§ 80. Third view. What may be considered still a third view is that the instrument will be given the effect intended by the parties at the time it was made, as manifested by the terms of the guaranty, interpreting it neither strictly nor liberally.10 § 81. Must notice of acceptance be given the guarantor? The view of the United States Supreme Court. Having determined that a guaranty was intended, the important question arises whether notice must be given to the guarantor that his guaranty is being acted upon by the promisee. A guaranty is a contract. To be effective, like every other contract, it requires an offer, and acceptance.11 Is the guarantor's communi Mulloy (1890) 174 Mass. 41, 54 N. E. 345, 75 A. S. R. 286; Twohy et al. v. McMurran (1894) 57 Minn. 242, 59 N. W. 301; Cheshire Beef Co. v. Thrall (1899) 72 Vt. 9, 47 Atl. 160. Chief Justice Marshall said in the opinion for the United States Supreme Court in Russell v. Clark's executors et al. (1812) 7 Cranch 69, 90: "The law will subject a man, having no interest in the transaction, to pay the debt of another, only when his undertaking manifests a clear intention to bind himself for that debt. Words of doubtful import ought not, it is conceived, to receive that construction. It is the duty of the individual, who contracts with one man on the credit of another, not to trust to ambiguous phrases and strained constructions, but to require an explicit and plain declaration of the obligation he is about to assume. "" 10 Mussey v. Rayner (1839) 22 Pick. (Mass.) 223, 228. See Menard v. Scudder (1852) 7 La. Ann. 385, 56 Am. Dec. 610. The reason for this view was doubtless the one expressed by the Michigan Supreme Court in Farmers and Mechanics Bank v. Kerche val (1853) 2 Mich. 504, 508-509: "It is proper to observe that commercial guaranties are frequently without that care usually bestowed upon instruments of a more solemn character, and by persons who do not profess any knowledge of those technical rules which are applied to the construction of written instruments. They are often written without special regard to the language employed, or to the collection of words or sentences. This carelessness has been the fruitful source of perplexing litigation. In their interpretation, therefore, a wide latitude is necessarily allowed in discovering the intention of the parties, and it is the duty of the courts to reject those subtle and refined distinctions sometimes resorted to in expounding other instruments.'' 11We think it clear that under the commercial law the guaranty or letter of credit does not bind without acceptance, express or implied." Lachman et al. v. Block et al. (1894) 47 La. Ann. 505, 17 So. 153, 155, 28 L. R. A. 255. See also Beekman v. Hale (1819) 17 Johns. 134; M'Iver et al. v. Richardson (1813) 1 M. & S. 557. 12 cation an offer requiring acceptance, or is he bound when it is acted upon by the promisee, without any notice of acceptance? The Supreme Court of the United States in a leading case stated the rule to be that a guaranty must be accepted, like every other contract in order to be binding, if (a) the guarantor signed it without a request from the promisee to do so, and in his absence, and (b) if the only consideration between the guarantor and guarantee was the future advances to be made to the principal debtor. But no acceptance is required if (a) the promisee requested the guarantor to sign the guaranty, or (b) if the agreement to accept it is contemporaneous with the signing of the guaranty, or (c) if a consideration is acknowledged in the guaranty to have been received.18 If the consideration moves to the guarantor, the performance of the consideration by the promisee implies its acceptance without any formal written acceptance of the offer. Such is the case where the 12 Davis Sewing Machine Co. v. Richards (1885) 115 U. S. 524, 29 L. Ed. 480, 6 Sup. Ct. Rep. 173. Accord: Falls City Construction Co. v. Boardman (1914) 111 Ark. 415, 163 S. W. 1134; Hibernia Bank and Trust Co. v. Succession of Cacienne (1917) 140 La. 969, 74 So. 267, L. R. A. 1917-D, 402; Standard Sewing Machine Co. v. Church et al. (1902) 11 N. Dak. 420, 92 N. W. 805; Unangst v. Hibler (1856) 26 Pa. 150; Mott Iron Works v. Clark (1910) 87 S. C. 199, 69 S. E. 227. But in Wise v. Miller (1887) 45 Oh. St. 388, 14 N. E. 218, 222, the opinion states: "The contemporaneous execution of the agreement by all the contracting parties, with the intention that it should be acted upon for a purpose beneficial to the promisors, and its delivery by the parties to a third person for their uses, which is equivalent to a delivery by each to the others, is a sufficient acceptance, and notice thereof. Any further acceptance and notice seem to be idle ceremony." 