CHAPTER I.

NATURE OF THE CONTRACT.

SECTION 1. THE CONTRACT IN GENERAL.

The contract of suretyship and the contract of guaranty, which latter is merely a subdivision of the suretyship contract, is of peculiar interest, inasmuch as the contract is always an express one, and never arises by implication. The suretyship contract arises on the agreement that the surety or guarantor makes with the creditor to answer for the debt, default or miscarriage of another person. Since by the nature of the contract, the surety or guarantor takes on the obligation for which the principal debtor is originally liable, the surety or guarantor is called the obligor, and the one to whom his promise runs (the creditor) is called the obligee. The parties to the contract, strictly then, are only the obligor and the obligee, although the presence of and the continuing liability of the principal debtor to the creditor, is always an essential thing to make the contract one of surteyship. If the promise is not to answer for the debt, default or miscarriage of another person, whose liability continues, it would then be an original promise of the promissor and the promissor would not be a surety at all, so if the promise is to answer for the debt of another, the debt of the other person being thereby cancelled, the promissor's debt is original, and he is in no way a surety. So that the principal debtor is to be considered as always having a presence in the contract of suretyship, even though he is not a party to the contract of suretyship strictly. The surety's contract

must always be collateral to the contract of the principal debtor.

SECTION 2. ORIGIN AND ESSENTIALS OF THE CON

TRACT.

The surety's contract is one of the oldest known to the law; just how old this kind of contract is, it seems impossible to say, except that its origin is of such an ancient date, and some of its characteristics were so well known to the ancients, that it may well be looked upon as an antique among contracts. The essentials of the contract of suretyship include, in addition to the essentials of any valid contract, viz.: that the parties to the contract be competent to contract, that their contract be in the form prescribed by the law, that there be a consideration to support the contract, that its object be lawful, and that the consent given be in no way interfered with by mistake, misrepresentation, fraud, duress or undue influence; the further essential, dictated by the statute of frauds, that the contract agreement be evidenced by a writing, signed by the surety or guarantor, showing the agreement with sufficient definiteness to identify the parties and to show the terms of the obligation, together, usually, with the naming of the consideration.

SECTION 3. THE PRINCIPAL.

The one originally obligated to the creditor for his own debt is called the principal, or the principal debtor, and since the principal debtor is so closely connected with the surety's contract with the creditor, which is to answer for the principal's default, the principal must not be lost sight of, as his relation and his

contract with the creditor is the basis of the surety's contract. The principal debtor is the one whose debt or default the surety agrees to answer for, or, in other words, his possible unpaid debt or default is the basis of the transaction between the creditor and the surety. The principal may be one in charge of certain sums of money, or one holding an office, carrying with it the duty to keep safe the funds intrusted to him, and one who personally becomes security for any default of the principal in the conduct of that office, and would be in default on his agreement when the principal defaults in his duties for which the surety has become the security. The principal's obligation which the surety may secure may be of a wide range. His failure to pay any debt, or the possible breach in a promise to perform some obligation, or a possible miscarriage of his duties or obligations, owing to another, for all or any of these things, the surety may by express contract, make himself liable, the obligation of the principal continuing also.

SECTION 4. THE SURETY.

Judge Cooley, in the case of Smith vs. Sheldon,' says: "A surety is 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."

The surety is one, then, who, by his express contract in writing, agrees to answer to the creditor for the debt, default or miscarriage of another. But to be a surety there must always exist the continuing liability of the principal debtor, for it is a general rule 135 Mich., 47; see also Wendlandt

vs. Sohre, 37 Minn., 162.

of law, that whatever discharges the prir cipal, will likewise discharge the surety. It is also necessary that the promise to answer for the debts and obligations of another, must be made expressly in writing, and to the one to whom the duties or obligations are owing, viz., the creditor. A promise made directly to the debtor, to pay his debt, for instance, would be an original promise.

The surety, as such, could not make a promise to answer for a debt, which is partly the debt of another, and partly his own debt. This would be an original promise. He must not have any personal interest, or responsibility, in the obligation, he agrees to answer for on behalf of another, if he would claim the rights and remedies of the surety. His promise, furthermore, must be collateral, and if credit is extended to him, and not to the one originally seeking it, his promise would be original, he would not be a surety at all.

It is not necessary that the principal debtor have knowledge of the fact, that another has become surety for the debt, if there exists a consideration to support the obligation of the surety, moving from the creditor to the surety. Another instance of showing that the principal debtor is not really a party to the surety's contract, is that a false representation on the part of the principal debtor amounting to a fraud, and made to the surety to induce him to become a surety, would not make the surety's contract voidable unless the creditor, with whom the surety contracts, was a party to the fraud.

SECTION 5. DISTINCTION BETWEEN A SURETY AND A GUARANTOR.

Although a surety and a guarantor are both parties who make an express agreement to bind them

selves for the performance of an act or the fulfillment of an obligation or duty of another, the distinctions between the contract of the two persons, and the obligations assumed under their contract, can be sharply made. A surety, as a general rule, is a party to the original contract of the principal, he signs his name to the original agreement at the same time the principal signs, and the consideration for the principal's contract is the consideration for the agreement of the surety's. The surety is therefore bound on his contract from the very beginning, and he is bound also to inform himself of the defaults of the principal debtor, and he is not in any part relieved from his obligations under the contract by the creditor's failure to inform him of the principal's default in the contract, for which contract the surety has become the security for. A guarantor, on the other hand, usually does not make his agreement to answer for the principal's debt or default, contemporaneously with the principal or by the same agreement, but his obligation is entered into subsequently to the making of the original agreement, and his agreement is not the contract that the principal makes, and hence a new consideration is required to support it. The contract of the principal's, not being the one the guarantor makes, he is not bound to inform himself of default, or failure of principal to perform his contract. The creditor is also under the obligation to inform the guarantor of the principal's default, not strictly in the sense of being obliged to give notice immediately after demand on the day the obligation matures, as in the case of an indorser, but if a failure to give notice materially prejudices the rights of the guarantor, the guarantor can claim a discharge on the obligation to the extent