Bonar (Trustees of The Edinburgh and Leith Bank) V William Macdonald and Others

Bonar (Trustees of the Edinburgh and Leith Bank) v William
Macdonald and Others

Facts: The respondents became surety for Mr Baird’s conduct as a clerk in the
appellant bank. Mr Baird was subsequently appointed to a better situation [he is
made the agent of the bank’s branch at Dalkeith] in a branch of the same bank,
and the respondents extended his suretyship to this new situation. Mr Baird
afterwards, while remaining in the same situation, got a pay raise in exchange
for becoming liable to one fourth of the losses on discounting of bills of
exchange. The accountant of the bank asked Mr Baird to talk to the guarantors
about his increased liabilities. However, B said he could not do it. Directors of
the Bank were aware of this but raised no objections. No communication of this
new arrangement was made to the respondents. Mr Baird allowed a customer
considerably to overdraw his accounts, and thereby the bank lost a sum of
money.
Issue: Whether the increase in liability of Mr Baird amounted to an alteration
material enough to discharge the respondent-surety of their liability?
Appellants’ (Bank) Arguments:
1. The default of Baird is one in respect of which the surety is bound under
the express terms of his original agreement [which was extended to his
agency at the bank’s Dalkeith branch]. The loss does not arise from a
defect of judgment in erroneously discounting, but from improperly
allowing a customer to overdraw his account. That is a matter of
conduct for which these respondents had distinctly undertaken to be
answerable.
2. There was no substantive alteration made in the situation of Baird, none
at least which will release the sureties from their liability, for they
assented to his performing all the duties of bank agent, of which
discounting bills was necessarily one, and consequently they guaranteed
the bank against loss from his conduct in that branch of the business.
Respondents’ (Sureties) Arguments

1. That alteration is one of a substantive kind: it constituted the principal
obligor [i.e. principal debtor] an agent to the banking house on….. a
position in which his honesty and his attention to business, and his
regularity in rendering his accounts might not save him from
bankruptcy. Now it was only for these qualities that the sureties here
became responsible [under the original contract]. They did not assent to
his undertaking liability on discount[ing of bills]…
Held: The surety could not be called on to make good this loss, though it fell
within the terms of the original agreement, as the fresh arrangement was the
substitution of a new agreement for the former one, and A. was thereby
discharged.
Ratio: A variance in the agreement to which a surety has subscribed, which
variance has been made without the surety's knowledge or consent, and which
may prejudice him, or amount to the substitution of a new agreement for a
former one, will discharge the surety, though the original agreement,
notwithstanding such variance, may be that on which the liability is
substantially incurred.
Reasoning: “Upon Baird's appointment by the Directors of the Bank to be
their agent for the branch at Dalkeith, a supplementary obligation was entered
into, by which the cautioners [i.e. the sureties] conceded that their former
obligation, and all its provisions, should be applicable to Baird's agency at
Dalkeith. Whatever may be the usual duties and liabilities of an agent of a
branch bank as to the discount of bills, it is clear that as between Baird and his
principals [i.e. the Directors of the bank] it was not considered that he was to
have anything to do with that business as agent of the Dalkeith branch, so as to
impose any liability upon him…… a new arrangement was afterwards entered
into between him and his principals, by which it was agreed that his salary
should be raised to £130 per annum, he becoming responsible for one fourth
of the losses sustained by his discounts. This alteration in the contract between
the principals and the agent [which was not communicated to the sureties], is
the ground relied upon by the second plea in law, upon which the judgment is
founded;
“Baird objected to apply to his cautioners [i.e. sureties], and nothing more was
done, they (the sureties) remaining in ignorance of, and certainly not being
parties to this alteration in the contract between Baird and his employers. The
loss now sought to be recovered against the respondents as cautioners, does not
appear to have arisen from the discounting business, but to consist of a balance
due from a customer of the branch bank, who was permitted to overdraw his
account to an unusual and unreasonable extent, without security. But if the
arrangement as to the discounts altered the subsisting contract between the Bank
Directors and their agent, so as to increase the liability of the latter, his
[sureties] may be discharged for all purposes.”

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Respondents’ (Sureties) Arguments

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