time or alter the terms of their original contract. The contract between the principal and obligee remains as originally made. Unless by the obligee's failure to proceed against the principal he has injured the guarantor, there is no reason to release the latter from liability.90 Not only is the guarantor pro tanto discharged, if the creditor fails to notify him of the principal's default, but he is discharged to the extent of any loss he has sustained if the creditor fails to exercise due diligence in proceeding against the principal. Of course, the guarantor may by agreement dispense with this prerequisite, or, after the principal defaults, he may waive it.91 And if the principal is insolvent, it would be useless to 90 Even in cases where notice is necessary, failure to give notice to the guarantor of the default of the principal would operate to release him from such loss only as he sustained by reason of that failure." Booth v. Irving National Bank (1911) 116 Md. 668, 82 Atl. 652, 655. Accord: Davis v. Wells, Fargo and Co. (1881) 104 U. S. 159, 26 L. Ed. 686; Lemmert v. Guthrie Bros. (1903) 69 Neb. 499, 95 N. W. 1046, 62 L. R. A. 954, 111 A. S. R. 561. It was stated in Brown v. Brooks (1855) 25 Pa. St. 210, 212, that: "Something more than demand and notice of non-payment is required to support an action on a guaranty. The contract for due diligence requires that a suit be brought within a reasonable time after the maturity of the claim, and be duly prosecuted to judgment and execution, before an action can be sustained against the guarantor, unless in cases where it is shown that such a proceeding could have produced no beneficial result. Where the principal debtor is insolvent at the maturity of the debt, no such proceeding is necessary as a foundation to an action on the guaranty. Nor is it necessary, in such a case, to for a failure to use such diligence as is necessary to fix the liability of an indorser does not absolutely discharge a guarantor, and he will be discharged in such case only to the extent he may have sustained loss or injury by the delay in enforcing the demand.' Burrow v. Zapp (1888) 69 Texas 474, 6 S. W. 783, 784. In the opinion in Jones v. Goodwin (1870), 39 Cal. 493, 494, 2 Am. Rep. 473, it was said: "No demand or notice is considered necessary as a condition precedent to fixing the liability of the guarantor, or to the commencement of the action; but a failure to make demand and give require that the obligee proceed against him. Since the law will not require a vain thing to be done, it may be shown by the obligee why he did not bring an action against the principal.92 § 22. Absolute and conditional guarantors. The liability of the guarantor will depend upon the kind of a guaranty which is made. Such guaranty, with reference to the kind of obligation assumed when the agreement is made, may be either absolute or conditional. It is essential that these two be distinguished in order to understand the cases. "An absolute guaranty is 'an unconditional undertaking on the part of the guarantor that the maker will pay the note.' A conditional guaranty is 'an undertaking to pay if payment cannot by reasonable diligence, be obtained from the principal debtor.'"' 93 What has been said concerning the discharge of a guarantor of an instrument negotiable or non-negotiable will not apply if the guaranty is absolute. The absolute guarantor is liable from the moment the principal fails to perform as agreed, and is not notice, together with proof of injury, is pro tanto a defense." It was said in Fuller v. Scott (1871) 8 Kan. 25, 26, "The guarantor is not released from liability for want of presentment demand, and notice, unless he can show negligence in the holder of the note, and actual loss sustained by himself." See Pitman v. Bidlecombe (1793) 4 Mod. 230. 92 Lord Ellenborough, C. J., in Warrington et al. v. Furber (1807) 8 East 242, 103 Eng. Reports Reprint 334, 336, said: "... if the latter (the principal) become bankrupt and notoriously insolvent, it is the same as if they were dead; and it is nugatory to go through the ceremony of making a demand upon them." See Stone v. Rockefeller (1876) 29 Oh. St. 625 Brackett v. Rich (1877) 23 Minn. 485, 23 Am. Rep. 703. In the early case of Reynolds v. Douglas (1838) 12 Peters 498, 503, 9 L. Ed. 1171, 1173, the United States Supreme Court thus expressed its opinion: "The rule is well settled that the guarantor of a promissory note, whose name does not appear on the note, is bound without notice, where the maker of the note was insolvent at its maturity. That his liability continues, unless he can show he has sustained some prejudice by want of notice of a demand on the maker of the note, and non-payment." 93 Beardsley V. Hawes et al. (1898) 71 Conn. 39, 40 Atl. 1043, 1044; Cownie v. Dodd (1914) 167 Ia. 627, 149 N. W. 904. entitled to notice of the principal's default, without express agreement. This is true because: "When a guarantor makes an absolute promise that any particular thing shall be done, he thereby assumes an active, absolute duty to see that it is done, and must, at his peril, perform the promise. The absolute guarantor's liability is commensurate with that of the principal and whatever proof will establish the liability of the principal will establish that of the guarantor.95 By writing on the back of a promissory note, "I hereby warrant the within note good and collectible until paid," the guarantor's liability is absolute. The holder is not required in such case to give notice of the principal's default or proceed against him seasonably. The reason is that by his contract, the guarantor has agreed to be liable absolutely on the principal's default "until paid," which constitutes an absolute guaranty.96 7.96 Had the guarantor omitted the words "and collectible," used in the above, simply guaranteeing the note to be good until paid, his obligation would have been a conditional one, and to recover, the holder must allege and prove that steps were taken to collect from the maker, or that the note was not collectible from him.97 If the guarantor had written instead, "I hereby guaranty the payment of the within note," he would likewise be liable with 94 Hubbard v. Haley et al. (1897) 96 Wis. 578, 71 N. W. 1036, 1039. Accord: Lefkovitz v. First National Bank of Gadsden (1907) 152 Ala. 521, 44 So. 613, 615; Heyman v. Dooley (1893) 77 Md. 162, 26 Atl. 117; Booth v. Irving National Exchange Bank (1911) 116 Md. 668, 82 Atl. 652. See note in (1901) Harvard Law Rev. 65. 