of the surety, discharges him: McTaggart v. Watson, 3 1901. Cl. & F. 525; Watts v. Shuttleworth, 5 H. & N, 235, 7 Judgment. H. & N. 353; Calvert v. London Docks Co., 2 Keen, 638; KILLAM, C. J. Owen v. Homan, supra; Small v. Currie, 5 D. M. & G. 141; Blest v. Brown, supra.

Where the contract of suretyship is entered into in consideration of an agreement by the employer with the surety to perform some act material to the protection of the surety, performance of this agreement is a condition of the liability of the surety: Watts v. Shuttleworth, supra; Watson v. Alcock, 4 D. M. & G. 242, 22 L. J. Ch. 858; Lawrence v. Walmsley, 12 C. B. N. S. 799.

Otherwise, the mere passive inactivity of the employer, his neglect to examine or check the employee's accounts or to enforce payment by him, does not discharge the surety; there must be some positive act done by the employer to the prejudice of the surety, or such degree of negligence as to imply connivance and amount to fraud: McTaggart v. Watson, 3 Cl. & F. 525; Creighton v. Rankin, 7 Cl. & F. 325; Dawson v. Lawes, Kay, 280; Black v. The Ottoman Bank, 15 Moore P. C. 472.

Benham v. The United Guarantee and Life Ass. Co., 7 Ex. 744, was an action at law upon a policy of guarantee in favor of the treasurer of a literary institute, agreeing to reimburse the treasurer for any loss to be sustained through want of honesty of the secretary of the institute. The declaration alleged that the policy recited that, as a basis of the contract of guarantee, the plaintiff had lodged at the defendant's office a certain statement or document in writing, described as Employer's Guarantee Proposal, containing, among other things, a declaration, signed by the plaintiff, of the truth of the answers thereby given to the questions therein contained, and that the policy witnessed that, relying on the truth of the declaration contained in said statement or document, the deferdants agreed, &c. It was also alleged that, by the

1901. terms of the policy, it was to be subject to the rules of the Judgment. company, one of which was that " Any fraudulent misKILLAM, C.J. Statement or suppression in any declaration in consequence

of which a policy of guarantee is granted by the company renders such policy void from the beginning." One of the questions was, "The checks which will be used to secure accuracy in his accounts, and when and how often will they be balanced and closed?" The answer was, "Examined by finance committee every fortnight." The declaration alleged the truth of all the answers. There was a plea setting up the answer which I have stated, and alleging that the finance committee had neglected for twenty-six fortnights to examine the accounts. On demurrer, the plea was held bad. By analogy to statements on which policies of insurance are issued, the Court considered that the answers in such a collateral document were representations and not warranties.

In Towle v. The National Guardian Assurance Society, 3 Giff. 42, 30 L. J. Ch. 900, a policy of guarantee for a collector of taxes had been issued after another officer of the employing body had stated, in answer to questions proposed by the company, that the largest sum to be held by the collector would be from £100 to £200 not longer than a week, and that the collector's accounts were checked weekly by the surveyor of taxes and the balance then agreed on would be paid over. The policy contained a condition that misrepresentation, whether from false statement or suppression of truth or any other cause, in consequence of which the policy was granted, would render the policy void from the beginning.

Sir John Stuart, V. C., held that the answers were merely representations by a third party, and not warranties, and, considering them as given bona fide, and to indicate merely the intention when they were given, he held the policy binding. On appeal, Sir J. L. Knight Bruce, L. J., considered the policy void, both because the an

swers were not true when made and also because the 1901. course of business indicated by them was subsequently Judgment.. disregarded. Sir Geo. Turner, L. J., agreed with him as KILLAM, C.J. to the answers being untrue, but expressed no opinion as

to the effect of the neglect to comply with them subsequently.

