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OF THE RIGHTS AND DUTIES OF A GUARANTOR.
A guarantor is one who is bound to another for the fulfilment of a promise, or of an engagement, made by a third party. This kind of contract is very common. Generally, it is not negotiable; that is, not transferable so as to be enforced by the transferee as if it had been given to him by the guarantor. No special form or words are necessary to the contract of guaranty; and if the word "guarantee” be used, and the whole instrument contains all the characteristics of a note of hand, payable to order or bearer, then it is negotiable. Thus, in a case in New York, the instrument was as follows: “For and in consideration of thirty-one dollars and fifty cents received of B. F. Spencer, I hereby guarantee the payment and collection of the within note to him or bearer. Auburn, Sept. 25, 1837. (Signed) Thomas Burns.” And it was held negotiable. What negotiable means will be more fully explained in the chapter on Notes of Hand and Bills of Exchange.
The guaranty may be enforced, although the original debt cannot; as, for example, the guaranty of the promise of a wife or an infant; and sometimes the guaranty of a debt is requested, and given, for the very reason that the debt is not enforceable at law. But, generally, the liability of the principal measures and limits the liability of the guarantor. And if the creditor agrees with the principal debtor that the debt shall be reduced or lessened in a certain proportion, the obligation of the guarantor is reduced by law in an equal proportion.
A contract of guaranty is construed somewhat strictly. Thus, a guaranty of the notes of one does not extend to notes which he gives jointly with another.
A guarantor who pays the debt of the principal may demand from his creditor the securities he holds, although not an assignment of the debt itself or of the note or bond which declares the debt, for that is paid and discharged. And the creditor should not be permitted to resort to the guarantor, until he has collected as much as he can from these securities, or offers to transfer them to the guarantor.
Unless the guaranty is by a sealed instrument, there must be a consideration to support it. If the original debt or obligation rest upon a good consideration, this will support the promisn of guar
anty, if this promise was made at the same time with or prior to the original debt. But if that debt or obligation be first incurred and completed before the guaranty is given, there must be a new consideration for the promise to guarantee that debt, or the guaranty is void. But the consideration need not pass from him who receives the guaranty to him who gives it. Any benefit to him for whom the guaranty is given, or any injury to him who receives it, is a sufficient consideration if the guaranty be given because of it.
A guaranty is not binding unless it is accepted, and unless the guarantor has knowledge of this. But the law presumes this acceptance in general, when the giving of the guaranty and any action on the faith of it by the party to whom it is given are simultaneous. In New York, wherever the guaranty is absolute, notice of its acceptance is unnecessary, unless expressly or impliedly required by the offer of guaranty. But, generally, an offer to guarantee a future operation, especially if by letter, does not bind the offerer, unless he has such notice of the acceptance of his offer as would give him a reasonable opportunity of making himself safe.
A guarantor is often called a surety, and is generally so called in cases where the good conduct of a third person is guaranteed. The words “surety” and “guarantor” do not mean precisely the same thing, but they are often used as if they did.
If the liability of the principal be materially varied by the act of the party guaranteed, without the consent of the guarantor, the guarantor or surety is discharged. Many interesting cases have arisen which involve this question. Thus, where a bond was given conditioned for the faithful performance of the duties of the office of deputy-collector of direct taxes for eight certain townships, and the instrument of appointment, referred to in the bond, was afterwards altered so as to extend to another township, without the consent of the surety, the Supreme Court of the United States held that the surety was discharged from his responsibility for moneys collected by his principal after the alteration. Again, in an English case, the facts were, that, in a bond by sureties for the careful attention to business and the faithful discharge of the duties of an agent of a bank, it was provided “that he should have no other business of any kind, nor be connected in any shape with any trade, manufacture, or mercantile copartnery, nor be agent of any individual or copartnery in any manner or way whatsoever, nor be security for any individual or copartnery in any manner or way whatsoever.” The bank subsequently, without the knowledge of the sureties, increased the salary of the agent, he undertaking to bear one-fourth part of all losses which might be incurred by his discounts. It was held that this was such an alteration of the contract, and of the
liability of the agent, that the sureties were discharged, notwithstanding that the loss arose not from discounts, but from improper conduct of the agent.
The guarantor is also discharged if the liability for obligation be renewed or extended by law. As if a bank, incorporatedopor twenty years, be renewed for ten more, and the officers and business of the bank go on without change: the original sureties of the cashier are not held beyond the first term. So a guaranty to a partnership is extinguished by a change among the members, although neither the name nor the business of the firm be changed. But a guaranty, by express agreement, may be made to continue oyer most changes of this kind.
A specific guaranty, for one transaction which is not yet exbausted, is not revocable. If it be a continuing or a general guaranty, it is revocable, unless an express agreement, founded on consideration, makes it otherwise.
