77 94

negotiability of a guaranty has no such usage in its favor, and is not, therefore, within the exception. Moreover, we do not think it likely to be brought within this usage, or on other grounds established by adjudication, because all exceptions are to be limited by the necessity for them; and we see no necessity for any such rule, inasmuch as all the good which could be gained from making guaranties negotiable may be derived, and is now in part derived, from the practice and the law of indorsement." But we cannot concur with this eminent jurist as to the inutility of a negotiable guaranty. There is no form of indorsement by which the liability of a guarantor can be engrafted upon, and made negotiable with, a negotiable instrument. An indorser in the ordinary form is absolutely discharged by want of exact demand and notice. A guarantor is only entitled to reasonable notice, and is only discharged to the extent that he would otherwise be injured. If the indorser waives demand and notice, he is entitled to no demand or notice whatever, and thus he makes the indorsement more onerous than that of guaranty. A negotiable guaranty is an engagement intermediate between that of an indorsement in the ordinary form, and one waiving demand and notice; and when a party intends to enter into such an engagement, there is certainly nothing in the policy of the modern law which should pre

vent it.

§ 1779. In some cases it has been held that a guaranty of payment, indorsed on the back of a negotiable note at the time it was made, rendered the guarantor liable to the payee and to every subsequent bona fide holder, as a joint and several maker of the note." But this doctrine, as has been said, "originated in, and has always been confined to, New York." 96 And there it no longer obtains.97

95

1780. Absolute negotiable promise on the back of a note. In the foregoing cases, the words only imported a secondary obligation; and when they are absolute in their terms, an absolute effect.

94. 2 Parsons on Notes and Bills, 133, 134.

95. Hough v. Gray, 19 Wend. 202; Ketchum v. Gray 24 Wend. 456; Luqueer v. Prosser, 1 Hill, 256, 4 Hill, 420.

96. Tucker v. McCauley, 3 Mich. 194, Douglass, J.; Carpenter v. Thompson, 66 Conn. 457, 34 Atl. 105.

97. Brown v. Curtis, 2 N. Y. 225; Durham v. Manrow, 2 N. Y. 533; Brewster v. Silence, 14 Barb. 144; Draper v. Snow, 20 N. Y. 331; Glen Cove Mut. Ins. Co. v. Harrold, 20 Barb. 298.

1

will be given them. For a party signing on the back of a note may make an absolute negotiable promise to pay it, as well as on its face. Where C. and D. indorsed on the back of a note from A. to B. at the time it was made: "For value received, we jointly and severally undertake to pay the money within mentioned, to the said B." (the payee), they were held as original promisors.98 So an indorsement, with the words "holders on the within," makes the indorser an original promisor.99 So do the words indorsed: "I will see the within paid." 1 And where the note was written: "We, A. as principal, and B. as surety, promise, etc.," was signed by A. and indorsed by B., the latter was held as joint maker.2

§ 1781. In the third place: As to guaranty written on the paper by the transferrer at the time of the transfer; view that it is negotiable. In such cases the better opinion, as it seems to us, is that the transferrer combines the liability of indorser and guarantor. He transfers the instrument, and indorses it, by which he becomes liable as indorser by due demand and notice, and he superadds a guaranty which renders him liable without demand or notice upon default of the principal. In Vermont, it appeared that the payee of a negotiable note transferred it for value, and wrote on the back over his signature, "I guarantee the payment of the within note." The plaintiff, a remote transferee, sued; and it was held that he could recover, on the ground that the indorsement of the payee transferred the legal title in the note to every subsequent holder, notwithstanding the person to whom the note was first transferred was not named in the indorsement, and it was not made in terms payable to order or bearer. Further, that such indorsement rendered the payee liable as an indorser to any holder; also as guarantor without proof of demand and notice, and that the guaranty passed to every holder.3

