An abandonment of a lease by agreement between lessor and lessee will not discharge the guarantor of the lessee for rent due prior to the agreement. The executed portion of the lease is unaffected. While the letter of the rule is violated, the guarantor's defense is equitable; and where there is no alteration of his original contract, the court will apply the spirit of the rule.49 Any alteration by separate indorsement on the note, made by the principal or payee prior to its delivery or contemporaneous

therewith, will cause the discharge of the surety, even though the change is for his benefit, as by indorsing thereon a fictitious credit on the instrument.50 It is possible to distinguish this situation, where the change is prior to the delivery of the instrument, from one made subsequent to the delivery, since delivery is necessary to a contract. In the first, the payee did not accept the instrument as signed; in the latter case, the instrument was accepted, but its terms were varied.

There is a tendency to hold the surety in spite of the failure of the obligee to perform completely, without any agreement between him and the principal, if no injury resulted. This is noticeable in the case of bonds guaranteeing building contracts. The writer of one opinion thus expressed the view:

"Building contracts are to receive a reasonable construction, and, where modifications are provided for and are made, or where there are slight deviations from the plans and specifications, such modifications or deviations will not ordinarily avoid the contract and discharge the sureties on the bond. The sureties on a contractor's bond do not stand in the same relation to the principal contract as do the sureties upon a note or bond which itself constitutes the entire agreement between the parties. Their liability depends upon the undertaking and the conditions stated in the bond, and in that respect it is to be strictly construed. But where they ask to be discharged from liability because of some violation of or departure from the terms of the principal contract, they must, if they would succeed, show that they have sustained some damage by such breach, and then they are entitled to be discharged only pro tanto, or to the extent of the injury sustained. Therefore, if the appellant failed to insure the property for the benefit of the contractor, as the contract required, yet, if the building or materials were not injured or destroyed by fire, the sureties suffered no injury, and are entitled to no relief." 51

50 Johnston, Receiver v. May et al. (1881) 76 Ind. 293.

51 Schreiber et al. v. Worm (1904) 164 Ind. 7, 72 N. E. 852, 854. Where injury resulted from the failure of the obligee to insure as agreed, even though the insurance which the obligee agreed to procure

would be less than the entire loss, the surety is discharged entirely, the same as if time had been given the principal. Watts v. Shuttleworth (1861) 5 Hurlstone & Norman 235, 157 Eng. Reprint 1171.

It was observed in Smith v. Molleson (1896) 148 N. Y. 241, 42

Certainly if a collateral agreement between principal and obligee for changing terms agreed upon will not release the surety, deviations which are acquiesced in, but not agreed to, will not affect the liability of the guarantor.52 Neither will an agreement to vary, contemplated by the original undertaking, such as are frequently provided for in building contracts, release the surety.53

§ 116. Where the principal is a partnership. A partnership may be the principal. But a surety for a partnership will be bound only so long as the members of the firm are the same as when he signed the undertaking. His obligation is strictissimi juris, and the retirement of any member of the firm, or the addition of a new member, without the surety's consent, will relieve him from further liability.

"A party may be induced to become surety for the individuals who compose a firm, because of his confidence in their integrity, prudence, accuracy, and ability as business men, but he cannot be presumed to have intended to become responsible for the possession of such qualities by some third person, who may be afterwards taken into the firm without his knowledge or consent. It is often in the power of one partner, by want of discretion or integrity, to ruin another." 54

For the same reasons, the guarantor of an individual principal is discharged when he joins with a real or ostensible partner, even though his duties be the same.55

N. E. 669, 672, that: "We are not dealing, now, with any actual change in the terms of the contract, but with acts or omissions of the plaintiff in the performance, which, in order to operate to release the surety, must be of such a character that it can be said that her position was changed to her prejudice.'' See also Prescott National Bank v. Head (1907) 11 Ariz. 213, 90 Pac. 328, 21 Ann. Cas. 990; Grant v. Smith (1871) 46 N. Y. 93.

52 Henricus et al. V. Englert (1892) 63 Hun. 625, 17 N. Y. S. 235, 236.

58 Hohn et al. v. Shideler (1904) 164 Ind. 242, 72 N. E. 575; Consaul et al. v. Sheldon (1892) 35 Neb. 247, 52 N. W. 1104; De Mattos v. Jordan et al. (1896) 15 Wash. 378, 46 Pac. 402.

54 Dupee v. Blake (1893) 148 Ill. 453, 35 N. E. 867. Accord: Dry v. Davy (1839) 10 Adolphus & Ellis 30, 37 Eng. C. L. Rep. 41, 113 Eng. Rep. Reprint 12; Lamm and Co. v. Colcord (1908) 22 Okla. 493, 98 Pac. 355, 19 L. R. A. (N. S.) 901.

