FORMS OF GUARANTY

A general guaranty, or "letter of guaranty," of future advances may be as follows:

dollars, the

I hereby guaranty to any person advancing money (or selling goods, or whatever the act may be) to [Principal] not exceeding payment therefor at the expiration of the credit which shall be given. (Signature) [Guarantor's Name] (Address)...

(Date).

A special guaranty of future advances may be as follows:

To [Guarantee or Creditor]

I will be responsible for goods (specify a particular kind if desired) sold by you to [Principal] to an amount not exceeding in value an aggregate of dollars.

(Date)......

(Signature) [Guarantor's Name]

(Address)..........

A guaranty of contemporaneous credit may be as follows, and would usually be attached to another contract:

In consideration of the agreement of [Principal] above set forth, I hereby guaranty to the said [Creditor] that the above-named [Principal] will well and faithfully perform everything by the foregoing agreement on his part to be performed at the times and in the manner above provided. (Date)........ Signature [Guarantor]

A guaranty of a past credit should state a new consideration.

In consideration of one dollar to me in hand paid, the receipt whereof is hereby acknowledged, I hereby guaranty, etc.; or,

In consideration of the extension of time given by [Creditor-Guarantee] to [Debtor-Principal] upon the above agreement, I hereby guaranty, etc.;

or,

In consideration of the discontinuance of proceedings by [Creditor-Guarantee] instituted by him against [Debtor-Principal] I hereby guaranty, etc.

REVIEW QUESTIONS AND PROBLEMS

SECTION 86. Define guaranty; guarantor; guarantee; principal. Distinguish a surety from a guarantor; an indorser from a guarantor; guaranty of payment from guaranty of collection. What is a continuing guaranty?

87. How must a guaranty be evidenced? Does this extend to an indemnity contract? Distinguish an indemnity contract.

Problem 1. X buys goods of C. B says, "If you let X have the goods, I will pay you if he does not." X does not pay. C sues B. Result?

88. Does a guaranty require a consideration? What constitutes the consideration in a contemporaneous guaranty? in a subsequent guaranty?

Problem 2. X buys goods of C, payable in thirty days. At the end of the thirty days B writes C, "If you will give X thirty days more, I will be answerable for his paying the claim." C takes X's note for thirty days more. It is not paid. C sues B. Result?

Problem 3. In above case C does not take a note, but simply refrains from suing X for thirty days. Result?

89. Is it necessary to communicate to the guarantor an acceptance of the guaranty? When?

90. Is it necessary to give the guarantor notice of the default of the principal? If so, under what circumstances? Is the guarantee bound to inform the guarantor of facts known to him affecting the risk? Illustrate.

91. What will discharge a guarantor? Will bankruptcy of principal? Will covenant not to sue principal? Will release of principal reserving rights against guarantor? Illustrate alteration of contract. What is an extension of time to the debtor? Effect of surrendering securities by creditor? Is creditor bound to proceed against debtor if requested by guarantor? When may a guaranty be revoked? What is the effect of the death of a guarantor? of a surety? Difference between joint promises and joint and several promises? What are the rights of a surety on an indemnity bond? When will inability to enforce the main contract discharge the guarantor and when not? Problem 4. B guaranties X's debt to C. Afterwards C gives X a release, and then sues B on the guaranty. Result?

Problem 5. In above case C releases B and then sues X. Result? Problem 6. B guaranties X's debt to C. Afterwards C gives X “a release in full of said claim, reserving, however, all rights in respect thereto against B." C sues B on the guaranty. Result?

Problem 7. B guaranties X's debt to C. Afterwards C gives X a valid and enforceable extension of time. When this time expires X does not pay and C sues B. Result?

92. May the guarantee proceed against the guarantor without first proceeding against the principal? Illustrate.

Problem 8. X gives C a promissory note. B writes and signs on the back of the note, "I hereby guaranty the collection of the within note." X does not pay the note. C sues B. Result?

93. What are the guarantor's remedies against the principal? What is his right of subrogation? of contribution?

Problem 9. X gives C a promissory note secured by a mortgage on X's property. B guaranties the payment. After maturity C sues and recovers from B. What are B's rights against X?

Problem 10. X owes C, and B, D, and E guaranty the debt. C recovers from B. What are B's rights?

CHAPTER IX

NEGOTIABLE INSTRUMENTS

I. NATURE AND CHARACTERISTICS

94. Kinds of negotiable instruments. Negotiable instruments are written contract obligations which can be transferred from hand to hand like money. They are instruments of trade or of credit, that is, they are a substitute for money or an evidence of a postponed debt. They may be issued by private persons, or by banks, or by the government.

Examples: 1. If B buys a bill of goods of C, he may (a) pay money, which may be either coin, promises of the government to pay, or promises of a national bank to pay ; (b) give a check on his bank; (c) give his promissory note; (d) accept a bill of exchange drawn on him by the seller; (e) transfer D's check, promissory note, or bill of exchange drawn or payable to his (B's) order or to bearer; (ƒ) draw and deliver a bill of exchange on E (who owes B) payable to C's order. In any case, as above, B has given C a negotiable instrument, except where he pays coin. But even coined money is in fact a negotiable chattel, for whatever title or want of title there may have been in B the taker of it for value gets a good title.

2. If any instrument given above is payable on demand, it is essentially an instrument of trade taking the place of money. But if it is payable at some future day it becomes essentially an instrument of credit, because B secures a postponement of the payment of his debt, that is, secures a term of credit from C. But even an instrument payable on demand is also one of credit, because until actually presented for payment it is taken on the credit of the one issuing it.

The principal kinds of negotiable instruments are as follows: (a) Bills of exchange, foreign and inland. These are orders by one person to another to pay money to a third person or some one named by him, or to bearer (sec. 96).

(b) Promissory notes, including notes and certificates of deposits by banks. These are promises by one person to pay money to another or some one named by him, or to bearer (sec. 96).

(c) Checks, or orders by depositors on their banks to pay money to a third person or some one named by him, or to bearer (sec. 96).

(d) Bonds, or promises in a special form by corporations, cities, or governments to pay money to a person, or to a person named by him, or to bearer (sec. 96).

The instrument first used was the foreign bill of exchange by which merchants in one country were enabled to pay debts in another country without the risk of sending money across seas. The Florentines or the Venetians introduced these instruments into England as early as the thirteenth century. The inland bill was later introduced to serve the same purpose between different parts of the same country. In this country an inland bill is one drawn and payable within the same state. A bill drawn in New York and payable in Chicago would be by our law a foreign bill.

Example 3. B in New York wishes to pay a debt to C in London. (a) If B has a debtor, D, in London, he may draw a bill of exchange on D payable to C or order and send it to C, who can present it to D and obtain payment. (6) B may buy in New York a bill of exchange drawn by F in New York on his debtor, E, in London, payable say to G's order. G sells and indorses it to B, and B indorses it to C and sends it to C, who presents it to E and obtains payment. (c) B may buy at a New York bank a bill of exchange drawn by that bank on a London bank, payable to C or his order; B sends it to C, who presents it at the London bank and receives payment. By these methods payments are made between New York and London, or vice versa, without transferring money. In the end some big banking concern in one place may export gold to the other place to settle balances.

A check is a special kind of bill of exchange, being a bill drawn by a depositor on his bank, payable on demand. A bill of exchange drawn by one bank on another is often called a draft. It is simply a check and is more properly called a cashier's check.

Promissory notes were once held by the English courts not to be negotiable instruments, but Parliament in 1704 passed an act providing that they should be negotiable the same as bills of exchange, and such is the law in this country. When