98. White v. Howland, 9 Mass. 314. 99. Brett v. Marston, 45 Me. 401.

1. Amsbaugh v. Gearhart, 11 Pa. St. 482.

2. Palmer v. Grant, 4 Conn. 389.

3. Partridge v. Davis, 20 Vt. 500 (1848). See also Heaton v. Hulbert, 3 Scam. 489. In Robinson v. Lain, 31 Iowa, 9, Day, C. J., said: "We confess ourselves unable to give effect to the contract of guaranty of payment and waiver of demand and notice if the payees intend to return the title. The writing simply constitutes an indorsement with an enlarged liability." In Heard v. Dubuque County Bank, 8 Nebr. 16, the payee wrote on the back,

§ 1782. Contrary view that a guaranty upon the transfer of negotiable paper is not a negotiation within the law merchant. But other authorities hold that a guaranty written on a note by the transferrer, naming no one as promisee, could only be operative in favor of the party who first took the instrument on the faith of it. In the United States Supreme Court it has been held that a guaranty is not a negotiation of the bill or note as understood by the law merchant.5 In Massachusetts, the payee of a note wrote on the back over his signature, "I hereby guarantee the within note." Suit was brought by a subsequent holder. The court held that this was not such an indorsement as authorizes such holder to sue, and, referring to a previous case, said: "It is "For value received, I hereby guarantee payment of the within note, and waive presentation, protest, and notice." Held to be an indorsement with the enlarged liability of guaranty. See Deck v. Works, 57 How. Pr. 292; State Nat. Bank v. Haylen, 14 Nebr. 480; Kellogg v. Douglas County Bank, 58 Kan. 43, 48 Pac. 587, citing text. See Pollard v. Huff, 44 Nebr. 892, 63 N. W. 58; Maddox v. Duncan, 143 Mo. 613, 45 S. W. 688, 65 Am. St. Rep. 678, note.

4. Nevins v. Bank of Lansingburgh, 10 Mich. 547; Omaha Nat. Bank v. Walker, 5 Fed. 399.

5. Trust Co. v. National Bank, 101 U. S. (11 Otto) 70. In this case the note was payable to the Cook County National Bank, and over the signature of the president of the bank, there was written on the back the following: "For value received, we hereby guarantee the payment of the within note at maturity, or at any time thereafter, with interest at ten per cent. per annum until paid, and agree to pay all costs or expenses paid or incurred in collecting the same." Strong, J., said: "In no commercial sense is this an indorsement, and probably it was not intended as such. That a guaranty

is not a negotiation of the bill or note as understood by the law merchant is certain. Snevily v. Ekel, 1 Watts & S. 203; Lamourieux v. Hewitt, 5 Wend. 307; Miller v. Gaston, 2 Hill, 188. The contract cannot be converted

*

into an indorsement or assignment. And if it could be treated as an assignment of the note, it would not cut off the defenses of the maker." Omaha Nat. Bank v. Walker, 2 McCrary, 565.

6. Belcher v. Smith, 7 Cush. 482 (1851); Taylor v. Binney, 7 Mass. 481 (1811), is to same effect. But Upham v. Prince, 12 Mass. 14, seems to uphold the doctrine of the text.

7. In Tuttle v. Bartholomew, 12 Metc. (Mass.) 454 (1847), Dewey, J., said: "A different view of this question seems to have been taken in the case of Blakely v. Grant, 6 Mass. 386, which was an action upon a bill of exchange. This case was decided a year previous to that of Tyler v. Binney, but does not appear to have been referred to in the argument or decision of the latter case. In the case of Blakely v. Grant, it was held that a signature of the payee to the following words, 'should the within exchange not be accepted and paid agreeably to its contents, I hereby engage to pay the holder, in

true there was the further objection in that case, that the guaranty was signed not only by the payee of the note, but also by another person. But irrespective of that, the court were of opinion that the plaintiff could not enforce the payment of the note by a suit in his own name as indorsee.”

The view has been taken in some cases that a guaranty by the transferee operates as a strict guaranty as between transferrer and transferee, and does not pass to subsequent holders; but that as to them it operates as an assignment of the note, so far as to enable them to sue other parties than the guarantor.

