well expressed in one of the earlier American opinions in this language:

"If the surety is

bound by such contract, one of two things must follow. The surety, having been compelled to pay the money due by the contract, must either have his action against his principal to recover the amount paid, or he must lose it. If the first alternative is to be adopted, and the surety may maintain an action against his principal to recover the money paid, then the principal will be compelled virtually to pay upon a contract to which he had a complete defence."

"It is but mockery to say that

man has a valid defence to a claim, and yet say that he must pay the amount due thereon to his surety, whom the law compels to pay to the creditor."

"On the other hand, if the surety, having been compelled to pay the money to the creditor, can not recover it from his principal, he must lose it, and equal injustice is done." 30

§ 31. Fraud on the principal as a defense to the absolute guarantor. Do the same rules govern the guarantor's right to be relieved from his contract? The authorities generally agree that if the guarantor is an absolute one he is bound irrespective of the defense of the principal, one opinion, in which concurred all the court, saying:

"The contract thus made by the guarantors of the note was a promise as to its legality, and a liability which was not dependent on the prosecution of a suit against the maker of the note, nor dependent on the validity or legality of the note. If the liability of a guarantor of commercial paper were dependent on extraneous circumstances not appearing on or suggested by the face of the instrument, and such guaranty might be rendered invalid because of fraud, forgery, or other circumstances that might be set up as

30 Coffelt et al. v. Wise et al. (1878) 62 Ind. 451, 458. Accord: Owens v. Mynatt et al. (1870) 1 Heiskell (Tenn.) 676, 677.

For a discussion of the views of the various courts, see (1920) 68 University of Pennsylvania Law Review 383.

between the maker and the acceptor of the paper, it would practically destroy the value of commercial paper, and unsettle business transactions, to the great detriment of public interests. The guaranty is a contract by which the validity of the instrument is represented, and is binding on the guarantor to the full extent of such representation." 81

§ 32. Fraud on the principal as a defense to the conditional guarantor. Will the guarantor be held liable, if his guaranty is not absolute, where there is a defense inherent in the principal's contract? The guaranty being separate from the principal's contract, and a different consideration supporting it, suggests that the same reasoning would not be applicable as in the case of a surety. Whether the result is different, in spite of a different reasoning applicable, the courts have not clearly determined. Obiter can be quoted to the effect that the conditional guarantor remains bound. For instance, one court held that a guarantor of certain bonds, which were found to be void, was liable, though the principal debtor could not be held. The reasons suggested were that both the guarantor and obligee were innocent of any wrongful act, the guarantor's contract was separate and distinct from that of the principal, and was made to induce the obligee to purchase the bonds from the principal. But while this court spoke of guaranty in general, the language of that guaranty shows it was an absolute one.82 In another case, the principal's obligation was illegal in part and partially valid, and could not be separated, which made the entire contract of the principal void. The court held the guarantor's contract could not be enforced, saying:

"It is true this action is on the contract of guaranty, and not the note, but the law is quite well settled that when the principal obligation is void for illegality that that infirmity will extend to and vitiate the contract of guaranty, and will constitute a defense open to the guarantor in an action on the guaranty itself."' 33

81 Holm v. Jamieson (1898) 173 Ill. 295, 50 N. E. 702, 704. See Veazie v. Willis (1856) 6 Gray (Mass) 90; Jones et al. v. Thayer (1859) 12 Gray (Mass.) 443. Apparently contra is Bennett v. Corey

(1887) 72 Ia. 476, 34 N. W. 291. 82 Nelson et al. V. Hinchman (1902) 118 Fed. 435, 55 C. C. A. 251.

83 Tandy v. Elmore-Cooper Live Stock Commission Co. (1905) 113

The court, however, fails to make it clear whether the facts before it constitute an absolute guaranty or not.

It is believed that determination between absolute and conditional guaranty is precedent to a determination of the guarantor's liability where the principal is not bound. The conditional guarantor does not intend that his liability shall exceed that of the principal debtor. His promise is to answer for the payment of a debt or the performance of a duty in case of the failure of another person who is in the first instance liable to pay or perform. Therefore, unless he absolutely guarantees, he should not be liable if originally the obligee could not recover from the principal. The principal of strictissimi juris is an additional reason for relieving the guarantor.3

84

§ 33. Fraud and duress upon the surety. Obviously, fraud or duress by the obligee upon the surety or guarantor will prevent a recovery. But will the fraud of a third person or the principal release a surety or guarantor? While gratuitous sureties are favored, if the creditor is blameless, his right to recover cannot be defeated by the fraud of another. He is not required

Mo. App. 409, 87 S. W. 614. The same Court had said in a prior case that: "We have no doubt, however, on reason as well as authority, but that the guarantor may, by the terms of his contract, make himself liable for the principal debt, although it be invalid.'' The Sedalia, Warsaw and Southern Ry. Co. v. Smith (1887) 27 Mo. App. 371, 378.

The Tennessee court held the guarantor liable where the consideration of the principal's note was Confederate money, and therefore, the principal was not bound. It does not appear whether this was an absolute guaranty or not. Laughmiller v. Syler (1869) 7 Cold. (Tenn.) 158.

