TWENTY-SEVENTH SUBJECT.

Guaranty and Suretyship.

BY

SHELLEY B. NELTNOR, D. C. L.

PROFESSOR OF THE LAW OF SALES, AGENCY AND NEGOTIABLE INSTRUMENTS, AT THE ILLINOIS COLLEGE OF LAW, MEMBER OF

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

VB. Sohre, 37 Minn., 162.