§ 1783. In Massachusetts, where the payee of a note transferred it with the words, "I guarantee the payment of this note within six months," the court said: "The defendant's engagement amounts to a promise that the note should at all events be paid within six months. Now, this promise may not be assignable in law; and yet the note itself may be assignable by the party to whom it was so transferred, so that, upon nonpayment of it by the promisor, the holder would have a right of action against Prince as indorser."

§ 1784. Where the holder transfers the note and guarantees the collection, the doctrine has been held that the intention is manifested to make simply a special contract, and not to become liable as an indorser. Thus, where a note payable to S. B. or bearer was transferred to L. with the words, "I warrant the collection of the within note, for value received," over his signature, and it passed into the hands of a subsequent holder from the transferee, it was held that he could not maintain suit against the transferrer as an indorser.10 But it is at least clear that the transferrer of a

addition to the principal, twenty per cent. damages,' might operate as a transfer of the bill of exchange, and that the indorsement was good, though no person was named as indorsee; and that a bona fide holder might insert above such stipulation a direction to pay the contents to his order."

8. Myrick v. Hasey, 27 Me. 12. See Upham v. Prince, 12 Mass. 14. 9. Upham v. Prince, 12 Mass. 15 (1815).

10. In Lamourieux v. Hewitt, 5 Wend. 308, Savage, C. J., said: "I am of opinion that an action cannot be maintained on the guaranty in the name of the present plaintiff. The defendant was liable upon his guaranty, not as an indorser of negotiable paper, but as the party to a special contract, which might have been written on a separate piece of paper as well as on the back of the note. The contract was made with Tuttle, and any action upon it must be in the name of Tuttle. Promissory notes are negotiable only by virtue of the statute, but this negotiable quality is not extended to any other instrument relating to the note." Vanderveer v. Wright, 6 Barb. 547.

note payable to bearer, who acquires it under a guaranty from the holder, would get title as against the maker, and could maintain action against him." Where the payees of a note wrote on the back of it, "We guarantee the payment of the within note at maturity," it was held that they became jointly and severally liable without demand or notice, and that it was their duty to seek the holder and pay him.12

SECTION VI.

REQUISITES TO THE ESTABLISHMENT AND PRESERVATION OF GUARANTOR'S LIABILITY.

1785. As to notice of acceptance of guaranty. When the guaranty is made through personal treaty between the guarantor and guarantee, and whenever the fact that the guarantee has accepted the proffer of the guarantor is equally in the knowledge of both parties, no notice that he accepts the guaranty need be given by the guarantee, for the simple reason that it is already known to the guarantor.13 This rule applies where there is a guaranty of a specific existing demand, such as a bill or note;14 but when a proposition for a guaranty is made, it must, like any other proposition for a contract, be accepted before it is binding; and the guarantee must notify his assent in some form, for both minds must concur in order to constitute a contract.' And when the guaranty is of a general character, addressed at large to any person, without limit as to amount of time, it is regarded rather as a proposition than as a contract, and notice of its acceptance should be given by the party acting upon it.16

15

§ 1785a. Views of United States Supreme Court. A series of decisions by the United States Supreme Court has established

11. Johnson v. Mitchell, 50 Tex. 212. See ante, §§ 663, 696.

12. Gage v. Mechanics' Nat. Bank, 79 Ill. 62.

13. Lent v. Padelford, 10 Mass. 230; Wildes v. Savage, 1 Story, 22; Walker v. Forbes, 25 Ala. 139; Davis v. Wells, 104 Mass. 159; McGhee v. National Bank, 93 Ala. 192, 9 So. 734.

14. Montgomery v. Kellogg, 43 Miss. 486; Thrasher v. Ely, 2 Smedes & M. 147; Wilcox v. Draper, 12 Nebr. 138; Klostermann v. Olcott, 25 Nebr. 382; Marx & Bliem v. Luling Co-operative Assn., 17 Tex. Civ. App. 408, 43 S. W.

596.

15. Jackson v. Yendes, 7 Blackf. 526; Shewell v. Knox, 1 Dev. 404, 2 Am. Lead. Cas. 104, 2 Rob. Pr. (new ed.) 292.

16. Mussey v. Rayner, 22 Pick. 229; Montgomery v. Kellogg, 43 Miss. 486.