an action against him by the payee or indorsee,76 though parol evidence is admissible to show such an agreement between the indorsers themselves.77 If the signature is placed on a negotiable instrument by a stranger a long time subsequent to that of the maker, and after delivery, clearly the liability is not that of a surety. It was, prior to the Negotiable Instruments Law, a guaranty. Consideration to support the promise must exist, but it could be proven by parol.78 Under the Negotiable Instruments Law, this would doubtless be presumed to be an indorsement,79 and, furthermore, the indorsement would be presumed to have been made prior to maturity.80 § 19. Effect of "assigning" a negotiable instrument. Under the Negotiable Instruments Law, and in some of the cases prior to its enactment, an indorsement on the back by the payee that "I herewith transfer and assign all my right, title and interest 76 First National Bank v. Bickel (1911) 143 Ky. 754, 137 S. W. 790. 77 Wilson v. Hendee (1907) 74 N. J. L. 640, 66 Atl. 413; Haddock, Blanchard and Co. V. Haddock (1908) 192 N. Y. 499, 85 N. E. 682, 19 L. R. A. (N. S.) 136. 78"When the guaranty is contemporaneous with the execution of the instrument, it is not necessary that there should be any consideration, other than that for which the note is evidence. But where, as in this case, the alleged guaranty was made long after the execution and delivery of the note, although before due, there must be some new consideration. Like all valid contracts, there must be a consideration to support it. And there can be no presumption of a consideration. It must be proved." Tucker v. Gentry (1902) 93 Mo. App. 655, 67 S. W. 723, 724. Chief Justice Shaw said in Essex Co. v. Edmands et al. (1858) 12 Gray (Mass.) 273, 71 Am. Dec. 758: "Therefore, if the note was thus indorsed in blank, after it was delivered by the promisor to the promisee, it could not be a contract made upon the original consideration of advancing the money on the note, and participating in the same consideration with the promisor. "Being a blank indorsement, of course no consideration appears on the face of it; but if it was put on after delivery, an instrument so indorsed in blank authorizes the holder to go into proof of the fact which such blank shows was intended to be supplied; it may be proved by parol testimony that there was a consideration as between the holder and guarantor, and what that consideration was, and the blank filled accordingly." 79 N. I. L., Sec. 63. to the within note," is a qualified indorsement, the same as if the indorser had used the phrase "without recourse." It is an effective transfer of the instrument to the indorsee. It cuts off the defenses of the maker, but fails to confer any rights against the indorser.81 But a few cases have held such an indorsement throws suspicion upon the transaction, destroys the negotiable 81 See article by Dean H. W. Arant (1924) 34 Yale L. J., p. 144; Spencer v. Halpern (1896) 62 Ark. 595, 37 S. W. 711, 36 L. R. A. 120; Hammond Lumber Co. v. Kearsley (1918) 36 Cal. App. 431, 172 Pac. 404; Evans v. Freeman (1906) 142 N. C. 61, 54 S. E. 847; Merrill v. Hurley et al. (1895) 6 S. Dak. 592, 62 N. W. 958, 55 A. S. R. 859. A decision under the Negotiable Instruments Law, where the payee of a note, wrote on the back of it, "I here by assine this note," and signed his name, held the payee to be an indorser, and the makers could not set up the defenses against a holder in due course, which could be set up against the payee. Confusion prior to and after the Negotiable Instruments Law was admitted. The opinion states: "The authorities seem to be in utter and hopeless confusion concerning the effect of the transfer of a negotiable instrument by words like those used here. This confusion existed prior to the passage of the uniform Negotiable Instruments Law, and still exists. The weight of authority was and is, that this is a commercial indorsement. We are of the opinion that the 'assignment' of this note is an indorsement thereof, under the Negotiable Instruments Law; that Farnsworth is a holder in due course; and that the makers of the note cannot set up the defenses against the note that could have been set up against it in the hands of Wheeler." Farnsworth v. Burdick (1915) 94 Kan. 749, 147 Pac. 863. The same court the year previous held that where the payee wrote on the back of note, "I hereby assign the within note and coupons, together with all my interest in and all my rights . without recourse," it was an assignment, and not an indorsement, and the transferee took only the rights of the payee. Nelson v. Southworth (1914) 93 Kan. 532, 144 Pac. 835, 836. character of the paper, is only an assignment, and the transferee takes it subject to the equities of the original parties.82 But where one of two joint payees of a note merely assigns and transfers his interest and title to the other joint payee, who in turn indorses it to a holder in due course, the first joint payee so assigning is liable to such holder as an ordinary indorser; and any fact which might be a defense between the joint payees cannot be set up in an action brought by a bona fide holder. Both joint payees must indorse a note to negotiate it.88 One joint payee, by assigning his interest in the instrument to the other joint payee, authorizes the latter to indorse for him, which when done, makes both indorsers.84 However, if the payee indorses the note in due course, stating "I guarantee payment of the within note, and waive demand, notice and protest," it was held to be an indorsement, and the indorser liable as such. The reasoning was that in a guaranty, in the jurisdiction deciding the case, no demand or notice of non-payment was necessary to fix the guarantor's liability. Presuming the parties used the clause waiving notice for some purpose, and such language being unnecessary if a guaranty was intended, but effectuating a purpose if the defendant intended to be an indorser, the court held the above constituted an indorsement.85 § 20. Difference between liability of surety and guarantor. Having determined which one of these contractual obligations was assumed, the consequences must be considered. The princi Fed. 850, 73 C. C. A. 84, 4 L. R. A. (N. S.) 657; Sears v. Lantz et al. (1878) 47 Ia. 658; Markey et al. v. Corey (1895) 108 Mich. 184, 66 N. W. 493, 36 L. R. A. 117, 62 A. S. R. 698; Copeland v. Burk (1916) 59 Okla. 219, 158 Pac. 1162. 