1 Stone v. Compton, 5 Bing. N. C. 142.
Railton v. Mathews, 10 Clark & F. 935 (1844), was also a case where a party became surety on a bond for an agent, payment of which he afterwards refused on the ground that material circumstances had been concealed from him, affecting the agent's credit prior to the bond, and which, had he known them, would have prevented him from assuming the obligation. The Lord Justice Clerk, who presided at the trial, directed the jury that "the concealment must be, first, of things known to the defenders, or which they had strong and grave ground to suspect; secondly, that the concealment, therefore, being undue must be wilful and intentional, with a view to the advantage they were thereby to receive." The jury found a verdict in favor of the party to whom the bond was given, - sustaining it. On appeal, before the House of Lords, the exceptions were sustained and a new trial ordered for misdirection. Lord Cottenham, in his judgment, says: "The question is whether there may not have been a case brought before the jury, for their consideration, of improper and undue concealment (which I understand to mean a noncommunication of facts which ought to have been communicated), which would lead to the relief of the surety, although the non-communication might not be wilful and intentional, and with a view to the advantage which the party was thereby to receive. That which I find here extracted from the charge of the learned judge, I understand to be one proposition. The learned judge lays it down distinctly that the concealment, to be undue, must be wilful and intentional, with a view to the advantage they were thereby to receive. In my opinion, there may be a case of improper concealment or non-communication of facts which ought to be communicated, which would affect the situation of the parties, even if it was not wilful and intentional, and with a view to the advantage the parties were to receive. The charge, therefore, I conceive, was not consistent with the rule of law." Lord Campbell also stated the same conclusion in even stronger terms. He says: "The question really is, what is the issue which the court directed in this case ? ' Whether the pursuer, Edward Railton, was induced to subscribe the said bond of caution or surety by undue concealment or deception on the part of the defenders, or either of them?' The material words are, 'Undue concealment on the part of the defenders.' What is the meaning of those words? I apprehend the meaning of those words is whether Railton was induced to subscribe the bond by the defenders having omitted to divulge facts within their knowledge which they were bound in point of law to divulge. If there were facta perhaps, be made between the case where the principal omits to state to the guarantor a material fact of which he alone within their knowledge which they were bound in point of law to divulge, and which they did not divulge, the surety is not bound by the bond; there are plenty of decisions to that effect, both in the law of Scotland and the law of England. If the defenders had facts within their knowledge which it was material the surety should be acquainted with, and which the defenders did not disclose, in my opinion the concealment of those facts, the undue concealment of those facts, discharges the surety; and whether they concealed those facts from one motive or another, I apprehend, is wholly immaterial. It certainly is wholly immaterial to the interests of the surety, because to say that his obligations shall depend upon that which was passing in the mind of the party requiring the bond appears to me preposterous; for that would make the obligation of the surety depend on whether the other party had a good memory, or whether he was a person of good sense, or whether he had the motive in his mind, or whether he was aware that those facts ought to be disclosed. The liability of a surety must depend upon the situation in which he is placed, upon the knowledge which is communicated to him of the facts of the case, and not upon what was passing in the mind of the other party, or the motive of the other party. If the facts were such as ought to have been communicated, if it was material to the surety that they should be communicated, the motive for withholding them, I apprehend, is wholly immaterial.
"Then we come to the direction given by the learned judge. He says: ' The concealment, therefore, being undue, mu3t be wilful and intentional, with a view ' (and that is with reference to the motive) ' to the advantage they were thereby to receive.' Now, according to my notion of the issue, that is an entire misconception of it: according to this direction, although the parties acquiring the bond had been aware of the most material facts which it was their duty to disclose, and the withholding of which would avoid the bond, if they did not wilfully and intentionally withhold them, that is to say, if they had forgotten them, or if they thought by mistake that in point of law or morality they were not bound to disclose them, then, according to the holding of the learned judge, it would not be a concealment. But the learned judge does not stop there; he goes on, ' with a view to the advantage they were thereby to receive;' introducing those words conjunctively, and, in effect, saying that it was not an undue concealment unless they had their own particular advantage in view. That appears to me a misconception. I will suppose that their motive was kindness to Hickes; to keep back from those who, it was material to him, should continue to have a good opinion of him, the knowledge of those facts; that it was a pure kindness on their part, to prevent those parties entertaining a bad opinion of him, and not from any selfishness, this concealment took place. Although that might be the has cognizance, and the case where both he and the third person to whom the guaranty is given omit to disclose a motive, yet the fact that he was in arrear and had been guilty of fraudulent conduct, and that he was a defaulter, were facts which it was most material for the surety to be acquainted with. If those were held back merely from a kind motive to Hickes, and not at all from any selfish motive on the part of those to whom the bond was to be executed, the effect in point of law would be the same as if the motive were merely the personal benefit of the parties to receive the bond. It appears to me, therefore, that the learned judge has misunderstood the meaning of the issue, and that having told the jury that a concealment, to be undue, must be wilful and intentional, with a view to the advantage which the parties were thereby to receive, that was a misdirection, and that it had a tendency to mislead the jury; that it was wrong in point of law, and that the exception to that direction ought to be allowed." See, also, Hamilton v. Watson, 12 Clark & F. 119. In Owen v. Homan, 3 Eng. Law & Eq. 120; 3 Macn. & G. 396 (1851), Lord Chancellor Truro says: "I am not aware that either the text-books or the decisions distinctly define the extent of the obligation and responsibility which rests upon the creditor in regard to the surety being made acquainted with all the material circumstances connected with the transactions to which the suretyship is to be applied. The cases which are reported have generally arisen out of transactions in which there has been personal communication between the creditor and surety; and the clear law deducible from those decisions is that the creditor must make a full, fair, and honest communication of every circumstance calculated to influence the discretion of the surety in entering into the required obligation. Lord Cranworth, while sitting as Lord Commissioner, well observed that the duty of the creditor, in regard to the communication to be made to the surety, assimilated that of the assured in a policy of insurance, who, unasked, is bound to give to the underwriter all the information in his power, to enable him to estimate the character of the risk he is invited to undertake.