But it would occupy too much space to go over them at large, and most of them are resolvable into the principles already commented on.1 (a) On the whole the doctrine may be generally stated that wherever confidence is reposed, and one party has it in his power in a secret manner for his own advantage to sacrifice those interests which he is bound to protect, he will not be permitted to hold any such advantage.2 (b) 1 See 1 Hovenden on Frauds, ch. 6, pp. 199, 209; Id. vol. 2, ch. 20, p. 153, ch. 21, p. 171; Maddeford v. Anstwick, 1 Sim. R. 89; 1 Chitty, Dig. Fraud, vii; Oliver v. Court, 8 Price, R. 127; Farnam v. Brooks, 9 Pick. R. 212. 2 Jeremy on Eq. Jurisd. B. 3, Pt. 2, ch. 3, § 2, p. 395; Griffiths v. Robins, 3 Madd. R. 191. has been carried out as intended and the contract performed in good faith by the assignees, the circumstance that the contract was at first entered into or controlled by a director will not be ground for avoiding it in the hands of the assignees. Union Pacific R. Co. v. Credit Mobilier, 135 Mass. 367, 376. Further as to the invalidity of transactions of directors having an interest in contracts of the company with third persons, see Kitchen v. St. Louis Ry. Co., 69; Pearson v. Concord R. Co., 16 Reporter, 463; Gilman R. Co. v. Kelly, 77 Ill. 426, 432434; Flagg v. Manhattan Ry. Co., 21 Am. Law Reg. N. s. 785, and note; In re Ambrose Tin Co., 14 Ch. D. 390, 394; Cumberland Coal Co. v. Sherman, 8 Law Reg. 333. An individual who has bargained for the purchase of patents, upon an undertaking to make payment for the same out of the net profits to arise from selling the patented articles, becomes thereby a quasi trustee towards the vendor, and can be called to account in equity for the profits so received. Pratt v. Tuttle, 136 Mass. 233; Badger v. McNamara, 123 Mass. 117, 119; Foley v. Hill, 2 H. L. Cas. 28, 35; Padwick v. Stanley, 9 Hare, 627, 628; Hemings v. Pugh, 4 Giff. 456, 459; Moxon v. Bright, L. R. 4 Ch. 292, 295; Mackenzie v. Johnston, 4 Madd. 373. But this is not true of a corporation (or it should seem of any company or person) acting merely as agent for the purchaser, though the purchaser may own most of the stock therein. Pratt v. Tuttle, supra. Again though there be nothing in the relation of the parties tending to show influence on the one side and dependence on the other, it may still be shown that confidence existed and was betrayed; and the court will look upon the transaction in the same light as if it had grown out of one of the special relations. Smith v. Kay, 7 H. L. Cas. 750. On the relation of pastor and parishioner see Ford v. Hennessey, 70 Mo. 580; In re Welsh, 1 Redf. 238; Lyon v. Home, L. R. 6 Eq. 655. In all cases of relations of confidence the burden of proof is upon the party standing in the superior situation; he must make out the perfect fairness of the transaction. Smith v. Kay, supra; Rhodes v. Bate, L. R. 1 Ch. 252; Tomson v. Judge, 3 Drew. 306; supra, § 311. (a) See Bentley v. Craven, 18 Beav. 75; Perens v. Johnson, 3 Smale & G. 419; Richie v. Cowper, 28 Beav. 344; Clegg v. Edmonson, 8 DeG. M. & G. 787; Clements v. Hall, 2 DeG. & J. 173. (b) See Storrs v. Scougale, 48 Mich. 388; Schultz's Appeal, 80 Penn. St. 396; Leavitt v. La Force, 71 Mo. 353; Gower v Andrew, 59 Cal. 119. 