CHAPTER XXIV.Guarantor, or Contract of Guaranty.

SECTION 64.

THE CONTRACT OF GUARANTY DIFFERS IN SOME IMPORT-ANT RESPECTS FROM THE CONTRACT OF SURETY,AND IT IS NOT EASY TO DEFINE IT IN ANY BRIEF ANDCOMPREHENSIVE FORMULA.

The Contract of Guaranty— Defined.— The contract ofguaranty may be defined as a collateral undertaking to answerfor the debt, default or miscarriage of another. It may bedistinguished from the contract of surety in this, that it is sec-ondary and collateral to the principal debt, while the contractof surety is primary and principal. In other words, a guar-antor promises to pay the contract if the principal cannot,while a surety promises to pay the contract if the principaldoes not; i. e. , a guarantor insures the solvency of the debtor,while a surety insures the payment of the debt.Form Required. —The contract of guaranty comes within

the Statute of Frauds, and therefore must be in writing. Noparticular phraseology, however, is required.Consideration for. —The contract of guaranty being a

common law contract, it must be supported by a consideration.The consideration of the principal contract, however, is suffi-cient to support the contract of guaranty when they are exe-cuted and delivered at the same time and as a part of the same

instrument.' If, however, the contract-of guaranty is writtenupon a promissory note after the note has been delivered andtaken effect as a contract, there must be a new and distinct

consideration to support it.^ A forbearance to sue is sufficientconsideration to support the contract of guaranty.

'Parkhurst v. Vail, 73 111., 343; 20 N. Y., 331.^Rigby V. Norwood, 34 Ala., 129; 67 Mo., 667, 5 Gush., 80.

476 GUARANTOR, OR CONTRACT OF GUARANTY. [CHAP. 24,

Negotiability of.—The contract of guaranty being a com-mon law contract, it is not negotiable. But when it is con-nected with and made a part of a commercial contract, the

weight of authority permits it to pass with the principal con-

tract. Upon this question, however, there is much conflict in

the authorities.'Grace. —The contract of guaranty being a common law

contract standing alone, of course is not entitled to grace.But when the same is connected with a commercial contractit partakes of this characteristic, inasmuch as no liability canaccrue against the guarantor until the principal debtor has

become absolutely liable.Kinds of Guarantees. —The kinds of guarantees may be

enumerated as follows: They are general, special, conditional,absolute, limited, unlimited, temporary and continuing. The

term used to designate the particular kind of a guaranty suffi-

ciently explains its meaning.Presentment, Demand, Notice of Dishonor —Neces-

sity for.— It may be stated as a general rule that the under-taking of a guarantor is not conditional; it is absolute, — thatthe maker shall pay the note when due or he will; and torender him liable no demand is necessary. But if the con-tract of guaranty depends upon a contingency, then a demand

and notice must be given within a reasonable time. It willbe noticed here, however, that the strict rule of presentment,demand and notice of dishonor does not apply to the contract

of guaranty even in this case.^ When the terms of the con-tract are absolute, the courts do not agree as to the necessityof presentment, demand and notice of dishonor. For thecases holding that no demand is necessary, see 20 Johns. , 366;

19 Ohio State, 553; 40 111., 159. Holding that demand, etc.,is necessary, see 7 Peters, 126; 12 Peters, 523.It may be said that even where presentment and demand

and notice of dishonor are required, it is sufficient if they aremade and done in a reasonable time. And even if omitted

'See in favor of the proposition, Story on Bills, § 458, andcontra, Parsons on B. & N., 133.^See 12 Peters, 207; 45 Ohio State, 388; 39 111., 577; 19 Ohio

State, 453.

•SEC. 64.] GUARANTOR, OR CONTRACT OF GUARANTY. 477

altogether, the guarantor is not released unless he has sufferedsome loss, and then only pro tanto} If the principal debtoris insolvent at the time of the maturity of the contract and socontinues, the guarantor cannot complain of a failure or delayto make demand.^

Liability of a Guarantor.— At common law he was notliable until it was shown that the principal debtor could notpay the debt, i. e., a judgment and execution had to precedean action against the guarantor. But now by statute in manyof the states this common law rule has been changed so thata guarantor may be sued with the principal and at the sametime. He is liable for the full amount of the contract.Liabilities of Guarantor—How Discharged. — It may be

stated generally that whatever discharges the principal dis-charges the guarantor. The guarantor may also be dischargedby payment, by extension of time by the creditor (i

f uponsufficient consideration), by surrender of any security held bythe creditor, and by a forbearance to sue the principal within

a reasonable time.

Rights of Guarantor. — I. When he pays the debt, he is

subrogated to all the rights of the original creditor.2. When he pays the debt, he should insist upon keeping

the note alive, i. e., he should not allow the note to be can-celled.

3. If, however, the note is cancelled, he may still sue

for money paid for the use of the debtor.

'2 Mich., 504; 39 111., 577; 40 111., 155.^12 Peters, 525.

Chapter 25( i 26

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THE AMERICAN UNIFORM NEGOTIA-BLE INSTRUMENTS LAW.>

CONTENTS.

[I] General Provisions. (§ 1-17.)[II] Form and Interpretation of Negotiable

Instruments. (§§ 20-42.)

[III] Consideration. (§§ 50-55.)[IV] Negotiation. (§§ 60-80.)[V] Rights of Holder. (§§ 90-98.)[VI] Liabilities of Parties. (§§ 110-119.)[VIIJ Presentment for Payment. (§§ 130-148.)[VIII] Notice of Dishonor. (§§ 160-189.)[IX] Discharge of Negotiable Instruments.

(§§ 209-206.)"34 [X] Bills of Exchange; Form and Interpreta-

tion (§§ 210-215.)35 [XI] Acceptance. (§§ 220-230.)

'It has been adopted in the following States of the United States:1. Colorado, Laws of 1897, Chapter 239;2. Connecticut, Laws of 1897, Chapter 74;

3. Florida, Laws of 1867, Chapter 4524;4. Maryland, Laws of 1897;5. New York, Laws of 1897, Chapter 612;6. The District of Columbia, 1897.The chapters following are articles of the New York Negotia-

ble Instruments Law. They constitute Chapter 50 of the generallaws of New York. It became a law May r9, 1897, and went intoeffect Oct. I of the same year. This act was recommended bythe Commissioners on the Uniformity of Laws. The followingstates, Colorado, Connecticut, Florida, Maryland, Virginia and theDistrict of Columbia have each enacted the same recommendationinto law. The acts of the different states are identical except asto headings and sections. It is expected that this uniform lawwill ultimately be adopted in all the states. It has been recom-mended for adoption in Rhode Island, Massachusetts and SouthCarolina. The chapters and sections in brackets are those cor-

responding to the New York law.

480 UNIFORM NEGOTIABLE INSTRUMENTS LAW.

Chapter 36 [XII] Presentment for Acceptance. (§§ 240-248.)

37 [XIII] Protest. (§§ 260-268.)38 [XIV] Acceptance for Honor. (§§ 280-290.)39 [XV] Payment for Honor. (§§ 300-306.)40 [XVI] Bills in a Set. (§§ 310-315-)41 [XVII] Promissory Notes and Checks. (§§ 320-

325-)42 [XVIII] Notes Given for a Patent Right and for a

Speculative Consideration. (S§ 330-

332.)43 [XIX] Laws Repealed, When to Take Effect.

(§§ 340-341.)