PART II.

THE LAW OF SURETYSHIP AND

GUARANTY.

CHAPTER I.

THE CONTRACT DEFINED AND EXPLAINED.

Sec. 868. SURETYSHIP AND GUARANTY DEFINED AND DISTINGUISHED.-Suretyship is a contract by which one person obligates himself to be responsible for the debt, default or miscarriage of another. The person thus obligating himself is called a "surety," and the person for whom he engages is the primary or principal debtor, and sometimes called simply "principal." The term suretyship further denotes the relation in which the surety stands towards the primary debtor and the creditor whose claim he assures.

"A surety is defined as a person who, being liable to pay a debt or perform an obligation, is entitled, if it is enforced against him, to be indemnified by some other person, who ought himself to have made payment or performed before the surety was compelled to do so." (Smith v. Sheldon, 35 Mich. 42.)

"The contract of suretyship has been defined to be a contract whereby one person engages to be answerable for the debt, default or miscarriage of another. It is an obligation accessorial to that of the principal debtor; the debt is due from the

A contract of guaranty is likewise a contract to answer for the debt, default or obligation of another; the "guarantor" being the one thus engaging, while the creditor to whom he makes the promise is styled the "guarantee," and the party for whom the guarantor engages is still the principal or primary debtor.*

While the terms guaranty and suretyship are frequently used synonymously, and the definitions show slight difference if any, yet they are distinguishable by important differences. Thus in McMillan v. Bull's Head Bank, 32 Ind. 11, it is said: "The surety is bound with his principal as an original promisor; he is a debtor from the beginning and must see that the debt is paid, and is held ordinarily to know every default of his principal, and cannot protect himself by the mere indulgence of the creditor, nor by want of notice of the default of the principal, however such indulgence or want of notice may in fact injure him. On the other hand, the contract of a guarantor is his own separate contract;

principal, and the surety is merely a guarantor for its payment. Hence it is of the essence of the contract that there should be a valid obligation of the principal debtor; also, that the surety may, in general, avail himself of any defence which his principal could make, while a defence which the principal has precluded himself from making, or has waived, cannot be made by the surety." (Evans v. Kneeland, 9 Ala. 42.)

*The words "guaranty" and "warranty" are derived from the French verb garantir, meaning to undertake, vouch for, secure, or indemnify. The verb in English is spelled both "guaranty" and "guarantee." See Abbott's Law Dict. "Guarantee."

it is in the nature of a warranty by him that the thing guaranteed to be done by the principal shall be done,— not merely an engagement jointly with the principal to do the thing. The original contract of the principal is not his contract, and he is not bound to take notice of its non-performance; therefore the creditor should give him notice; and it is universally held, that if the guarantor can prove that he has suffered damage by the failure to give such notice, he will be discharged to the extent of the damage thus sustained. It is not so with a surety."*

*La Rose, et al v. Logansport Bank, 102 Ind. 332; Reigert v. White, 52 Pa. St. 438; Harris v. Newell, 42 Wis. 687; Brandt, Sur. & Guar., Sec. 1.

"A surety undertakes to pay if the debtor does not, and, in general, a guarantor undertakes to pay if the debtor cannot." (Swan's Treatise, p. 567.)

"The surety is the guarantor of the payment of the face value of the note, who assumes this liability by becoming a regular party to the paper, as drawer or indorser, but usually as comaker of a promissory note. Where the surety is co-maker, the obligation to pay becomes his own immediately upon failure of the principal to pay, without any previous demand on the principal or notice of his default. The guarantor

is never a regular party to the commercial instrument, and his liability depends upon an independent, collateral agreement, which provides for the payment of the debt by the guarantor in case the primary debtor fails to pay." (Tiedeman, Com. Paper, Sec. 415; citing, Axents v. Com., 18 Gratt. 770; Jones v. Ashford, 70 N. C. 176, etc.)

"The rules of the common law as to sureties are not strictly applied to guarantors, but rather the rules of the law merchant, and the true distinction seems to be this: That a surety is in

Sec. 869. GENERAL REQUISITES OF THE CONTRACT, HISTORY AND AUTHORITIES. -In general, to constitute the contract of suretyship or guaranty the same essentials are necessary as in any simple contract; thus the parties should be competent to contract, their minds should meet in agreement, and the contract should be upon sufficient consideration unless made under seal. (Brandt, Sur. & Guar., Sec. 3; Snyder v. Click, 112 Ind. 293.) To satisfy the statute of frauds the contract must also be in writing. (Ingersoll v. Baker, 41 Mich. 48.)

The contract of guaranty or suretyship extends back to the remotest times; the Bible mentions the fact that sureties were held to their obligations among the Hebrews.* Among the authorities and writers on the law of suretyship and guaranty, may be mentioned almost every writer on Negotiable Instruments or Commercial Paper, as the two subjects are usually treated in connection. Fell, Baylies, Brandt, and De Colyer are writers of separate treatises on the subjects of Guaranty and Suretyship.

the first instance answerable for the debt for which he makes himself responsible, and his contracts are often specialties, while a guarantor is only liable when default is made by the party whose undertaking is guaranteed, and his agreement is one of simple contract." (Hubbard, J., in Curtis v. Dennis, 7 Metc. 510.)

*"He that is surety for a stranger shall smart for it, and he that hateth suretyship is sure."-Proverbs XI, 15.