82 Aniba v. Yeomans (1878) 39 Mich. 171; Gale v. Mayhew (1910) 161 Mich. 96, 125 N. W. 781, 29 L. R. A. (N. S.) 648; Hatch v. Barrett et al. (1855) 34 Kan. 223, 8 Pac. 129. 83 N. I. L., Sec. 41; Voris v. Schoonover et al. (1914) 91 Kan. 530, 138 Pac. 607, 50 L. R. A. (N. S.) 1097. 84 Citizens National Bank v. Walton (1898) 96 Va. 435, 31 S. E. 890; Daniel on Negotiable Instruments (1919, 6th Ed.) Sec. 684. 85 Delsman v. Friedlander et al. (1901) 40 Oregon 33, 66 Pac. 297; Mangold and Glandt Bank v. Utterback (1916) 54 Okla. 655, 160 Pac. 713. pal will be liable not only to his creditor, but also in an action for reimbursement by the surety if the latter has paid the obligation for him. The indemnitor and warrantor will be liable to the person to whom the obligation was made, but they will be without the right to recover against anyone unless there is some contract permitting it.86 The obligee may, at his own option, and without notice of the principal's default, bring an action against the surety, who, after paying the obligee, in turn may recover from the principal the amount he has paid for him. If the instrument is construed as a joint and several contract, the obligee has the option to sue the surety alone, or jointly with the principal. The consequences in either case will be the same. While, as heretofore stated, the guarantor cannot be sued jointly with his principal, because liable on a separate and independent contract, he may be sued individually on his promise; and, if recovery is had against him, he, in turn may sue his principal for reimbursement for the outlay on his account.87 The surety then, being liable with the principal, and to the same extent, is entitled to no notice of the principal's default. Indeed, in the absence of statute, no indirect act, except a subsequent, valid, enforceable agreement between the obligee and the surety altering the original contract, or affecting the rights thereunder, will release the latter from his promise.88 But with the guarantor, the situation is frequently different. To calculate the consequences of a guarantor's contracts, it is necessary to determine first, whether it is a negotiable or a non-negotiable instrument; second, whether it is an absolute or a conditional guaranty; third, whether it is a continuing guaranty. The liability of the guarantor is conditional upon the inability of the principal to pay. He is not, like the surety, liable from the beginning, but only after the principal defaults. Such being the character of his promise, the guarantor would not know, unless apprised by the obligee, that he had become liable under 86 Brandt (1905, 3d Ed.) Sec. 5. 87 Beal V. Brown (1866) 13 Allen (Mass.) 114; Lee and Co. v. Stowe and Wilmerding (1882) 57 Texas 444. 88 Courtis v. Dennis (1844) 7 Met. (Mass.) 510: "A surety is not, as a matter of course, entitled to notice, and is not discharged by the insolvency of the principal debtor, for want of notice, although the principal was solvent when the debt became due."' his promise. The guarantor is not bound at his peril to take notice of the non-performance of the principal's contract. A duty, therefore, is laid upon the obligee to notify the guarantor of the inability of the principal to pay. It is a condition precedent to recovery against the guarantor that he be notified by the obligee of the inability of the principal to pay, though it is not a condition precedent to the inception of his liability. Though potentially liable, failure to be notified may discharge the guarantor.89 Two reasons may be noted for this recognized principle: (a) It is the implied agreement of the parties; (b) by the notice, the guarantor is enabled to protect himself by taking available steps to reimburse himself from the principal, or to be subrogated to the rights of the obligee against the principal. § 21. Failure of obligee to notify ordinary guarantor discharges him pro tanto. Is the failure of the obligee to give the guarantor notice a bar to any recovery, or does he remain liable for a pro tanto share? The authorities are clear that failure tc give the guarantor notice of the principal's inability to pay is not an absolute defense, but that the guarantor is discharged by such failure only to the extent that he can show he has been injured thereby. If the guarantor can establish no loss, he is not released. If he can show loss because he did not know of the principal's inability to pay, he is released to the extent of such loss only. There is not here any change of contract between the parties to discharge the guarantor such as exists when the obligee and principal enter into a valid agreement to extend 89But, as we have seen, a guarantor-the surety in a contract of guaranty is not primarily liable upon the principal's contracts, and only becomes liable upon his default. A guarantor, under this rule, is entitled to notice of the amount of his liability within a reasonable time after that liability is determined by the transaction between the original debtor and creditor." Singer Mfg. Co. v. Littler (1881) 56 Ia. 601, 9 N. W. 905, 906. "But in regard to a guarantor, if the debt is not paid at maturity by the principal, who is solvent at the time, the guarantor will be discharged, if he has not received notice, if the principal shall have become insolvent, and, as a general rule, the guarantor is entitled to notice within a reasonable time; ." Courtis v. Dennis (1844) 7 Met. (Mass.) 510. |