§ 5. Contracts of indemnitor and surety compared. There should be no confusion between an indemnitor and a surety. A surety may become liable on an instrument which is either negotiable or non-negotiable. He binds himself for the payment of money or the performance of an act, for another person, who is also bound for the same. As defined in judicial language:

"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 the obligation before the surety was required to do so." 12

The surety becomes liable contemporaneously with the principal, undertaking to pay his obligation, and the consideration which binds the principal is sufficient to bind the surety. If the surety is compelled to pay, he has the right, without any express agreement, to bring an action against the principal to reimburse himself.18 But the indemnitor becomes bound on an independent, non-negotiable contract. Independent consideration is required to support it. Without an express agreement, the indemnitor cannot recover against the person for whose benefit he made the contract.14 It will be seen that the surety's contract is dependent on that of the principal, from whom he may finally recover reimbursement, while the indemnitor's agreement is an independent one, without recourse against any one in the event of loss.

tor is an original undertaking. The indemnitor is liable only to the indemnitee, and his assigns, and, unless he has stipulated for it, he has no remedy over against the party for whose benefit the contract was made." Brandt (1905, 3d Ed.) Sec. 5. But the indemnitor is entitled to be subrogated to the rights of the indemnitee against the person for whose default the former became liable. Reid V. Pauly (1903) 121 Fed. 652. See also, Brandt (1905, 3d Ed.) Sec. 348.

§ 6. Contracts of indemnitor and guarantor compared. The distinctions between a contract of indemnity and one of guaranty are several. (a) The promisee in an indemnity contract does not owe a debt to a third person. The indemnitor's contract is an original one, to save the indemnitee harmless against some future loss or damage. It is well recognized that the guarantor's contract is accessorial and secondary to some other obligation which is the principal or primary one.15 (b) Whenever the indemnitee suffers loss, the indemnitor's liability begins, while the guarantor's liability begins when the principal debtor defaults, subject to the condition in certain cases that notice must be given the guarantor of the default of the principal.16 (c) If the liability of the third person is preexisting, and not merely in contemplation when the defendant makes his promise, it is always a guaranty. It is never, under such conditions, a contract of indemnity.17 The guarantor, when he pays the obligation, can recover reimbursement against the principal; while the indemnitor has no right against any one.18

§7. Contracts of surety and guarantor compared. More frequently the courts confuse the terms surety and guarantor; but their undertakings are very different. And it is frequently of great practical importance to be able to distinguish the two where the statute attempts to alter the common law rules as to either one.19 The courts recognize surety to be a more

15 Hall v. Equitable Surety Co. (1917) 126 Ark. 535, 191 S. W. 32; U. S. Fidelity & Guaranty Co. v. Bank of Hattiesburg (1922) 128 Miss. 605, 91 So. 344; Western Surety Co. v. Kelley (1911) 27 S. Dak. 465, 131 N. W. 808; Texas Fidelity & Bonding Co. v. General Bonding & Casualty Co. (1916) Tex. Civ. App. 184 S. W. 238.

16 See the distinctions mentioned in the opinions of Lopes, L. J., and Davey, L. J., in Guild v. Conrad (1894) 2 Q. B. 885, 895-896. The opinion of Lopes, L. J., is discussed in Beattie v. Dinnick (1896) 27

1

Ont. Rep. 285, 292. See also 22
Wash. L. Rep., 479.

17 See Beattie v. Dinnick (1896) 27 Ont. Rep. 285, 293; Falconbridge on Guarantees and the Statute of Frauds" (1920) 40 Can. L. T. 388, 397, 68 U. of Pa. L. Rev., 137, 155.

18 Brandt (1905, 3d Ed.) Sec. 226; 5; "Indemnity Contracts and the Statute of Frauds" (1925) Minnesota Law Review Vol. 9, pp. 401, 414-416.

19 Chafoin v. Rich et al. (1888) 77 Cal. 476, 19 Pac. 882; (1925) 9 Minn. L. Rev., 401, 414-416.

general term than guarantor; and in a statute employing the word "surety" it will generally include guaranty, where there is nothing in the context to limit its application.20 The points of similarity are first, that both a surety and guarantor may be liable on an instrument either negotiable or non-negotiable; second, they are liable for the debt or default of another person. Dissimilarities in many respects have been noted, some of which have been criticized: (a) The rules of the common law have been said to apply to sureties, while those of the law merchant, so far as negotiable instruments are concerned, control the interpretation of the guarantor's obligation.21 (b) The surety undertakes to pay his principal's obligation absolutely; the guarantor's undertaking is to pay if the principal cannot.22 The former promises that the debt will be paid, while the latter guarantees the solvency of the principal. In effect the surety says to the obligee: "If the principal does not pay, I will pay." The guarantor says to the obligee: "Proceed first against the principal, and, if he should not be able to pay, then you may proceed against me." 23 The criterion by which it may be deter

20 Gagan v. Stevens (1886) Utah 348, 9 Pac. 706, 707.

21The rules, however, of the common law as to sureties, are not strictly applied to guarantors, but rather the rules of the law merchant;

"Courtis v. Dennis (1844) 7 Met. (Mass.) 510, 518. Brandt (1905, 3d Ed.) Sec. 2. But the Ohio Supreme Court, in Castle v. Rickly (1886) 44 Oh. St. 490, 496, said, comparing guarantors and indorsers: "By such guaranty, the guarantor is not made a party to the note, and his contract, unlike that of an indorser, is governed by the rules of the common law, and not those peculiar to the law merchant."

