Section 87

A gives a guarantee to C for goods to be supplied by C to B. C supplies goods to B, and afterwards B becomes embarrassed and contracts with his creditors (including C) to assign to them his property in consideration of their releasing him from their demands. Here B is released from his debt by the contract with C, and A is discharged from his suretyship.

A contracts with B to grow a crop of indigo on A’s land and to deliver it to B at a fixed rate, and C guarantees A’s performance for this contract. B diverts a stream of water which is necessary for irrigation of A’s land, and thereby prevents him from raising the indigo. C is no longer liable on his guarantee.

A contracts with B for a fixed price to build a house for B within a stipulated time, B supplying the necessary timber. C guarantees A’s performance of the contract. B omits to supply the timber. C is discharged from his suretyship.

Discharge of surety when creditor compounds with, gives time to, or agrees not to sue principal debtor 88.

A contract between the creditor and the principal debtor, by which the creditor makes a composition with, or promises to give time to, or not to sue, the principal debtor, discharges the surety, unless the surety assents to such contract.

Contracts 57

Surety not discharged when agreement made with third person to give time to principal debtor 89.

Where a contract to give time to the principal debtor is made by the creditor with a third person, and not with the principal debtor, the surety is not discharged.

C, the holder of an overdue bill of exchange drawn by A as surety for B, and accepted by B, contracts with M to give time to B. A is not discharged.

Creditor’s forbearance to sue does not discharge surety 90.

Mere forbearance on the part of the creditor to sue the principal debtor or to enforce any other remedy against him does not, in the absence of any provision in the guarantee to the contrary, discharge the surety.

B owes to C a debt guaranteed by A. The debt becomes payable. C does not sue B for a year after the debt has become payable. A is not discharged from his suretyship.

Release of one co-surety does not discharge others 91.

Where there are co-sureties, a release by the creditor of one of them does not discharge the others; neither does it free the surety so released from his responsibility to the other sureties.

Discharge of surety by creditor’s act or omission impairing surety’s eventual remedy 92.

If the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged.

B contracts to build a ship for C for a given sum, to be paid by instalments as the work reaches certain stages. A becomes surety to C for B’s due performance of the contract. C, without the knowledge of A, prepays to B the last two instalments. A is discharged by this prepayment.

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C lends money to B on the security of a joint and several promissory note made in C’s favour by B, and by A as surety for B, together with a bill of sale of B’s furniture, which gives power to C to sell the furniture, and apply the proceeds in discharge of the note. Subsequently, C sells the furniture, but, owing to his misconduct and wilful negligence, only a small price is realised.

A is discharged from liability on the note.

A puts M as apprentice to B, and gives a guarantee to B for M’s fidelity.

B promises on his part that he will, at least once a month, see M make up the cash. B omits to see this done as promised, and M embezzles. A is not liable to

B on his guarantee.

Rights of surety on payment or performance 93.

Where a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety, upon payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor.

Surety’s right to benefit of creditor’s securities 94.

A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into, whether the surety knows of the existence of such security or not; and, if the creditor loses or, without the consent of the surety, parts with the security, the surety is discharged to the extent of the value of the security.

C advances to B, his tenant, RM2,000 on the guarantee of A, C has also a further security for the RM2,000 by a mortgage of B’s furniture. C cancels the mortgage. B becomes insolvent, and C sues A on his guarantee. A is discharged from liability to the amount of the value of the furniture.

C, a creditor, whose advance to B is secured by a decree, receives also a guarantee for that advance from A. C afterwards takes B’s goods in execution under the decree, and then, without the knowledge of A, withdraws the execution. A is discharged.

A, as surety for B, makes a bond jointly with B to C, to secure a loan from

C to B. Afterwards, C obtains from B a further security for the same debt.

Subsequently, C gives up the further security. A is not discharged.

Contracts 59

Guarantee obtained by misrepresentation invalid 95.

Any guarantee which has been obtained by means of misrepresentation made by the creditor, or with his knowledge and assent, concerning a material part of the transaction, is invalid.

