CHAPTER V. LIABILITY AND RIGHTS OF THE GUARANTOR. SECTION 44. CONTRACT OF GUARANTY. The distinctions between the contract of the surety and the guarantor have already been observed in section four of this text, and it will be remembered that the guarantor's contract is both a collateral one, and also a secondary one to the principal's contract, the guarantor's promise usually amounting to this, that he will answer for the principal's default, provided the principal does not respond, and the creditor observe the rule of due diligence, the use of which the creditor is bound to undertake in accordance with the terms of the contract. In addition to this, it may be said the guarantor's contract being a secondary one, it requires a special consideration to support it; the principal's contract is not the guarantor's. The guarantor must therefore have notice of the principal's default, and good faith requires that the creditor who fails to give such notice is acting at his peril. The guarantor can claim a discharge to the extent of the injury he suffers, by reason of failure to receive notice, where the lack of notice of default on the part of the creditor materially affects him in his rights under the contract. SECTION 45. CLASSIFICATION OF GUARANTIES. Guaranties are said to be either special or general, in accordance with language used by the guarantor in offering himself as a guarantor. The guaranty is considered as special where, for instance, the offer is to be responsible for the obligation of another and is directed to some particular person or firm only. Therefore if on a guaranty made by X to A & Co. on future contracts of purchase made by Y of them, the firm of B & Co. acts and gives credit to Y on the strength of the guaranty to A & Co., the firm of B & Co., on default of Y, could recover nothing of X on his guaranty to A & Co. The guaranty is special to the persons made; there can be nothing inferred from such an agreement to give any one, but the person to whom it is directed, the right to treat it as an offer of guaranty.1 But the right of action, once fixed on a special guaranty, may be assigned to another person, and recovery had on the assignment. Where the offer of the guarantor is not directed to any particular person, and no limitation is shown of an intention to confine it as an offer to any particular person, one who acts on it may recover, as the offer will be deemed to be made generally. But the courts in passing on such a state of affairs, for the purpose of ascertaining the intentions of the party making such an offer, as is said in a leading case, "will look at the situation of the parties making it, the subject matter of the contract, the motives of the parties entering into it, and the object to be attained by it; and even in the case where the contract is reduced to writing will allow all these circumstances to be shown by parol evidence, if the intent of the parties upon the face of the contract is doubtful, or the language used by them will admit of more than one interpretation." 3 Where the contract to be entered into on behalf of another, was shown to be intended as addressed or communi Taylor et al. vs Wetmore, 10 Robbins vs. Bingham, 4 Johns, 476. • Lowry vs. Adams, 22 Vt., 160. cated generally, the resulting contract would be that of a general guaranty. A contract of guaranty may be retrospective if it can be shown that by the use of express words, or by necessary implication such a contract was intended. But words of general import will not be construed as retrospective although susceptible of such meaning, the language employed must, by express words, include the past indebtedness," or defaults previous to the time of the making of the guaranty. As to whether a guaranty is to be considered a limited, or a continuing guaranty, it is not always easy to say, since there may not be a positive statement of intention shown, and it is rare that in guaranty contracts the language of the instruments is such as to make the decision upon one contract an exact authority for that to be made on another. In Mason vs. Pritchard, the words of the guaranty were "to be responsible for any goods he hath, or may supply my brother with to the amount of 100 pounds," the court was of the opinion, it was a continuing guaranty, or standing guaranty to the extent of 100 pounds, which might at any time become due for goods supplied until the credit was recalled. And in the case where the language was: "I consider myself bound to you for any debt he (my brother) may contract for in his business as a jeweller, not exceeding 100 pounds, after this date," Lord Ellenborough held it a continuing guaranty for any debt not exceeding 100 pounds which the brother might from time to time contract with the plaintiffs in the way of his business; and that the guaranty was not confined to one instance but applied to debts successively renewed. On the other hand, in the case of Rogers vs. Wainer,' where the words People vs. Lee, 104 N. Y., 441. 12 East, 227; S. C., 2 Camp., 436. 18 Johns, 119. used were "If A & B, our sons wish to take goods of you on credit, we are will to lend our names as security for any amount they may wish," was held to be a limited guaranty for a single credit. There is no general rule for determining whether a guaranty is a continuing one or not. Where the duration of the continuation of the guaranty is not specified, it will be construed to mean to run for a reasonable length of time; the facts and circumstances attending the particular case are to be taken into consideration. Unless the terms of a continuing guaranty state that it may be revoked at any time, by the guarantor giving notice that he is not to be bound for liability thereafter accruing, and unless the guarantor has bound himself for a definite term, notice of death coming to the creditor will revoke the guaranty." SECTION 46. SUBJECT CONTINUED. ABSOLUTE AND CONDITIONAL GUARANTIES. If the promissor's liability depends upon the performance of some other event, or the meeting of some other contingency, other than the performance by the principal of his contract, the guaranty is said to be a conditional guaranty. The guaranty is styled an absolute guaranty when the default of the principal fixes the liability of the guarantor. An indorsement of a promissory note, in the form of a guaranty, is the most common form of the absolute guaranty.10 Conditions of demand on the principal, or notice of default, ordinarily are not a part of the contract of the absolute guarantor. The most lucid example of a conditional guaranty 10 Gage vs. Mechanics Natl. Bank, Gay vs. Ward, 67 Conn., 147. 79 Ill., 62. is in the case of the guaranty of the collectibility of note or other indebtedness. In such a case, it is essential that something be shown beyond the mere default of the principal. The creditor must show due diligence in an endeavor to collect, which is the condition of the guarantor's contract, and unless this condition of the contract is met, then the guarantor is exonerated. The creditor must usually show that the demand cannot be collected by legal proceedings, that is, by instituting suit, securing a judgment, and by having a return showing execution on the judgment can not be made, as the creditor is bound also to enforce the legal remedies given him against the debtor." Any form or words that fairly import the condition that the creditor shall first exhaust his remedies against the principal debtor, is sufficient to make the guaranty a conditional one, as for instance where the language is "I warrant this note good." 12 SECTION 47. CONSIDERATION. Since the guarantor's contract is usually collateral, and secondary to the principal's, a separate consideration is required to support the same. The consideration may move from either the principal, or the creditor to the guarantor. Where the guarantor's contract is made simultaneously with the principal's, one consideration may answer for the two," and the law only demands that there be a benefit or some consideration arising to the principal, although there is nothing to prevent the guarantor from also reaping a reward for the risk he undertakes under his contract of guaranty. "McMurray vs. Noyes, 72 N. Y., 524. Curtis vs. Smallman, 14 Wend. (N. Y.), 231. "Hippach vs. McKeever, 166 I., 136. |