PRINCIPAL AND SURETY.—Ordinarily, the relationship of principal and surety is entered into under the terms of a contract, the chief object of which is the creation of the relationship. As a general rule, any person who is capable of making a contract may be surety. Formerly, it was sometimes said that an infant was absolutely unqualified to make a contract of this kind, but now his contracts of suretyship are held to be voidable, the same as his other contracts. In some states a married woman is still prevented by statute from becoming a surety for her husband. Like ordinary contracts, a contract of suretyship must be supported by sufficient consideration. It is ordinarily a collateral engagement to pay a debt of another, and hence, comes under the section of the Statute of Frauds which requires a contract to answer for the "debt, default, or miscarriage of another," to be in writing.
SURETYSHIP LIABILITY.—The general extent of the suretyship liability is measured by the contract of the principal, which he guarantees. If no cause of action can be maintained against the principal on the contract, it follows necessarily that the surety is not liable. The tendency of the courts is to favor the surety. His obligation is ordinarily assumed without any pecuniary compensation, and it is accordingly said that his liability is "strictissimi juris," (strictly construed by the law). A surety has the right, then, to insist upon the very letter of his contract, and if there is a reasonable doubt as to whether his contract requires the doing of certain acts or not, that doubt should be resolved by the court in favor of the surety. Consequently, a surety will not ordinarily be held liable for any default of the principal, which occurred prior to the surety's contract to be such. The death of the surety does not necessarily terminate his liability, and his personal representatives will be responsible for the carrying out of his contract, especially where the contract reads that the surety "binds his heirs, executors and administrators."
SURETY'S OBLIGATION UNDER NEW CONTRACT.—It frequently happens that the principal's contract is not completed, and a renewal is necessary. The question arises whether the surety's obligations are continued under the new contract, the same as under the old. The principle which the courts apply is that if the renewal amounts to an entirely new contract, then the surety's obligation is at an end. But if the renewal is simply a part of the original contract, and does not call for any new contract, his obligation continues under such renewal. As the contract between the principal and surety is of a more or less confidential character, the law requires, as we have mentioned in insurance, the exercise of the utmost good faith on the part of the principal. Hence, if a surety, before entering into his contract, applies to the principal for information about any material matter pertaining to the contract, the principal is bound to give full information as to every fact within his knowledge, and if he does anything to deceive the surety, he vitiates the contract. Another application of the same principle is found in the rule that the principal must not do any act injurious to the surety or inconsistent with his rights. Consequently, if the principal makes any arrangement with his principal debtor, by which the risk of the surety is materially increased, or the terms of the contract are altered or varied or the time of payment is extended, the surety in any of these cases would be released from any liability unless he is consulted and gives his assent to such changes in his contract. It is necessary that the new contract, which the principal makes, be a valid contract in order to release the surety. Hence, if the principal makes a contract extending the time of the payment on the obligation six months, and that is all there is to the contract, such extension agreement would be invalid because of lack of consideration, and the surety in such case would not be discharged from his liability under the old contract. If the obligation which the surety undertakes to pay is a promissory note, an agreement by the principal to extend the time of payment, would not, of itself, release the surety, there being no consideration. A part payment made by the maker, before the note was due, for which an extension of time to pay the remainder is granted, would be binding, because such part payment, before a note is due, constitutes good consideration for an agreement to extend the time to pay the balance, and consequently the surety is discharged.
NEGLIGENCE OF THE CREDITOR.—It is generally true that the creditor is under no obligation to be diligent in the pursuit of the debtor. Consequently, a mere negligence of the creditor, to sue or otherwise attempt to collect a claim against his debtor, although there is a surety for the creditor, does not relieve the surety of his liability. Mere delay, then, in proceeding against the principal debtor, does not release the surety, unless there is between the creditor and principal debtor a valid and binding agreement, under which a delay does prejudice the surety.
DISCHARGE OF SURETY.—A surety is discharged by the payment or performance, by the principal, of the condition in the agreement. It is even held that the surety is discharged if a tender of payment has been made to the principal, after the debt is due, and it is refused by him. In such a case, the tender amounts practically to a payment of the debt and a new loan creating a new contract. It sometimes occurs that the creditor has collateral security for the payment of the debt, or secures control of money or property of the debtor and which he may lawfully apply to the debtor's obligations under certain circumstances. The principal may voluntarily surrender or dispose of these securities. In such a case, the surety is discharged from liability to the extent of the value of the securities disposed of or surrendered. Of course, the surety is not discharged where the principal takes additional securities, or if some securities are given up and sufficient are retained by the principal to pay the debt, the surety is not relieved and cannot complain, for the reason that he has not been injured.