34 Merchants' National Bank v. Citizens' State Bank (1895) 93 Ia. 650, 61 N. W. 1065, 57 A. S. R. 284. See Jack v. Sinsheimer (1899) 125 Cal. 563, 58 Pac. 130; United States Gypsum Co. V. Central Railway Equipment Co. (1910) 152 Ill. App. 467; Henry v. Fry (1912) 78 Misc. 130, 137 N. Y. S. 894; Howard v. Smith et al. (1896) 91 Tex. 8, 38 S. W. 15.

A conditional guarantor was liable where the principal's contract was rendered non-enforceable because the statute of limitations had become a bar. Miles v. Linnell (1867) 97 Mass. 298.

See Putnam v. Schuyler (1875) 4 Hun (N. Y.) 166.

to investigate to determine whether the guarantor has been imposed upon. In a recent opinion, this rule was given:

"It is the settled rule that fraud practiced by the principal alone upon the surety will not affect the latter's liability, as the creditor is under no duty to ascertain whether the surety has been misled. But it is also true that the surety must be treated with the utmost good faith, and, if the creditor, or the principal in his presence, misrepresents or conceals any material fact from the surety, and thereby induces the surety to execute a contract of suretyship that he otherwise would not have executed, the contract is voidable at the option of the surety."

It follows that fraud by one guarantor or surety, without participation by the obligee, will afford no defense to a co-surety or co-guarantor upon whom the fraud is practiced.36

Duress upon a surety, however, may produce a different result than fraud. This depends upon the extent of the duress, which, Mr. Justice Holmes says, if it "consists only of threats, and does not go to the height of such bodily compulsion as turns the ostensible party into a mere machine, the contract is only voidable." 37 Duress which overcomes the mind is always a defense to any contract, whether it was imposed on the defendant in the forum or in a foreign jurisdiction.38 But from the mere relation between the principal and surety, or between the co-sureties, such as husband and wife, improper influence cannot be presumed.3 But once it is determined as a fact that duress caused the surety to sign any instrument, he may defend an action at law against him,40 or he may have the instrument cancelled by a bill in equity.41

39

35 Cheatham v. Terrell (1923) 198 Ky. 687, 249 S. W. 1018, 1019. Accord: Shepard Land Co. V. Banigan (1913) 36 R. I. 1, 87 Atl. 531, 539; Cimini V. Zambarano (1914) 36 R. I. 122, 89 Atl. 295, 297; opinion amended upon another point in 89 Atl. 11. See Small v. Currie (1853) 2 Drewry 102, 61 Eng. Reports Reprint 657; Page v. Krekey (1893) 137 N. Y. 307, 33 N. E. 311, 21 L. R. A. 409, 33 A. S. R. 731.

36 Bigelow v. Comegys (1855) 50 Oh. St. 256.

87 Fairbanks v. Snow (1887) 145 Mass. 153, 13 N. E. 596, 598, 1 A. S. R. 446.

38 Kaufman v. Gerson (1904) 1 K. B. 591.

39 Howes v. Bishop et ux. (1909) 2 K. B. 390.

40 Ingersoll v. Roe (1873) 65 Barb. (N. Y.) 346.

41 Bryant v. Peck et al. (1891) 154 Mass. 460, 28 N. E. 678. In

It is sometimes said that duress of the principal or a stranger imposed upon the surety will not relieve the latter, if the creditor accepts the obligation in good faith. This may depend upon the extent to which the surety has been deprived of the control of his mind by the duress; for if the surety is actuated by compulsion rather than deception or intrigue, to the extent that he is contributing no will which accompanies his act, it seems no recovery should be had against him, no matter who applied the duress.48

§ 34. Non-disclosure by the obligee of material facts. The obligee owes a duty to disclose any facts within his knowledge which might affect the decision of the surety as to whether he would become bound for the principal. Failure to make such disclosure prior to the execution of the suretyship undertaking is a fraud on the surety. Such facts may concern the princi

Mills v. Swords Lumber Co. (1893) 63 Conn. 103, 26 Atl. 689, the court say: "It is well established that where a contract, especially if it is a contract of suretyship, is obtained from one who is under pressure to such an extent as to be deprived of free agency, equity will not only refuse to aid the party in whose favor such a contract is made, but will actively give assistance in favor of the oppressed party by declaring the contract void.''

42 Child's Suretyship and Guar anty (1907) p. 72.

48 Brandt on Suretyship (1905, 3d Ed.) Sec. 21: "If the surety or guarantor acts under duress in entering into the contract he will not be bound. And this for the same reason that a person sought to be charged on a contract of any other kind would not be bound, viz., because he never consented to it."

As to negotiable instruments, see N. I. L. Sec. 55.

Mr. Justice Holmes says a contract voidable for duress is the same

as in the case of fraud, and "if duress and fraud are so far alike, there seems to be no sufficient reason why the limits of their operation should be different."' Fairbanks v. Snow (1887) 145 Mass. 153, 13 N. E. 596, 1 A. S. R. 446.

44 After saying that in every case the nature of the transaction and circumstances must be considered by the jury to determine whether the fact disclosed is such as impliedly was represented not to exist, Blackburn, J., in Lee et al. v. Jones (1864) 17 C. B. N. S. 482, said in concluding his opinion: "It is not essential, to constitute fraud, that there should be any misleading by express words; it is sufficient if it appears that the plaintiffs knowingly assisted in inducing the defendant to enter into the contract, by leading him to believe that which the plaintiffs knew to be false, the plaintiffs knowing that, if he had not been thus misled, he would not have entered into the contract.'