" £2600. "London, 25th Novr. 1831. "On the 22d day of November 1832, we jointly and severally promise to pay Messrs. Martins and Stone, or order, two thousand six hundred pounds, with interest, and to pay the interest half yearly, for value received." On the back of the note the following memorandum was written, at the time it was made, and before it was executed, and read over to the Defendant:-" The within sum of 26007. is the same sum of money as is mentioned in an indenture dated the 25th November 1831, and made between E. Chambers, of the first part; George Chambers, of the second part; L. S. Coxe, of the third part; and Messrs. Martin and Stone, of the fourth part." The Defendant was surety in the note for Messrs. Core and Chambers, and became so at their request, made through G. Chambers, who communicated to him that the Plaintiffs were to lend to the firm of Coxe and Chambers 2600l.; but did not then, or at any other time, until long after the securities were executed, communicate the arrangement and agreement between the Plaintiffs and Core and Chambers, or that there was any arrangement or agreement amongst the parties, further than that the Plaintiffs were simply to lend the sum of 2600l. to Coxe and Chambers. Before the Defendant signed the promissory note, the recitals of the deed were read over to him; but the Plaintiffs did not, nor did their solicitor, nor did Coxe or Chambers, inform the Defendant before he signed such note, that any agreement existed respecting the application of the sum of 2600l., or of the deduction to be made thereout; or that Coxe and Chambers, or either of them, were indebted to the Plaintiffs: or that there had been any bonus received on the policy of 1838. STONE v. COMPTON. 1838. STONE V. COMPTON. insurance. Nor did the Defendant then or at any other time make any inquiries of the Plaintiffs, or of their solicitor, or of Coxe and Chambers, as to the state of the accounts between the Plaintiffs and Coxe and Chambers, or either of them, or as to the intended application of the loan, or as to any bonus having been received upon the policy of insurance. Coxe and Chambers had on the said 25th of November a small sum to their credit in their banking account with the Plaintiffs, and they did not overdraw that sum until the 29th of November, when they drew various checks, amounting together to a sum considerably more than the balance of their banking account; and on the same 29th of November, the Plaintiffs' firm credited Core and Chambers in their general banking account, and in their pass-book, as follows:- Cr. 29th November, cash lent, 26001. Dr. 1831. November 29th. By sundry loans and interest, 9287. 12s.; five days' interest allowed on 2600l., 11. 8s. 6d." This sum of 9287. 12s. was the amount of the different loans above mentioned, and the interest due thereon; and the accounts were afterwards continued between the parties in the same pass-book and general account. In January 1832 John Martin died. Coxe and Chambers paid the Plaintiffs' firm the in-terest on the 2600l. annually from the time of the advance till Christmas 1834, the amount of such interest having been from time to time charged and allowed in the accounts between Coxe and Chambers and the Plaintiffs, and stated in the usual pass-book. In July 1835 Coxe and Chambers stopped payment, and soon afterwards became bankrupts. On or about the 28th of July in that year, the Plaintiffs notified such stoppage to the Defendant, and reminded him of his liability on his note. After the bankruptcy of Core and Chambers, their assignees sold, by public auction, the two before-mentioned policies, which produced the sum of 871, viz. the policy for 500l. produced the sum of 367., and the policy for 1500%. produced 8357., which the Plaintiffs received: the Plaintiffs subsequently sold the leasehold premises which had been mortgaged to them, by private contract, for the sum of 2701.; and they also received a dividend under the bankruptcy of Core and Chambers on the debt of 2600l., of 3641. 7s. They gave the Defendant notice of such intended sales, and also of the sums which were realised. The sums still due to the Plaintiffs on the note amounted to 1300l. 10s. 7d. with interest, to recover which this action was brought. The Court were to be at liberty to draw any inference which a jury might have drawn. The question for the opinion of the Court was, Whether the Plaintiffs were entitled to recover any and what sum; and the verdict was to be entered on the separate issues for Plaintiffs or Defendant accordingly, or a nonsuit might be entered, as the Court should direct. The case was argued by Wilde Serjt. for the Plaintiffs, and Sir W. W. Follett for the Defendant. It will be convenient to begin with the argument for the Defendant. It was contended that if the situation of the surety be, by the act of the creditor, materially varied from what he was led to expect upon entering into the security, he is absolved from his engagement whether the altered circumstances occasion a detriment to him or not; for his engagement is entered into upon the representations made to him, and if in those representations 1838. STONE บ. COMPTON. 1838. STONE บ. COMPTON. there be falsehood or concealment, a fraud in law has been committed which avoids the security. In Peacock v. Bishop (a), it was agreed between the vendors and vendee of goods that the latter should pay 10s. per ton beyond the market price, which sum was to be applied in liquidation of an old debt due to one of the vendors. The payment of the goods was guaranteed by a third person, but the bargain between the parties was not communicated to the surety; and it was held that that was a fraud on the surety, and rendered the guaranty void. Bayley J. said, "It is the duty of a party, taking a guaranty, to put the surety in possession of all the facts likely to affect the degree of his responsibility; and if he neglect to do so, it is at his peril.”. -"Where by a composition deed the creditors agree to take a certain sum in full discharge of their respective debts, a secret agreement, by which the debtor stipulates with one of the creditors to pay him a larger sum, is void, upon the ground that that agreement is a fraud upon the rest of the creditors. So that a contract which is a fraud upon a third person may, on that account, be void as between the parties to it. Here the contract to guarantee is void, because a fact materially affecting the nature of the obligation created by the contract was not communicated to the surety." Holroyd J. "The contract of the surety is not binding upon him, by reason of the Plaintiffs not having communicated to the surety a secret bargain previously made by him with the vendee of the goods. The effect of that bargain was to divert a portion of the funds of the vendee from being applied to discharge the debt which he was about to contract with the Plaintiffs, and to render the vendee less able to pay for the iron supplied to him."-"The Plaintiff and Defendant therefore were not on equal terms. The (a) 3 B. & C. 605. former, with the knowledge of a fact which necessarily must have the effect of increasing the responsibility of the surety, without communicating the fact to him, suffers him to give the guaranty. That was a fraud upon the Defendant, and vitiates the contract." Littledale J. “I think that a surety ought to be acquainted with the whole contract entered into with his principal." Jackson v. Duchaire (a), Mayhew v. Crickett (b), and Glyn v. Hertel (c) proceeded on the same principle. See Harrison's Index, 885. Here, the Defendant was led to suppose that the whole of the 2600l. would be applied to the use of the firm of Coxe and Chambers; he was not apprised of the deduction of 9001. for a previous debt: to that extent, and at all events to the extent of the 6007. (part of the 9007.) which was deducted for the private debt of Core, the firm was less able to meet the demands of their creditors than the surety had reason to expect. He was also deceived as to the value of the 1500l. policy assigned to the Plaintiffs as a collateral security. The deed of November 1835, reciting that the 800l. lent to Coxe on the security of that policy had been repaid, the surety was led to suppose that the entire policy, with all its accumulations, would be available to the Plaintiffs in reduction of any demand against the surety whereas the Plaintiffs held the policy minus the bonus of 7147. which had been paid to Coxe. The Defendant, therefore, having been kept in ignorance as to the real amount of the loan to Coxe and Chambers, and having been misled as to the value of the security in the Plaintiffs' hands, there was fraud in law sufficient to establish the first plea, and avoid the promissory note. For the Plaintiffs it was argued, that the question upon this record was, not as to the incidents of a (c) 8 Taunt. 208. (a) 3 T. R. 551. 1838. STONE บ. COMPTON. 1 |