In the case of The Harbour Commissioners of Montreal v. The Guarantee Co. of North America, 22 S. C. R. 542, it was held that the neglect of the employing body to examine and check the accounts of the employee as indicated in the answers to preliminary questions discharged the surety from liability. It appears more particularly from the report of the case in the lower Court, Q. R. 2 Q. B. 6, that the policies were subject to special conditions requiring the business to be conducted as the answers indicated. The present case differs from all of these. In Benham v. The United, &c., Co., there was merely a demurrer to a plea at law. No equitable principle was involved. The Court was oppressed by the idea that to hold that the answers amounted to warranties would require the application of the doctrine of the insurance cases, under which the warranties must be strictly and absolutely complied with. The company's rule, incorporated in the policy, applied, in its terms, to a fraudulent mis-statement or suppression only. Having to ascertain the intention of the parties and not to apply any equitable principles arising out of their relations - the Court might well hold as it did.

In Towle v. The National, &c., Society, Sir John Stuart followed the Benham case in holding the answers to be representations, and not warranties. He considered them to be but representations made by a third party, and not by the employers; they were, therefore, in his view, not a part of the contract or of the consideration.

On the other hand, the Montreal Harbour Commissioners' case turned on express provisions not found in the

1901.

The

policy now in question. Here the proposal was signed in Judgment. the name of the Company by its manager. In accepting KILLAM, C.J. and suing upon the policy, the Company acknowledges the manager's authority to make the proposal for it. policy was granted in consideration, partly, of the statements, representations and agreements contained in the proposal, which was declared to be a part of the agree

ment.

The questions and answers may be divided into three classes, as relating to (1) Existing facts, (2) Young's future duties, (3) Company's future course.

Mis-statements and omissions of existing facts are specifically dealt with in an express condition. So, also, is a change of employment having the effect of making the actual facts differ from the written proposal. It may be possible to treat the expression "change of employment" as covering a change in the duties of the employee, not involving his employment in a different capacity or an alteration in his contract with the Company. Even so, the Company cannot be treated as having contracted for his strict performance of his duties. The utmost obligation that could be laid upon the Company, whether by virtue of contract or in equity, would be that it should not expressly or by tacit concurrence assent to an alteration in the duties set out in the proposal. I doubt if even knowledge and passive endurance of his breach of those duties, not evidencing such concurrence therein as to effect an alteration and not amounting to notice of an act of fraud or dishonesty, would relieve the surety.

But when we come to the course indicated as that to be followed by the Company, it seems to me to be but an inadequate protection of the surety if the Court holds that the proposal indicated only the intentions of the Company and its officers at the time of making the proposal. Whether we are or are not to construe the incorporation of the proposal in the policy as constituting a

1901.

warranty by the Company that it will adhere to the course indicated by the answers, it appears to me that, upon Judgment. principles of equity, the surety should be considered as KILLAM,C.J. discharged by a departure from that course materially contributing to a loss insured against. Such a case would seem to come within the principle of Lawrence v. Walmesley, 12 C. B. N. S. 799. A failure to use the checks and safeguards set out as intended to be used would seem as injurious as parting with a more definite security. I am strengthened in this opinion by the view which Lord Justice Knight Bruce took of Towle v. The National, &c., Society.

Having indicated these opinions, I turn back to the second condition respecting proofs of loss. That required "all reasonable verification of the statements" in the proposal and of "the compliance therewith." The particulars in proof of loss were to include such verification, and were to be "verified by affidavit if required by the Corporation." Several questions seem to arise upon the interpretation of this provision. It appears to me that the latter portion, "if required by the Corporation," relates only to the affidavit. Some verification of the statements in the proposal and of the compliance therewith is absolutely required.

Then there is the question whether the second condition as to proofs is separate or is a modification of the first, so as to require that specific evidence as part of the evidence of the "cause " of the loss or of the "correctness of the claim." This is a material question since the latter construction would require not only such verification as the Court considers reasonable, but such as satisfies the Corporation.

I incline to the view that it should be considered as separate and independent, requiring something additional. It is to be "all reasonable verification; " that is all that it is in fact reasonable to require. Proof to the satisfaction