13"We think the true theory upon which guarantors are entitled to notice of acceptance is that their undertaking is a mere offer, and does not become a binding contract until such notice. It results from this theory that guarantors are entitled to notice of acceptance only when their undertaking can be construed to be an offer of guaranty. When, however, that undertaking recites a consideration, though, as in this case, that consideration is merely nominal, conclusive evidence is furnished that the guaranty has been made with the assent of the obligee, communicated to the guarantors; and in such cases notice of acceptance is unnecessary." Buhrer v. Baldwin (1904) 137 Mich. 263, 100 N. W. 468, 470. See Koenigsberg v. Lennig (1894) 161 Pa. 171, 28 Atl. 1016. guarantor has a direct personal interest in the credit extended to the principal debtor.14 § 82. Guaranty of a pre-existing debt and a guaranty of future credit. The distinction between a guaranty of the preexisting debt of a third person, and one extending future credit to another, must be noted. If there is an absolute guaranty of an existing debt, or if it be a guaranty supported by a consideration passing directly from the promisee to the guarantor, no notice of acceptance is required, other than the performance of the consideration which is in itself an acceptance.15 It has been held immaterial that no consideration is paid, if it is recited. The guarantor is estopped to deny its receipt.16 The first thing to determine is whether the guarantor merely made an offer to be responsible for the future credit of a third person. If so, the promisee must usually give notice of its acceptance. One reason for requiring acceptance in such a case is that common justice entitles a person to know whether or not his offer has been accepted, so that be may protect himself against loss from the principal debtor.17 As the rule was stated in an early opinion: "Where a party gives a continuing guaranty, or where it relates to future transactions, the general rule upon the 14 Doud et al. v. National Park Bank of N. Y. (1893) 54 Fed. 846, 4 C. C. A. 607. 15 Reynolds et al. v. Douglass et al. (1838) 12 Peters 498; Davis V. Wells (1881) 104 U. S. 159, 165166, 26 L. Ed. 686; Lane v. Levillian, Admr. (1842) 4 Ark. 76, 85, 37 Am. Dec. 769; London and San Francisco Bank, Ltd., v. Parrott (1899) 125 Cal. 472, 58 Pac. 164, 73 A. S. R. 64; Bryant v. Stout (1896) 16 Ind. App. 380, 44 N. E. 68; Kline v. Raymond et al. (1880) 70 Ind. 271; Bechtold v. Lyon (1892) 130 Ind. 194, 29 N. E. 912; McKee v. Needles (1904) 123 Ia. 195, 98 N. W. 618; Watkins Medical Co. v. McCall et al. (1911) 116 Minn. 389, 133 N. W. 966; Cowan, McClung and Co. v. Roberts (1904) 134 N. C. 415, 46 S. E. 979, 65 L. R. A. 129; Emerson Mfg. Co. v. Rustad (1909) 19 N. Dak. 8, 120 N. W. 1094; Deering and Co. v. Mortell (1906) 21 S. Dak. 159, 110 N. W. 86, 16 L. R. A. (N. S.) 352; Shropshire v. Smith et al. (1896) Tex Civ. App., 37 S. W. 174. 