324. The case of principal and surety however, as a striking illustration of this doctrine, may be briefly referred to. The contract of suretyship imports entire good faith and confidence between the parties in regard to the whole transaction. Any concealment of material facts, or any express or implied misrepresentation of such facts, (a) or any undue advantage taken of the surety by the creditor either by surprise or by withholding proper information, will undoubtedly furnish a sufficient ground to invalidate the contract. (6) Upon the same ground the creditor is in all subsequent transactions with the debtor bound to equal good faith to the surety.1 (c) If any stipulations therefore are made between the creditor and the debtor which are not communicated to the surety and are inconsistent with the terms of his contract, or are prejudicial to his interests therein, they will operate as a virtual discharge of the surety from the obligation of his contract.2 And on the other hand if any stipulations for additional security or other advantages are obtained between the creditor and the debtor, the surety is entitled to the fullest benefit of them.3 325. Indeed the proposition may be stated in a more general 1 See Cecil v. Plaistow, 1 Anstr. R. 202; Leicester v. Rose, 4 East, R. 372; Pidcock v. Bishop, 3 B. & Cressw. 605; Smith v. Bank of Scotland, 1 Dow, R. 272; Bank of United States v. Etting, 11 Wheat. R. 59. 2 See King v. Baldwin, 2 John. Ch. R. 554, and the cases there cited; s. c. 17 John R. 384; Nisbet v. Smith, 2 Bro. Ch. R. 583. Hayes v. Ward, 4 John. Ch. R. 123; Mayhew v. Crickett, 2 Swanst. R. 186, and the authorities cited, p. 191, note (a); Boultbee v. Stubbs, 18 Ves. 23; Ex parte Rushforth, 10 Ves. 409, 421; post, § 499. (a) It is not clear whether, to discharge the surety, the misrepresentation or the concealment should have been fraudulent or not. Perhaps the better view is that if the creditor was aware of the truth concerning the matter misrepresented to or concealed from the surety, the latter will be discharged whether there was fraud or not; but contra if he was not aware of it, unless there was fraud. 2 Story, Contracts, § 1125 (5th ed.), where the cases are examined. See Davies v. London Ins. Co., 8 Ch. D. 469 (ante, § 215, and note); Pidcock v. Bishop, 3 Barn. & C. 605; Stone v. Compton, 5 Bing. N. C. 142; Railton v. Mathews, 10 Clark & F. 935; Hamilton v. Watson, 12 Clark & F. 119; Phillips v. Foxall, L. R. 7 Q. B. 666; Campbell v. Moulton, 30 Vt. 667; Denison v. Gibson, 24 Mich. 186; Dawson v. Lawes, Kay, 280. (b) A collusive and fraudulent confession of judgment by the principal debtor will be void as to the surety. Wright v. Hake, 38 Mich. 525. (c) Boschert v. Brown, 72 Penn St. 372. form, that if a creditor does any act injurious to the surety or inconsistent with his rights, or if he omits to do any act (a) when required by the surety which his duty enjoins him to do, and the omission proves injurious to the surety,—in all such cases the latter will be discharged, and he may set up such conduct as a defence to any suit brought against him, if not at law, at all events in equity.1 (b) 326. It is upon this ground that if a creditor without any communication with the surety and assent on his part should afterwards enter into any new contract with the principal inconsistent with the former contract, or should stipulate in a binding manner upon a sufficient consideration for further delay and postponement of the day of payment of the debt, that will operate in equity as a discharge of the surety.2 (c) But there is no 1 The proposition is thus qualified, because in a variety of cases it is certainly very questionable whether the defence can be asserted at law, though there is no doubt that it can be asserted in all cases in equity. It has indeed been said by a learned court, that there is nothing in the nature of a defence by a surety to make it peculiarly a subject of equity jurisdiction; and that whatever would exonerate a surety in one court, ought to exonerate him in the other. The People v. Janssen, 7 John. Rep. 332; S. P. 2 John. Ch. R. 554, 557. But this doctrine does not seem to be universally adopted; and certainly it has not been acted upon in England to the extent which its terms seem to import. See Theobald on Principal and Surety, pp. 117 to 138. 