United States, in the absence of such a statute, the courts enforce practically the same doctrine, more limited, however, in its application. It cannot be said of the various states of the United States that the guarantor, if compelled to pay the principal's obligation, may be subrogated to all or any of the securities left with the guarantee, for this principle, not being the subject of a statute, declares flatly that all securities may be so taken, and, the decision of each case depending on what view the particular court may take of the question, the securities subject to subrogation are somewhat limited." Decisions have been rendered in various jurisdictions disposing of the question as to the kind of security tried to be subrogated in the particular case. Thus, decisions have generally been given making mortgages in the guarantees' possession as security subject to subrogation." Other kinds of securities have been made the subject of decisions to the same effect.

33. Anything deposited with the creditor or guarantee as collateral for the principal's fulfilment of his obligation, in accordance with the principles stated above, enures in case of payment by the guarantor to his benefit. By consequence, the guarantor controls the disposition of such securities, and, if the guarantee deprive the guarantor of his means of indemnifying himself, the guarantor may defend on that ground. So, too, where the act of the creditor or guarantee defeats the guarantor's recourse against the principal or person ultimately liable, he is discharged from his obligation toward the creditor or guarantee so injuring him. Moreover, the guarantee or creditor must exercise diligence with regard to securities left as collateral; for they are as much for the guarantor's protection as for his own. What has been said as to actual injury to the guarantor in other connections applies here, also. The reason for the rule is to protect the guarantor from loss caused by another, in circumstances where he is helpless to prevent it. Consequently, merely substituting one security for another just as valuable, which

81 64 Ill. 87 (1872).

82 11 Pa. 527 (1849).

effectually protects the guarantor against loss, is not sufficient grounds for him to evade payment."

If, however, the creditor or guarantee have as security some right of action, or papers which require some act of his to make them effective or valid, he must promptly do such acts, failing which, any loss which occurs will fall on him rather than on the guarantor. Two executors, X and Y, sold some real estate in pursuance of an authority conferred by will. They took as security for part of the purchase money an assignment of a certain security guaranteed by the purchaser. Because of the lack of diligence of X and Y in taking action to enforce the security (which was a judgment), it became valueless. Suit was brought against the purchaser on the guaranty. It was decided that the lack of diligence of X and Y in their management of the security, inasmuch as it had caused the loss of the judgment to the guarantor, discharged the latter from his obligation on the guaranty."

34. The same principle is applied where the guarantor and guarantee are protected from loss by the same paper or document whose value depends on compliance with the recording acts. A sold goods to B, who, in payment, gave him a promissory note guaranteed by X. For further security, A drew up a contract of conditional sale but neglected to have it recorded. B sold the goods to C for a sum of money. C, in this case, being unaware of the fraud practiced by B and paying value for the goods, was an innocent purchaser for value (or bona-fide purchaser for value) and took a good title to the property, because A's deed of conditional sale, which, if recorded, would have been sufficient to defeat his title, had not been recorded; since this contract or deed of conditional sale also protected X, the guarantor, it was decided that he was released by A's neglect to record the said contract." But the guarantor is not compelled to permit the other parties to entirely control his

83 165 Ill. 55 (1897).

84 36 Pa. 89 (1859).

85 94 Ga. 649 (1894). .

welfare in this respect. He may request the guarantee to take measures that would protect both and, if the guarantee disregard the advice or refuse to take action, he will have to bear any loss that results.

DISCHARGE OF GUARANTOR OR SURETY

35. Alterations in the contract which change the nature of the liability of the guarantor or surety, or which change their position for the worse, are, in general, grounds to release them. In some jurisdictions, it is held that extension of the time of the obligation by the guarantee or creditors will discharge the guarantor. For example, a guaranty stated in terms that the guarantor would be accountable for goods furnished the principal between April 2, 1814, and April 2, 1815. The creditor supplied the goods and accepted payment in promissory notes, upon maturity of which he extended the time of payment. This proved sufficient grounds for the guarantor to evade payment. Such extensions of time prolong the liability of the guarantor and keep him in ignorance of its extent, and he is for this reason protected by the courts.' A guarantor of a surety upon a promissory note is discharged from liability if, at the maturity of the note, the time for its payment be extended without his consent, unless he subsequently assents to the extension and ratifies it." It has been held, in Pennsylvania, that the extension of time, in order to discharge the guarantor, must have resulted in some injury or loss to him."" But the extension, in order to excuse the guarantor, must have been granted without his consent; or, if he know that the extension is to be granted and take no steps to prevent it, he cannot claim that it was done without his consent.