Guarantee obtained by concealment invalid 96.

Any guarantee which the creditor has obtained by means of keeping silence as to material circumstance is invalid.

A engages B as clerk to collect money for him. B fails to account for some of his receipts, and A in consequence calls upon him to furnish security for his duly accounting. C gives his guarantee for B’s duly accounting. A does not acquaint C with B’s previous conduct. B afterwards makes default. The guarantee is invalid.

A guarantees to C payment for iron to be supplied by him to B to the amount of 2,000 tons. B and C have privately agreed that B should pay five ringgit per ton beyond the market price, such excess to be applied in liquidation of an old debt. This agreement is concealed from A. A is not liable as a surety.

Guarantee on contract that creditor shall not act on it until co-surety joins 97.

Where a person gives a guarantee upon a contract that the creditor shall not act upon it until another person has joined in it as co-surety, the guarantee is not valid if that other person does not join.

Implied promise to indemnify surety 98.

In every contract of guarantee there is an implied promise by the principal debtor to indemnify the surety; and the surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee, but not sums which he has paid wrongfully.

B is indebted to C, and A is surety for the debt. C demands payment from

A, and on his refusal sues him for the amount. A defends the suit, having reasonable grounds for doing so, but is compelled to pay the amount of the debt with costs. He can recover from B the amount paid by him for costs, as well as the principal debt.

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C lends B a sum of money, and A, at the request of B accepts a bill of exchange drawn by B upon A to secure the amount. C, the holder of the bill, demands payment of it from A, and, on A’s refusal to pay, sues him upon the bill. A, not having reasonable grounds for so doing, defends the suit, and has to pay the amount of the bill and costs. He can recover from B the amount of the bill, but not the sum paid for costs, as there was no real ground for defending the action.

A guarantees to C, to the extent of RM2,000, payment for rice to be supplied by C to B. C supplies to B rice to a less amount than RM2,000, but obtains from A payment of the sum of RM2,000 in respect of the rice supplied.

A cannot recover from B more than the price of the rice actually supplied.

Co-sureties liable to contribute equally 99.

Where two or more persons are co-sureties for the same debt or duty, either jointly or severally, and whether under the same or different contracts, and whether with or without the knowledge of each other, the co-sureties, in the absence of any contract to the contrary, are liable, as between themselves, to pay each an equal share of the whole debt, or of that part of it which remains unpaid by the principal debtor.

A, B and C are sureties to D for the sum of RM3,000 lent to E. E makes default in payment. A, B and C are liable, as between themselves, to pay

RM1,000 each.

A, B and C are sureties to D for the sum of RM1,000 lent to E, and there is a contract between A, B and C that A is to be responsible to the extent of one-quarter, B to the extent of one-quarter, and C to the extent of one-half. E makes default in payment. As between the sureties, A is liable to pay RM250,

B RM250 and C RM500.

Liability of co-sureties bound in different sums 100.

Co-sureties who are bound in different sums are liable to pay equally as far as the limits of their respective obligations permit.

A, B and C, as sureties for D, enter into three several bonds, each in a different penalty—namely, A in the penalty of RM10,000, B in that of

RM20,000, C in that of RM40,000, conditioned for D’s duly accounting to E.

D makes default to the extent of RM30,000. A, B and C are each liable to pay

RM10,000.

Contracts 61

A, B and C, as sureties for D enter into three several bonds, each in a different penalty—namely, A in the penalty of RM10,000, B in that of

RM20,000, C in that of RM40,000, conditioned for D’s duly accounting to E.

D makes default to the extent of RM40,000. A is liable to pay RM10,000, and

B and C RM15,000.

A, B and C, as sureties for D, enter into three several bonds, each in a different penalty—namely, A in the penalty of RM10,000, B in that of

RM20,000, C in that of RM40,000, conditioned for D’s duly accounting to E.

D makes default to the extent of RM70,000. A, B and C have to pay each the full penalty of his bond.