SECTION 33. ALTERATION DOES NOT ALWAYS DIS CHARGE THE SURETY. Not every alteration of, or addition to, a written instrument operates to release the surety. The Indiana Court has held, that in a case where a guarantor executed an instrument reading: "We hereby guarantee," upon the understanding that other guarantors were to be secured; which understanding was not fulfilled, and the instrument was altered before the delivery of the same was made to read: "I hereby guarantee," the alteration itself was held not to be material.28 The Maine Court has held that the rule that the surety is discharged by the alteration of the contract would not apply where the attesting witness saw the note signed, and afterward without the maker's consent, and at the request of the payee, witnessed it, no intent to defraud being shown.20 A surety cannot claim a discharge where he ratifies the alteration, or where after he learns of the alteration he procures an extension of time of payment of the obligation.30 So a surety may consent in advance to the alteration, and the consent would take away his right to claim the release on account of the after effected change. SECTION 34. THE CREDITOR'S FRAUD. If the creditor makes a false representation of fact concerning his contract relation with the debtor, which materially affects the transaction had with the surety, and it is the inducement of the surety's contract, or deceives the surety as to the extent of the contract liability he is assuming, it is a fraud on the surety, and the surety as a general rule is not bound on the obligation he has so undertaken.31 Kline vs. Redmond, 70 Ind., 271. "Milberry vs. Stover, 75 Me., 69. * Bell vs. Mahin, 69 Iowa, 408. "Armstrong vs. Cook, 30 Ind., 22. A surety may claim a discharge, by showing that he made his contract with the creditor on condition that another surety be procured, and that the condition of his signing was not complied with.32 While the fraud of the creditor will usually discharge the surety, the fraud of the principal debtor on the surety will not discharge the surety on his contract with the creditor, unless the creditor participates in the fraud, or was, in some way, concerned in the perpetuation of the fraud or had a knowledge of the same. Where the obligee is without notice, however, the surety cannot interpose the principal's fraud as a defense to his contract. 33 The surety may as well avail himself of the fraud perpetrated on his principal as on himself, where he becomes the surety or guarantor of the debt, that was induced by a fraud perpetrated on the principal debtor, as defenses that are inherent in a thing cannot be wiped out by the obligee obtaining a surety for the obligation; the defense of fraud is therefore available to the surety in such a case.34 The rule as to whether concealment of a certain fact by the creditor from the surety will amount to fraud, has been stated in substance as follows: in order that a failure to communicate a fact to the surety in respect to the subject matter of the proposed contract should have the effect of fraud upon him, and vitiate the contract, it must be a fact which necessarily must have the effect of increasing the responsibility of the surety, or operating to the prejudice of his interest.35 Concealment or failure to disclose has been held to be fraudulent, only when the duty rests on the "Bellville Savings Bank vs. Borne man, 124 III., 200; Crawford 33 Ladd vs. Board of Trustees, 80 Ill., 233. "Putman vs. Schuyler, 4 Hun., 166. 35 Comstock vs. Gage, 91 Ill., 328. person having the knowledge of the facts to disclose them.36 The case of Warren vs. Brand decided by the West Virginia Court" gives a general review of the authorities as to when concealment of a fact by the creditor from the surety is to be regarded as a fraud on the surety. They say in conclusion, in part: "Our conclusion is that unless inquired of by the surety, a creditor is under no obligation to disclose the facts in no manner connected with the business which is the subject of the suretyship, though such facts would probably have a decided influence on the surety in entering into, or declining to enter into, his contract of suretyship. As, for example, in the taking of a bond of a cashier, the fact that the cashier gambled largely might, and probably would, influence a surety in going on the bond, yet such fact not being in any manner connected with the contract that he would faithfully perform his duties as cashier, the directors are under no obligations to volunteer a disclosure of this fact to the surety. If a material fact connected with the contract of suretyship, which might influence the surety in entering into the contract, is fraudulently concealed with a view to benefit the creditor, such concealment, though no inquiry is made by the surety, would vitiate the contract of suretyship and discharge the surety." Where the surety's bond is given for the faithful performance of the duties of a person in the employ of the obligee, and the principal has been found by the obligee to be dishonest in his work, and he continues the dishonest servant in his employ without giving notice to the surety, he cannot hold the surety liable Domestic Sewing Machine Co. 7 15 W. Va., 21. vs. Jackson, 15 B. J. Lea., 418. for subsequent losses he may meet with, by reason of the subsequent defaults of the servant.38 SECTION 35. RIGHTS AND REMEDIES OF A SURETY AGAINST THE CREDITOR. What is said under this heading might be included in a discussion of defenses that are available to the surety on his contract with the creditor. As additional defenses it may be mentioned, first, the right of a surety to claim the right of set-off available to the principal, in a suit brought against the principal by the creditor. As to the right of the surety to so plead a set-off that exists in favor of his principal, as against the creditor, there is a conflict of opinion, but it is generally held that the defense is available." In reason, it seems that at least where the principal and surety are both parties to the suit there could be no valid objection to the surety insisting on the right to so claim the benefits and defense of the principal's set-off. Where, however, the principal was not a party to the suit, it is claimed that he, the principal, stands to suffer a loss for more than the surety was liable for on his, the principal's, right to bring a separate suit against the creditor on the matter claimed and set-off, and that this right would be lost by the surety setting it up as his defense to his liability to the creditor. A further right given by the courts to a surety is the right to compel the creditor to proceed to collect the debt from the surety, provided the proper indemnity bond is given to protect the creditor. This right of the surety is usually claimed by him by filing a bill in chancery, with the object as stated in view.40 Though Sanderson vs. Aston Law Rep., 8 Exch., 73. "Himrod vs. Baugh, 85 Ill., 435; Becker vs. Northway, 44 Minn., 61. 40 Hays vs. Ward, 4 Johns Ch., 123. these are in the minority, some authorities hold that the surety after the debt has matured, by making to the creditor an express request to sue the principal, if the principal is still solvent, may relieve himself from liability, if the creditor does not sue, and the principal subsequently becomes insolvent." Sometimes a formula such as the above is prescribed by statute; a compliance with the statutory provision would then release the surety, where the creditor fails to act, and the financial condition of the principal is thereafter altered. The majority of the courts have failed to follow this so-called equitable rule where they have no corresponding statutory regulation, though it has been approved by many states, by legislative enactment, and it may be considered at any rate a reasonable and equitable rule of law, where in force. It is a further general rule of law, in this connection, that the surety may claim a discharge, if the creditor leads him to believe that the principal's debt is paid, and it is not, and the surety is injured thereby by releasing securities held by him, or by failing to take the proper steps to protect himself, that he might have taken, except for the representation of the creditor."" SECTION 36. RIGHTS AND REMEDIES OF SURETY AGAINST THE PRINCIPAL. If the principal debtor defaults on his contract, thereby making the surety liable, and the surety makes payment of the debt that he is so bound to pay, the law gives the surety, immediately on his payment of the debt, a right of action over against the principal for the amount of money he has so paid out." " King vs. Baldwin, 17 Johns, 384. "Rowley vs. Jewett, 56 Iowa, 492; Baker vs. Briggs, 8 Pick., 122. "Campbell vs. Rotering, 42 Minn.. 115. |