55 Connecticut Mutual Life Insurance Co. v. Scott (1884) 81 Ky. 540.

§ 117. Duty of the obligee to disclose material facts arising after the surety becomes bound. As already stated, the obligee who fails to disclose to the surety material facts concerning the principal before he assumes any responsibility, commits a fraud on the surety which releases him.56 It has been recognized generally, both in the United States and England, that in the case of a continuing guaranty, such as is assumed by the guarantor for the fidelity of an employee, the duty of the creditor to disclose material facts concerning the principal's employment, is equally continuing. Therefore any fact which, had it existed when the surety signed the bond, should have been communicated, the obligee is under a duty to disclose to the surety if it becomes known during the continuance of the employment. Failure to communicate such material information to the guarantor will not affect his liability for the principal's defaults occurring prior to the acquisition of the knowledge by the obligee; but, if the employer has the power to discharge the prinpal, and continues him in employ, the surety will be relieved from liability for subsequent defaults. Equity and fair dealing require that if the master chooses to continue in his employ a servant known to be dishonest, without the assent of the surety, the former should assume the risk of loss from any future dishonesty.57

L. R. 7 Q. B. 666. Accord: Saint et al. v. Wheeler (1891) 95 Ala. 362, 10 So. 539, 36 A. S. R. 210; Estate of Rapp v. Phoenix Insurance Co. (1885) 113 Ill. 390, 402, 55 Am. Rep. 427; Aetna Insurance Co. v. Fowler et al. (1896) 108 Mich. 557, 66 N. W. 470.

After quoting the above from Phillips v. Foxall, the South Carolina Supreme Court in Wilmington, Columbia and Augusta R. R. Co. v. Ling (1882) 18 S. C. 116, 122, said: "But there is a broad distinction between a case of that kind and a case where it simply appears that the agent is behind in his accounts. Knowledge on the part of the employer of dishonesty and corruption

To constitute a defense to the guarantor, however, it should be averred clearly that the default was caused by the dishonest conduct of the principal or in violation of the express provisions of the undertaking. Mere mistake, negligence, or incapacity of the employee causing the loss do not impose a duty on the obligee to discharge him or notify the guarantor.58 The creditor owes the guarantor no active duty to guard against the consequences of the principal's dishonesty, unless he contracts to do so, for example, by requiring from him periodical reports.59 The averment by the guarantor that the obligee did not exercise care in supervising the principal or examining his accounts, in the absence of a definite undertaking to do so, is not good as a defense.60 No active duty rests upon a corporation, which is the obligee, to examine the principal's accounts, although its own by-laws require such an examination, unless it has stipulated with the surety that it would do so.61 If the surety already

in his agent, without disclosure, would amount to a fraudulent concealment, but a falling behind in current accounts by an agent is not always the result of dishonesty. We do not think that simply the failure on the part of the employer to give notice to the sureties that the agent is behind in his accounts at the time he executes the bond, or that he has fallen behind since the execution of the bond, is such a fraudulent concealment of material facts as, in itself, without more, should discharge the sureties. These facts might properly go to the jury with other facts bearing upon the question of fraudulent concealment and have such weight as would be proper, but standing alone they would not be sufficient to discharge the sureties.'

If the creditor misinforms the surety, who specifically inquires, as to the state of the principal's accounts, the surety has a defense. Frank Fehr Brewing Co. v. Mullican et al. (1902) 23 Ky. Law Rep. 2100, 66 S. W. 627.

58 Watertown Fire Insurance Co. v. Simmons et al. (1881) 131 Mass. 85, 41 Am. Rep. 196; The Atlantic and Pacific Telegraph Co. v. Barnes et al. (1876) 64 N. Y. 385, 21 Am. Rep. 621.

Approving the statement in the text, it was said in Wilkerson v. Crescent Insurance Co. (1897) 64 Ark. 80, 40 S. W. 465, 62 A. S. R. 152, that: "The inaction of the creditor will not discharge the surety unless it amounts to fraud or concealment, for the surety is bound to inquire for himself, and cannot complain that the creditor does not notify him of the state of the accounts of his agent for which the surety is liable."

59 Fidelity Mutual Life Association v. Dewey (1901) 83 Minn. 389, 86 N. W. 423, 54 L. R. A. 945.

60 Mayor, etc., of Newark v. Stout et al. (1889) 52 N. J. L. 35, 18 Atl. 943, 947.

61 Mutual Loan and Building Association v. Price (1877) 16 Fla. 204, 26 Am. Rep. 703.