This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
There is a conflict of authority upon the question whether an innocent misrepresentation by an obligee to a surety avoids a contract of suretyship which is induced by such misrepresentation. In some jurisdictions it is held that such contract is avoided by an innocent misrepresentation.1 An innocent misrepresentation of the assets of a bank, whereby subsequent sureties of a bank officer are led to believe that no shortage in accounts exists, has been held in some jurisdictions to avoid such contract of suretyship,2 and in others not to so avoid it.3 An innocent misrepresentation as to the terms of a prior loan which is made for the purpose of constructing a building, by which the surety was induced to sign a bond conditioned on completing the building by a certain time, free from mechanics' liens, was held to render such contract voidable.4 A false statement by an employer to a bonding company, as to the past conduct of the employe, avoids such bond, even though such representations were believed to be true.5 If the surety knows the facts he can not avoid his liability.6
16 Blenke v. Citizens' Life Ins. Co., 145 Ky. 832, 140 S. W. 561.
"As to mere representations the statute may well be held to be only declaratory, but as to warranties it made a new rule." White v. Provident, etc., Assurance Society, 163 Mass. 108, 115, 27 L. R. A. 398, 30 N. E. 771; Satterlee v. Modern Brotherhood, 15 N. D. 92, 106 N. W. 561.
17 March v. Ins. Co., 186 Pa. St. 629, 65 Am. St. Rep. 887, 40 Atl. 1100.
18 Metropolitan Life Ins. Co. v. Howie, 62 O. S. 204, 56 N. E. 908.
19 Coplin v. Woodmen, 105 Miss. 115, 62 So. 7.
20 Salzman v. Machinery Mutual Insurance Association, 142 la. 99, 120 N. W. 697.
21 Roe v. National Life Ins. Assn., 137 la. 696, 115 N. W. 500.
22 Carter v. Metropolitan Life Insurance Co., - Mo. - , L. R. A. 1918F, 325, 204 S. W. 399.