2 Skip v. Huey, 3 Atk. 91; Boultbee v. Stubbs, 18 Ves. 20; Ludlow v. Simond, 2 Cain. Cas. Err. 1; King v. Baldwin, 2 John. Ch. R. 554; 17 John. R. 384; Ex parte Gifford, 6 Ves. 805; Rees v. Berrington, 2 Ves. jr. 540; Blake v. White, 1 Younge & Coll. 420. Quære, whether a surety on a bond for the fidelity of a party for an indefinite period can by notice to the obligee terminate his liability. See Gordon v. Gordon, 2 Sim. R. 253; s. c. 4 Russ. R. 581; Bonser v. Cox, 6 Beav. R. 379. (a) It is held in Camp v. Bostwick, 20 Ohio St. 337, that the omission of a creditor to sue a surety until the Statute of Limitations has run out will not discharge a co-surety, on the ground that the latter may still have contribution. But Shelton v. Farmer, 9 Bush, 314, contra, is better law. (b) See Watts v. Shuttleworth, 29 L. J. Ex. 229, 234; Ex parte Agra Bank, L. R. 9 Eq. 725; Henderson v. Huey, 45 Ala. 275; Petty v. Cooke, L. R. 6 Q. B. 790; Oriental Co. v. Overend, L. R. 7 Ch. 142; post, §§ 498 a, 498 b. In Dawson v. Lawes, Kay, 280, an official bond had been positive duty incumbent on the creditor to prosecute measures of active diligence; and therefore mere delay on his part (at least if some other equity does not interfere), unaccompanied by any valid contract for such delay, will not amount to laches so as to discharge the surety.1 (a) On the other hand if the creditor has 1 Wright v. Simpson, 6 Ves. 734; Heath v. Hay, 1 Y. & Jerv. 434; United Salmon, 6 Gill & J. 314; Sohier v. Loring, 6 Cush. 537; Morse v. Huntington, 40 Vt. 488; Hagey v. Hill, 75 Penn. St. 108; Overend v. Oriental Corp. L. R. 7 H. L. 348; Nichols v. Norris, 3 Barn. & Ad. 41; Kearsley v. Cole, 16 Mees. & W. 127; Boaler v. Mayor, 19 C. B. N. s. 76; Webb v. Hewitt, 3 Kay & J. 438; Green v. Wynn, L. R. 7 Eq. 28; s. c. 4 Ch. 204. Nor need the creditor communicate the arrangement to the surety. Webb v. Hewitt. But when the agreement to extend the time is in writing, the reservation must be embraced in it or in some writing which can be connected with it under the rule concerning parol evidence. Hagey v. Hill, supra. It may result from such an arrangement that the principal debtor may get little benefit out of it; for by the agreement the creditor may call upon the surety for payment at the maturity of the debt, and the surety, not having assented, may thereupon sue the principal debtor. But that is the latter's own affair; he has made the arrangement and must abide by it. Sohier v. Loring; Hagey v. Hill; Webb v. Hewitt; Clagett v. Salmon. Hence the surety, not being injured, is bound by the reservation. If however the creditor has given the principal debtor a full technical release, and not merely agreed not to sue him, or not to sue him before a stated time (that will be a question of construction), there can be no reservation of rights, as such a release is a conveyance of the creditor's property, and he has nothing left to sue upon. See Sohier v. Loring, supra; Nicholson v. Revill, 4 Ad. & E. 675; Kearsley v. Cole, 16 Mees. & W. 128; Webb v. Hewitt, supra. And though he may have agreed only not to sue, still if he has agreed to indemnify the principal debtor from liability, the same result will of course transpire; for if on payment by the surety the surety should sue his principal, the creditor would be bound under the agreement to assume the defence. But the agreement, though there be no reservation, must be valid to discharge the surety. McLemore v. Powell, 12 Wheat. 