22 Stein v. Whitman (1913) 156 App. Div. 861, 142 N. Y. S. 4. Many authorities make this distinction. While it is euphonious, some

say it will not bear analysis. The guarantor is frequently held liable, as hereinafter explained, where he makes an absolute guaranty. See Stearns on Suretyship (1922, 3d Ed.) p. 6, note 9. If the statement be interpreted to mean that the conditional guarantor promises to pay if the obligee, after diligence and a suit against the principal is unable to recover, or to satisfy the debt, it is a proper distinction.

Co.

28 Manry v. Waxelbaum (1899) 108 Ga. 14, 33 S. E. 701, 703; McIntosh Huntington Co. v. Reed (1898) 89 Fed. 464, 466; Fields v. Willis (1905) 123 Ga. 272, 51 S. E. 280. Kramph's Executrix v. Hatz's Executors (1866) 52 Pa. St. 525, 529. Rowlatt on Principal and Surety (1899) p. 2, says: "The liability of a surety is often spoken of as a liability to pay 'if the principal

mined whether one is a surety or a guarantor was thus expressed in a recent opinion:

"The general test of whether a person is a surety or a guarantor is determined by the test as to whether the person undertaking to pay binds himself to do so at all events, or absolutely, or whether he merely undertakes to bind himself for the payment, provided it cannot be made out of the principal. "24

(c) The surety joins with the principal in his contract, and is an original party with him. The guarantor becomes liable on an agreement independent of the one on which the principal is bound.25 One who contracts jointly with the principal cannot be a guarantor.26 (d) The surety's agreement is supported by the consideration on which that of the principal is founded, and no other need be proved.27 The contract of the guarantor must be founded on new and independent consideration, except in three cases: first, where the guarantor requested the loan or credit to the principal, and his written guaranty is

does not.' This does not mean that
his liability is necessarily only condi-
tionally enforceable, but merely that
it is collateral. Being collateral the
liability of a surety is in substance
from the surety's point of view
certainly contingent, because if the
principal pays the debt is satisfied
and the surety is free. And what is
contemplated is that the principal
will pay.
But this may be so, al-
hough the undertaking of the surety
is as absolute as that of the prin-
cipal."

24 Bishop v. Currie-McGraw Co. (1923) 133 Miss. 517, 97 So. 886, 889.

25 Stearns on Suretyship (1922, 3d Ed.) Sec. 6. "In other words, a guaranty is a contract in and of itself; but it also has relation to some other contract, or some obligation with reference to which it is

collateral, and it always requires a consideration.'' Briggs v. Latham (1887) 36 Kan. 205, 13 Pac. 129, 131. See Bedford v. Kelley (1913) 173 Mich. 492, 139 N. W. 250.

26 In McMillan et al. v. The Bull's Head Bank (1869) 32 Ind. 11, 2 Am. Rep. 323, Frazier, C. J.,'said: "There is no case in the books to our knowledge, and some pains has been bestowed in their examination, in which one contracting jointly with the principal debtor has been deemed a guarantor and allowed to avail himself of such defenses as are peculiar to that character." Approved in Bryant v. Stout (1896) 16 Ind. App. 380, 44 N. E. 68.

27 Kissire v. Plunkett-Jarrell Grocer Co. (1912) 103 Ark. 473, 145 S. W. 567; Bassett v. O'Neil Coal and Coke Co. (1910) 140 Ky. 346, 131 S. W. 25.

made after the principal's contract is made; second, where the obligation of the principal debtor is founded upon consideration, and at, or prior to that time, the verbal promise of the guarantor is made, and enters into the inducement for giving credit, then the original consideration of the principal will support the subsequent written promise of the guarantor; third, where the guarantor's contract is made at the same time as that of the principal, and was the basis of the credit extended to him. In form it is a guaranty, but in reality it is that of suretyship.28 But even if the consideration of the guarantor is founded upon the same consideration that supports the principal's obligation, within one of the three exceptions just noted, and he is substantially a surety, the principal and guarantor cannot be sued jointly, because the guarantor's liability is separate from and independent of that of the princi

28 Williams v. Perkins (1860) 21 Ark. 18; Kissire v. Plunkett-Jarrell Grocer Co. (1912) 103 Ark. 473, 145 S. W. 567; Paul v. Stackhouse (1861) 38 Pa. St. 302. See DavisHill Co. Inc. v. Wells (1925) Mass. 149 N. E. 693.

In the opinion in Read v. Cutts (1831) 7 Greenleaf (Me.) 186, it was stated: "Another distinction between a surety and a guarantor is that a promise of a surety is supported by the consideration on which the promise of the principal is founded, and no other need be proved; but the engagement of a guarantor must be founded on some new or independent consideration, except in those cases where the guaranty is given at the time the debt is contracted by the principal, and so may be considered as connected with it." See Briggs V. Latham (1887) 36 Kan. 205, 13 Pac. 129, 131.

In International Harvester Co. of America v. Fleming (1912) 109

Me. 104, 82 Atl. 843, 845, this was the view of the Court: "Where the guaranty is collateral to the principal contract, but is made at the same time and becomes an essential ground of the credit given to the principal or direct debtor, there is not, or need not be, any other consideration than that moving between the creditor and the original debtor under the principal contract."

The Roman law made a similar distinction between suretyship and guaranty. In 2 Colquhoun's Summary of the Roman Civil Law, Sec. 1602, it is said: "Suretyship may form an ingredient in all contracts, and it often happens, that the real credit is given rather to the surety than to the principal obligee. . . ."

"Guarantees are another species of suretyship, and their only essential is, that a sufficient cause or consideration should appear on the face of them."'