Jones had guaranteed to Lee payment of any balance due to them by their agent Packer. Jones sought to set aside the guarantee on ground of fraud by Lee. The fraud alleged was the failure of Lee to disclose that Packer had not properly accounted to Lee for sums due in respect of previous transactions. The judge had concluded that the allegation was not enough to justify seeking the verdict of a jury and had entered judgment for Lee. Jones appealed.
Held: The appeal succeeded. The facts relied on were enough to leave the issue of fraudulent concealment to the jury.
Blackburn J said: ‘a surety is in general a friend of the principal debtor, acting at his request, and not at that of the creditor; and, in ordinary cases, it may be assumed that the surety obtains from the principal all the information which he requires: and I think that great practical mischief would ensue if the creditor were by law required to disclose everything material known to him, as in a case of insurance. If it were so, no creditor could rely upon a contract of guarantee, unless he communicated to the proposed sureties everything relating to his dealings with the principal, to an extent which would in the ordinary course of things be so vexatious and annoying to the principal and his friends, the intended sureties, that such a rule of law would practically prohibit the obtaining of contracts of suretyship in matters of business. This is well pointed out by Lord Campbell in his judgment in Hamilton v Watson 12 Clark and Fin. 118. But I think, both on authority and on principle, that, when the creditor describes to the proposed sureties the transaction proposed to be guaranteed (as in general a creditor does), that description amounts to a representation, or at least is evidence of a representation, that there is nothing in the transaction that might not naturally be expected to take place between the parties to a transaction such as that described. And, if a representation to this effect is made to the intended surety by one who knows that there is something not naturally to be expected to take place between the parties to the transaction, and that this is unknown to the person to whom he makes the representation, and that, if it were known to him, he would not enter into the contract of suretyship, I think it is evidence of a fraudulent representation on his part.’
(1864) 17 CBNS 482,  EngR 23, 34 LJCP 131, 141 ER 194
England and Wales
Cited – HIH Casualty and General Insurance Limited and others v Chase Manhattan Bank and others HL 20-Feb-2003
The insurance company had paid claims on policies used to underwrite the production of TV films. The re-insurers resisted the claims against them by the insurers on the grounds of non-disclosure by the insured, or in the alternative damages for . .
Lists of cited by and citing cases may be incomplete.
Updated: 10 October 2021; Ref: scu.219460