RIGHTS OF SURETY.—It is a well established rule of law that where the surety is obliged to make good on his contract he is entitled to relief, the law implying a promise on the part of the principal to reimburse the surety for any damages which he suffers. Of course, this assumes that the surety was legally bound to pay the debt. If he pays it because it is a moral obligation or for any other reason which the law does not recognize as legally binding, he is not able to compel the principal to reimburse him.
RIGHT OF CONTRIBUTION.—One of the peculiar remedies, which the courts of equity have developed, is that of contribution. This right is frequently used in the law of suretyship. When one of two or more sureties, for the same obligation, has paid more than his share of the debt, he is entitled to be reimbursed for the excess by his co-sureties. This right is known as the right of contribution. As has been said before, a surety, if he pays when he is not legally bound to do so, must stand the loss himself; and the same is true where he is one of several co-sureties. Thus, if one co-surety pays a debt, which is barred by the statute of limitations, he would not, in that case, be entitled to contribution from his other co-sureties.
SURETY COMPANIES.—Surety companies conduct such a large business at the present time that a word should be said about them in connection with this topic. The surety company is a corporation, and its powers are, of course, defined by its charter, and the laws of the State in which it is incorporated. In general, surety companies are authorized to guarantee performance of contracts and to execute bonds and undertakings required by the courts. One tendency is noticeable in recent years. The kind of suretyship, we have been referring to, is generally that in which the surety is an individual, who undertakes his task for no consideration, and for that reason, as we have said, the courts construe the contract of suretyship strictly in favor of the surety. More and more, now, the practice of the individual becoming a surety is decreasing, and in his place the surety companies offer their services in a more satisfactory manner, under modern business conditions, but with the striking difference, that the surety company offers its services only for pay, which will net the company a profit. Hence, the rule that the contract should be construed strictly in favor of the surety does not fit the case of the surety company which is paid for its services. In the case of the American Surety Co. v. Paulu, 170 U. S. 133, and in many other cases, the rule is laid down, that the contract will be construed against the surety company and in favor of the indemnity which the obligee has reasonable grounds to expect. So, it has been held that a surety company will not be relieved on its contract, by an extension of time to the principal, and that there is no presumption that the surety was injured by the extension unless the injury is actually proved.
PATENTS.—The policy of encouraging monopolies, while generally frowned upon, finds two exceptions in the law of patents and copyrights. Consequently, the Federal Constitution gives the exclusive right to Congress to "promote the progress of science and useful arts by securing for limited times, to authors and inventors, the exclusive right to their respective writings and discoveries." The patent office is located in Washington, and here the Commissioner of Patents has his official office, and applications for all patents are made through him, and he is authorized to establish regulations for the granting and issuance of patents. The duration of a patent right depends, of course, upon the statute. At the present time, the period is seventeen years, and at the end of that time, the person holding the patent must yield up his monopoly and all that pertains to it. A patent is in the nature of a contract, and the United States Supreme Court has said "The true rule of construction in respect to patents and specifications, and the doings generally of inventors, is to apply plain and ordinary principles to them, as we have endeavored to on this occasion, and not, in this most meta-physical branch of modern law, to yield up to subtleties and technicalities, unsuited to the subject, and not in keeping with the liberal spirit of the age, and likely to prove ruinous to a class of the community so inconsiderate and unskilled in business as men of genius and inventors usually are." A distinction is usually made between pioneer patents, and patents which are merely improvements on one already issued. The former are always given a liberal interpretation, while the latter should be strictly construed.
ELEMENT OF NOVELTY.—It is the element of novelty which gives rise to the right to a patent. It is not possible to discuss in this limited space, the countless decisions upon this point. A thing may be novel and entitled to a patent, although very old. Some lost art of the Egyptians is re-discovered by an American. Although the idea is several thousand years old, to all practical purposes it is new, and the inventor would be entitled to a patent. Like any other property, an inventor's right may be lost by abandonment. Thus, where an inventor taught a large number of people, with no suggestion that the thing was an experiment, and received pay for his instruction, the court held that this constituted an abandonment of his claim, and he was not entitled to a patent.