16 Shows v. Steiner, Lobman and Frank (1911) 175 Ala. 363, 57 So. 700. But see contra (1920) Williston on Contracts, Vol. I, Sec. 115-b. 17 German Savings Bank v. Drake Roofing Co. (1900) 112 Ia. 184, 83 N. W. 960, 84 A. S. R. 335; Wilkins v. Carter et al. (1892) 84 Tex. 438, 19 S. W. 997. In Lee v. Dick (1836) 10 Peters 491, 495, the subject is, that the guarantor has a right to know whether his guaranty has been accepted, or to what extent he may be liable; and, in such cases, demand and notice are necessary, to charge him. The reason is, that his agreement is collateral and conditional, and so both parties understand it to be; and his liability does not accrue, unless he who receives the benefit from it, fixes it by demand and notice."'18 § 83. Where the guaranty is of future credit to be extended to the principal. If the defendant writes to the plaintiff that he will guarantee prompt payment at maturity of goods purchased from the plaintiff by a third person, or if the guaranty is to enable the principal to obtain credit or employment, the authorities are not in agreement as to the guarantor's liability, where he has not been notified that the credit has been extended. Obviously the consideration contemplated in such a case is the extension of credit to a third person. It is not a sum paid by the plaintiff to the defendant. Whether the goods will be furnished the third person is uncertain, and if furnished, the amount is not determined. If the defendant does not waive notice, his communication should be regarded as a mere proposal; until accepted in accordance with the principles of contract, it remains but an offer. This is unlike the case where the defendant for a consideration paid by the plaintiff guarantees the payment of an existing indebtedness, or where the defendant writes his guaranty on the back of a promissory note promising to pay the sum mentioned on a certain date.18 opinion stated: "That a party giv- 18 Lane v. Levillian, Adm 'r (1842) 4 Ark. 76, 85, 37 Am. Dec. 769. See American Agricultural Chemical Co. v. Ellsworth et al. (1912) 109 19 Taussig v. Reid (1893) 145 Ill. § 84. View that extension of credit is acceptance of the offer to guarantee. Courts are inclined to regard the authorities "in hopeless conflict. "20 Authorities exist to substantiate the proposition that the extension of credit or the sale of goods to the third person indicated by the guarantor is an acceptance of his offer. It is an original contract. Only the plaintiff and defendant are parties to it. It is not dependent upon the agreement to pay by any other person. It is as if A said to B: "If you will sell the goods to C, I will pay for them." Such courts take the view that it is the business of the guarantor to inquire of the obligee what has been done under the guaranty. An early New York opinion said: 21 "But a promise to do an act in consideration of some act to be done by the promisee implies a request, and a compliance on the part of the latter closes the contract and makes it binding." 22 § 85. Modification of requirement that notice of acceptance be given by promisee. The opinion quoted in the preceding section seems modified by a Massachusetts case, in which the defendant, living in Nova Scotia wrote a letter to the plaintiff in Illinois, with a view of having credit extended the brother of the former. "If Harry needs more money, let him have it court. the guarantor, that the person giving the credit has accepted or acted upon the guarantee, and given credit on the faith of it. We are all of opinion that it is necessary; and this is not now an open question in this It is in itself a reasonable rule, enabling the guarantor to know the nature and extent of his liability; to exercise due vigilance in guarding himself against losses which might otherwise be unknown to him; and to avail himself of the appropriate means in law and equity, to compel the other parties to discharge him from future responsibility." See Duncan and Shumate v. Heller (1880) 13 S. C. 94. 20 German Savings Bank v. Drake Roofing Co. (1900) 112 Ia. 184, 83 N. W. 960, 84 A. S. R. 335, 337. 21 Wright v. Griffith et al. (1890) 121 Ind. 478, 23 N. E. 281; Platter v. Green (1881) 26 Kans. 252; Farmers and Mechanics Bank v. Kercheval (1853) 2 Mich. 504; Wilcox v. Draper (1881) 12 Neb. 138, 10 N. W. 579, 41 Am. Rep. 763; Beekman v. Hale (1819) 17 Johns. (N. Y.) 134; Douglass v. Howland (1840) 24 Wend. (N. Y.) 35; Powers et al. v. Bumeratz (1861) 12 Oh. St. 273, which contains an excellent review of the English and American cases; Lonsdale and Gray v. The Lafayette Bank of Cincinnati (1849) 18 Ohio 126. 22 Union Bank of Louisiana V. Coster (1850) 3 N. Y. (3 Com.) 203, 53 Am. Dec. 280, 284. |