of money, the cautioner generally takes on himself the literal performance if the original creditor should fail; where the obligation is to perform or not to perform a certain act, the cautionary obligation can only be accomplished by the stipulation on the part of the cautioner to pay a certain penalty, in the case of breach of agreement on the part of the original party. In England the latter species of obligation is accomplished by the surety granting a bond under seal for a specific sum, the obligation becoming void if the principal party shall perform certain stipulations.

In Scotland cautionary obligations of every description may be accomplished by writings, which must be executed according to the statutory formalities, unless the subject-matter make them privileged. (See above, p. 140.) In England all obligations "to answer for the debt, default, or miscarriage of another person," come within the statute of frauds, and must be in writing. It is stated as a general rule of law in Scotland, that cautionary obligations must be in writing.3 In

1 Br. St. 924.- 29 C. II. c. 3, § 4.—3 B. P. 249.

both parts of the empire, however, there has been a series of exceptions, chiefly in those cases where credit has been given in virtue of parole representation, and the practice has been carried somewhat farther in Scotland than in England. (See below, p. 219.)

A cautionary obligation is merely an accessory to a principal obligation, which it cannot exceed in extent though it may fall short of it. Where there is no principal debtor there can be no cautioner. The cautionary obligation, however, may exist where legal defences can be pleaded against the original obligation, e. g. that it is not properly attested, that it is granted by a minor without consent of his curators, &c.2 Indeed, some defence pleadable by the original obligant may have constituted the reason why a cautionary obligation is had recourse to.

A proper cautionary obligation does not exist as a deed immediately exigible against the cautioner until the original debtor has failed in performance. To increase the facilities on the part of the creditor, however, it is not unusual for the cautioner to appear on the face of the obligation as a primary obligant, and if he do so, he will stand precisely in that position as regards the creditor, while in all questions between himself and the original debtor, or between himself and a co-cautioner aware of the arrangement, he will be in the position of an ordinary surety. In such a case the cautioner has the benefit of relief, but not of discussion.3 (See next Section.)

SECT. 2.-Liabilities and Privileges of Sureties.

Discussion-An ordinary cautioner has the benefit of discussion, or a right to see it established that the original debtor will not perform the obligation before he can himself be called on to fulfil it. It is not sufficient that the creditor have called on the debtor to pay, he must have made a judicial demand. It is not however necessary that the demand should be enforced by execution against the debtor's person or goods. It would appear to be sufficient that an execution of charge have been registered under the new form. (See Index, Diligence.) Discussion will be considered as having taken place if the principal debtor has left the country, leaving no effects behind him, or has become bankrupt.5

E. iii. 3, 64. Ross v. Greig, 11th Feb. 1834.-2 E. iii. 3, 64.—3 Ibid.— 4 E. iii. 3, 61.—5 B. P. 253.

If the creditor has any security over the property of the principal debtor by bond, pledge, retention, or compensation, the cautioner can insist on its being made use of before he himself is compelled to perform the obligation, or on its being conveyed to him if he consent to pay. But to make the cautioner's right to benefit by the security undoubted, 1st, It must be applicable only to the same obligation which the cautioner has undertaken; or, 2d, There must be no debt which it can be employed in the liquidation of. If the security is general, and there are other debts between the parties, the creditor will, in the ordinary case, be entitled to apply the security to those debts for which the cautioner is not bound. In the case of heritable securities, however, which the subjects are insufficient to liquidate, it has been found that when there is a cautioner to the earlier security, and a subsequent security is transacted between the same parties, the creditor is not entitled to prefer the subsequent security, so as to throw the payment of the previous one on the cautioner, and that the cautioner, if he have paid the debt, is entitled to an assignation to the preferable security.2

Relief. If the cautioner pays the debt, he is placed in the situation of creditor to the original debtor. His right to indemnification is termed right to Relief. It commences when he is judicially called on to pay the debt.3 The cautioner has a claim of relief for all expenses incurred in relation to the satisfaction of the claim, but not those to which he may have himself given rise, as by negligence or injudicious litigation. Where the cautioner had paid up the cash-credit of a firm of which his son was a member, he was found to have no relief against another partner, as the drafts were made by the son to pay his own individual debts to the father.5 "When a cautioner is distressed by an action, he ought to intimate this to the principal debtor, that he may state or suggest the proper defence; and if the cautioner should neglect to do so, and should omit the proper defence, he cannot claim relief from the debtor."6