A creditor may give his debtor some accommodation or indul. gence, without thereby discharging his guarantor. It would seem just, however, that he should not be permitted to give him any indulgence which would materially prejudice the guarantor. Generally, a guarantor may always pay a debt, and so acquire at once the right of proceeding against the party whose debt he has paid. On this ground, it has been held that where a surety requested the creditor to proceed against the principal debtor, and the creditor refused to do this, and afterwards the debtor became insolvent and the surety was without indemnity, still, the surety (or guarantor) was not discharged, because he might have paid the debt, and then bued the party whose debt he paid. In New York, it seems to be the law, that, if the surety requests the creditor to proceed against the principal debtor, and he refuses, and the principal debtor afterwards becomes insolvent, the surety will be discharged. This seems to be the better rule. If, by gross negligence, the creditor has lost his debt, and has deprived the surety of security or indemnity, the surety must be discharged, unless he was equally negligent. If a creditor gives time to his debtor, by a binding agreement which will prevent a suit in the mean time, this undoubtedly discharges the guarantor (unless the surety consents to the delay), because it deprives him of his power of acquiring a right of proceeding against the debtor, by paying the debt; for the debtor cannot during that time be sued.
If there be a failure on the part of the principal, and the guar. antor is looked to, he should have reasonable notice of this. And, generally, any notice would be reasonable which would be sufficient in fact to prevent his suffering from the delay. And if there be no notice, and the guarantor has been unharmed by the want of notice, he is not discharged.
If a guaranty purport to be official, that is, if it be made by one who claims to hold a certain office, and to give the promise of guaranty only as such officer, and not personally, the general rule is, that he is not liable personally, provided he actually held that office and had a right to give the guaranty officially. But he would still be held personally if the promise made or the relations of the parties indicated that credit was given personally to the party promising, and not merely to him in his official capacity; or if he had no right to give the promise in his official capacity.
A guaranty was given for the price of a cargo of iron; and the buyer bargained with the seller to pay him more than the fair price, the excess to go towards an old debt. The guaranty was held to be altogether void, because fraudulent, and could not be enforced even for the fair price.
FORMS ANNEXED TO THIS CHAPTER (127.) A guaranty to be indorsed on a note. (128.) A guaranty of a note, on a separate paper. (129.) A guaranty in another way. (130.) A letter of guaranty. (131.) A guaranty with collaterals, authorizing sales. (132.) A guaranty with collaterals, promising additional security or authorizing sale.
(127.) GUARANTY TO BE INDORSED ON A NOTE. For value received, I guarantee the due payment of the within written Rute. (Date.)
GUARANTY OF A NOTE ON SEPARATE PAPER. For value received, I guarantee the due payment of a promissory note, dated whereby
promises to pay to dollars in
GUARANTY IN ANOTHER WAY. For value received, I guarantee that the within (note or bill, or that such a note or bill, describing it), will be collected and paid, if demanded in due course of law. (Date.)
LETTER OF GUARANTY.
SIR, - If you will sell to Mr.
the goods he wishes to buy (or the goods may be described), to the amount of (this may be omitted if the guaranty is intended to be of any amount), within year (or days or months, or the time may be omitted if it is not intended to limit it), from the date hereof, I, for value received, hereby promise and guarantee that the price thereof shall be duly paid. (This letter should also state on what terms the goods should be sold, as to credit, delivery, &c., unless it is intended to leave all this to the buyer and seller.) (Date.)
When goods or stocks or other securities are given as collateral security for borrowed money or any other debt, an instrument is sometimes given, the intention of which is to guarantee that the collaterals should be and remain sufficient to secure the indebteda ness. It may be in one of the following forms, as the bargain requires. These are sometimes called "margin guarantier."
(131.) GUARANTY WITH COLLATERALS, AUTHORIZING SALE. WHEREAS, I (or we) have deposited with
as collateral security for payment at maturity of the following (here describe the debt guaranteed).
Now THIS WITNESSETH, That in the event of the non-payment ut maturity of any or all of these
hereby authorize assigns, to sell the above the collaterals), at public or private sale, or at the brokers' board, without notice to
and apply proceeds to payment of said
and all necessary expenses, holding responsible for any deficiency. IN WITNESS WHEREOF,
have hereunto set
hand and seal this
one thousand eight hundred and
(132.) GUARANTY WITH COLLATERALS, PROMISING ADDITIONAL SECURITY
OR AUTHORIZING SALE.
HAVING BORROWED THIS DAY OF (the sum borrowed), on the following collaterals (here describe the collaterals).
I HEREBY AGREE, in case the market price of the said stock should fall at any time during the continuance of the loan to an amount insufficient