554. Even then the surety will not be discharged if the agreement was made with a stranger. Frazer v. Jordan, 8 El. & B. 303. Or with a principal debtor in bankruptcy. Tiernan v. Woodruff, 5 McLean, 350. There can of course be no reservation such as will hold the surety if the creditor has, without his consent, surrendered any security to the principal debtor to the right to which the surety on payment would be subrogated. Hagey v. Hill, 75 Penn. St. 108; Mayhew v. Boyd, 5 Md. 102. But perhaps if the security was for a less sum than the debt, the creditor could reserve for the difference. Many of the cases above cited are cases of bills or notes, but the rule as to arrangements with the acceptor or maker is, in regard to its effect upon indorsers, the same as in ordinary cases of principal and surety. Sohier v. Loring, 6 Cush. 537. (a) Unless the Statute of Limitations has run out against a co-surety of a surety who is now sued. See supra, § 325, note (a). any security from the debtor and he parts with it without communication with the surety, or by his gross negligence it is lost, (a) that will operate at least to the value of the security to discharge the surety.1 (b) But 327. Sureties also are entitled to come into a Court of Equity, after a debt has become due, to compel the debtor to exonerate them from their liability by paying the debt.2 And although (as we have seen) the creditor is not bound by his general duty to active diligence in collecting the debt, yet it has been said. that a surety, when the debt has become due, may come into equity and compel the creditor to sue for and collect the debt from the principal, at least if he will indemnify the creditor against the risk, delay, and expense of the suit.3 (c) whether the surety can thus compel the creditor to sue the principal or not, he has a clear right, upon paying the debt to the principal, to be substituted in the place of the creditor as to all securities held by the latter for the debt, and to have the same benefit that he would have therein. This however is not the place to consider at large the general rights and duties of persons standing in the relation of creditors, debtors, and sureties, and we shall have occasion again to advert to the subject when considering the marshalling of securities in favor of sureties."(d) States v. Kirkpatrick, 9 Wheat. R. 720; McLemore v. Powell, 12 Wheat. R. 554; Joslyn v. Smith, 3 Weston (Verm.), R. 353. 1 Mayhew v. Crickett, 2 Swanst. R. 185, 191, and note (a); Law v. East India Company, 4 Ves. 833; Capel v. Butler, 2 Sim. & Stu. R. 457. 2 Nisbet v. Smith, 2 Bro. Ch. R. 579; Lee v. Brook, Moseley, R. 318; Cox v. Tyson, 1 Turn. & Russ. R. 395. Hayes v. Ward, 4 John. Ch. R. 123, 131, 132; King v. Baldwin, 2 John. Ch. R. 554; s. c. 17 John. Rep. 384; Wright v. Simpson, 6 Ves. 734; Bishop v. Day, 13 Vt. 81. * See Langthorne v. Swinburne, 14 Ves. 162; Wright v. Morley, 11 Ves. 12, 22; Hayes v. Ward, 4 John. Ch. R. 123. 5 Post, §§ 499, 502, 637. (a) But see Lang v. Brevard, 3 Strob. Eq. 59, where it was held that the neglect of the creditor to record a mortgage given by the principal debtor did not discharge the surety. See also Pickens v. Finney, 12 Smedes & M. 468. (b) See also Schroeppell v. Shaw, 3 Comst. 460. Even where the security is parted with under misapprehension, VOL. I.- 22 the result appears to be the same. Ex parte Wilson, 11 Ves. 410 (as to which see Scholefield v. Templer, Johns. 155). See also Maquoketa v. Willey, 35 Iowa, 232; Pleasanton's Appeal, 75 Penn. St. 344; Harriman v. Egbert, 36 Iowa, 270; Hayes v. Little, 52 Ga. 555. (c) See Gilliam v. Esselman, 5 Sneed, 86. (d) Contracts of suretyship limited |