When there is more than one cautioner, each may be ultimately liable for the whole, unless a particular amount of liability be specially reserved for some of them. But each has, 1st, The benefit of division, by which, if his co-cautioners are solvent, he can insist on their paying their respective

B. C. i. 348.-2 Sligo v. Menzies, 18th July 1840. M. St. cxiii.Ibid. cxiv.- Erskine v. Cormack, 5th July 1842.-6 M. St. cxiv.

shares; and, 2d, If he pay the debt, he has a claim to be reimbursed by his co-cautioners to the extent of their respective shares. A co-cautioner having paid his own share, and being threatened with diligence for the remainder, may raise action against his colleagues to pay their shares; and it would appear that if he be threatened with diligence for the whole debt, though he have not paid his own share, he may bring an action for relief.1

A co-cautioner must communicate to his colleague the benefit of any deduction that may have been made, or of any security he may hold over the debtor's estate, though there may be cases in which it is doubtful whether a cautioner, favoured, from peculiar circumstances, with a security without which he would not have consented to become bound, ought to communicate it.2 Where cautioners are bound, not generally for the debt, but each for a separate portion of it, no one of them is obliged to communicate any security or relief which he may obtain.3

The general case in which cautioners are called upon, is when the principal has become insolvent, while it not unfrequently happens that one cautioner or more may be in the same position. The various arrangements to which such circumstances give rise will be considered under the subject of Bankruptcy.

SECT. 3.-Discharge of Surety.

When the debt for which a cautioner has become bound is paid, from whatever source, the cautioner is discharged. The creditor may discharge him either by discharging the principal debtor, or by resigning the additional security which he holds through the cautioner, in which latter case the principal party will continue bound, while the cautioner will be relieved. By the principal party compounding the debt the cautioner is relieved, and it is a general rule that the same will be the result of " a composition-contract voluntarily entered into with him [the debtor] by the creditor without the consent of the cautioner." "15 A statutory composition-contract, in terms of the sequestration laws," will not release the cautioner, whether it have or have not been acceded to by the creditor.6

Low v. Farquharson, 8th Feb. 1831; but see Alston v. Denniston, 2d Dec. 1828. B. C. i. 349. M. St. cxv.-3 M. St. cxv. Lawrie v. Stewart, 6th June 1823.- E. iii. 3, 66.5 Br. St. 945.-* See Index, Composition-contract. Br. St. 945.

The cautioner may be discharged indirectly by the act of the creditor, as in the case of his giving the principal debtor time beyond what is stipulated, or what is reasonable. What is reasonable time is of course a matter of circumstances. A person having agreed by letter to see a debt paid, provided diligence were not done till a certain day, and a delay of three weeks from that day being granted to the debtor without the writer of the letter being consulted, he was found not liable.1 Where one had guaranteed the price of whatever flour a person should purchase within three months, flour having been purchased immediately, and the purchaser's bill given at three months, after which period he was allowed to renew his bill, the cautioner was still found liable. The cautioner may, however, neutralize the effect of giving time, by its being in conformity with his own wish or consent. A cautioner on a bill at four months, who on its dishonour wished it to be renewed, and said he understood "the money was to be allowed to lie for a considerable time," was found debarred from the plea of giving time, protest being recorded five months after the lapse of the term of payment, and diligence being proceeded in four months thereafter. It has to be observed that there is a considerable difference between delaying to apply and giving time beyond what the security has stipulated for. The former is a neglect by the creditor of the mutual interest of himself and the cautioner, in consequence of which the surety would probably be released if it have been gross and unbusiness-like in its extent. In the latter case, however, the creditor substitutes a different contract for that which was guaranteed by the cautioner, and therefore it is said that the surety is released if time, however short, be given. The rule as now settled by the House of Lords is, "That if a creditor without the consent of the surety give time to the principal debtor, by so doing he discharges the surety, that is, if time be given by virtue of positive contract between the creditor and principal-not where the creditor is merely inactive."5 Extreme negligence. of any kind on the part of the creditor in making good his right, such as his giving up funds over which he has a right of retention, relinquishing any security which he may have over the debtor's estate, &c., neglect to keep a proper watch over the proceedings of the debtor if the security be for his

1

Farquharson v. Hutchison, 6th June 1826.-2 Cook v. Moffat, 7th June 1827.-3 Todd v. Davidson, 3d June 1828.- Br. St. 933.- Creichton v. Rankin, 26th May 1840. 1 R. 99.