86

To release the guarantor by extension in the time of payment, the extension must be founded on a valid agreement, must be for a definite period, and must have been made without the consent of the guarantor." Also, the agreement

863 Mer. (Eng.) 272 (1817); 36 Hun (N. Y.)

57 (1885).

87 161 Mass. 496 (1894).

989 Pa. 83 (1848).

89 113 111. 360 (1885).

to extend the time must further be distinct from the original contract and be founded upon a good and valuable consideration. And, in general, it must be such an agreement as will operate to the prejudice of the guarantor."

An alteration in the contract by shortening the time of payment will, also, operate to discharge the guarantor." In order that the guarantor may be discharged by changes or alterations of his contract, they must be effective, that is, they must be capable of being enforced. For example, A

was guarantor on a contract for the sale of cattle by B to C. An agreement was made between B and C changing the time and place of delivery of the cattle. This agreement was not supported by a consideration and it was, consequently, unenforceable. A breach of contract occurred and A was sued as guarantor. He defended on the ground that the alteration in the contract discharged him. It was held that the agreement to change the contract, being unenforceable, did not release A.**

36. If the guarantor sign the instrument on a certain condition, or on a consideration named, the failure of the consideration or breach of the condition will likewise excuse him; as where the guarantor of payment of some judgment debts became a party to the instrument in consideration that the sheriff's sale on the execution be postponed, and, through failure of the creditors to get the consent of all the parties necessary, the sale took place. The guarantor notified the creditors that by reason of failure of the consideration upon which he had become guarantor, the guaranty was at an end and the court sustained him in this position."

A contract of guaranty tainted with fraud or injustice of whatever kind may be avoided on that ground. Upon an assignment for the benefit of creditors, all the creditors but one were prepared to sign the composition agreement without being secured. The remaining creditor refused to sign

90 75 Pa. 108 (1874).

91 10 N. Y. 469 (1853).

92 17 Tex. App. Civ. Cas. 237 (1897).

931 De G. F. & J. 240 (1859); 98 Ky. 516 (1895).

the agreement without security and secretly obtained a guaranty of his claim, after which he signed the composition agreement. As this was a fraud on the other creditors who were unsecured, the guarantor of the claim was held discharged thereby." But the guarantee cannot be charged with the fraudulent acts of the principal. And, if any deception be practiced upon the guarantor by the principal without the guarantee's knowledge, this will not affect the guarantor's liability towards him."

37. There are some instances where the illegality of the original contract will extend to the guaranty. For instance, in the case of a promissory note, the payment of which has been guaranteed and which is declared bad for usury, the guarantor may avail himself of the invalidity of the note as a ground of defense."

38. A mere offer to guarantee is to be distinguished from the guaranty itself. The guaranty is a complete contract requiring nothing more to make it a binding obligation. The offer to guarantee is binding upon no one until it has been accepted by the offeree or prospective guarantee." In addition, the guarantor is entitled to be notified of such acceptance, or the acceptance is not complete, and it must be communicated to the guarantor within a reasonable time, although no formalities need be observed in advising the guarantor of such acceptance. To this extent the guarantor is favored by the law, the courts holding that the guarantor is entitled to know "the nature and extent of his liability; to exercise due diligence in guarding himself against losses which might otherwise be unknown to him and to avail himself of the appropriate means in law and equity to compel the other parties to discharge him from further responsibility." Circumstances may sometimes do away with the necessity of an actual acceptance, as where the guaranty is made in reply to a request proceeding from the guarantee to

-

94 10 Ind. App. 665 (1894).

95 127 N. Y. 417 (1891).

96 28 S. C. 504 (1887).

27 104 U. S. 159 (1881)