95 Great Western Printing Co. v. Belcher (1907) 127 Mo. App. 133, 104 S. W. 894; March v. Putney (1875) 56 N. H. 34. 96 Lemmon et al. V. Strong (1888) 55 Conn. 443, 13 Atl. 140; Loomis Inst. v. Hurd (1889) 57 Conn. 435, 18 Atl. 669; Brown v. Wilcox (1900) 73 Conn. 100, 46 The same principle is applicable in the case of a guaranty of a nonnegotiable instrument. Garland v. Gaines (1901) 73 Conn. 662, 49 Atl. 19; Pleasantville Mutual Loan and Building Society v. Moore et al. (1904) 70 N. J. L. 306, 57 Atl. 1034. 97 Cowles, Executor V. Peck (1887) 55 Conn. 251, 10 Atl. 569, 3 A. S. R. 44. But see Donley v. Camp (1853) 22 Ala. 659, 58 Am. Dec. 274. out notice of default, from the moment the maker failed to pay as agreed.98 But even though the defendant unqualifiedly guarantees the payment of an instrument, if the sum due is uncertain, the time of limitation for payment by the principal not fixed, or the liability to be determined by the settlement of accounts, he is entitled to notice before he incurs any liability in an action.99 A guaranty, supported by a consideration, written on the back of a promissory note, or on a separate paper to pay "at maturity, 100 or "to remain in full force until the debt now due is fully discharged," or "this bill will be paid in fifteen days," obliges the promisor to pay without notice by the payee, and without requiring diligence on the part of the payee to collect from the principal. It is the duty of an absolute guarantor to notice the fact that the debt is unpaid. § 23. Guaranty of payment and guaranty of collectibility. Distinction between a guaranty of payment and guaranty of collectibility should be noted. The former is absolute, and no notice of the principal's default to the promisor need be given; the latter is conditioned on proper notice and due diligence by the obligee. The undertakings of the two guarantors are different, hence the prerequisites to their ability are not the same. As the New York Court of Appeals stated: "The fundamental distinction between a guaranty of payment and one of collection is, that in the first case the guarantor undertakes unconditionally that the debtor will pay, and the creditor may, upon default, proceed directly against the guarantor, without taking any steps to collect of the principal debtor, and the omission or neglect to 98 Roberts v. Hawkins (1888) 70 Mich. 566, 38 N. W. 575. 99 Courtis v. Dennis (1844) 7 Met. (Mass.) 510, 518-519. 100 Fegley v. Jennings (1902) 44 Fla. 203, 32 So. 873, 103 A. S. R. 142; McKibben et al. v. Ripley et al. (1901) (Neb.), 95 N. W. 1046; Roberts et al. v. Riddle (1875) 79 Pa. 468. See Clay v. Edgerton (1869) 19 Oh. St. 549, 2 Am. Rep. 422. 1 Cowan, McClung and Co. v. Roberts (1904) 134 N. C. 415, 46 S. E. 979, 65 L. R. A. 729, 101 A. S. R. 845. V. 2 Stewart, Gwynne and Co. Sharp County Bank (1903) 71 Ark. 585, 76 S. W. 1064. 3 Heyman v. Dooley (1893) 77 Md. 162, 26 Atl. 117, 20 L. R. A. 257; Tilt-Kenney Shoe Co. v. Haggarty et al. (1906) 43 Tex. Civ. App. 335, 114 S. W. 386. proceed against him is not (except under special circumstances) any defense to the guarantor; while in the second case the undertaking is that if the demand cannot be collected by legal proceedings the guarantor will pay, and consequently legal proceedings against the principal debtor, and a failure to collect of him by those means are conditions precedent to the liability of the guarantor; and to these the law, as established by numerous decisions, attaches the further condition that due diligence be exercised by the creditor in enforcing his legal remedies against the debtor."4 From this it is obvious that it is quite material to determine whether the guaranty is absolute, conditional, or whether it be one of payment or a guaranty of collectibility. If it is absolute, or if it is a guaranty of payment, no notice of the principal's failure to pay need be given, because the guarantor by his promise agreed to become absolutely liable without the performance of any conditions. Also, no diligence by the obligee to collect from the principal is prerequisite to the liability of the Rapallo, J., in McMurray v. Noyes (1878) 72 N. Y. 524, 28 Am. Rep. 180, 181. Subsequently the North Carolina Supreme Court emphasized the same distinction, saying: "There is a well-defined distinction between a guaranty of payment and a guaranty for the collection of a debtthe former being an absolute promise to pay the debt at maturity, if not paid by the principal debtor, when the guarantee may bring an action at once against the guarantor; and the latter being a promise to pay the debt upon condition that the guarantee diligently prosecutes the principal debtor for the recovery of the debt without success. Cowan, McClung and Co. v. Roberts (1904) 134 N. C. 415, 46 S. E. 979, 980, 65 L. R. A. 729, 101 A. S. R. 845. Accord: Cownie v. Dodd et al. (1914) 167 Ia. 627, 149 N. W. 904. See also Evans v. Bell (1876) 45 Tex. 553; Heyman v. Dooley (1893) 77 Md. 162, 26 Atl. 117, 20 L. R. A. 257; article on "Demand on Principal Before Action Against Guarantor," by W. P. Rogers (1906) 6 Col. L. Rev., 229. In Meritt v. Haas (1908) 106 Minn. 275, 118 N. W. 1023, 1025, 21 L. R. A. (N. S.) 153, it was said that: "A distinction is made in contracts of this kind between guarantors of collection and absolute guarantors of payment. As to the former, the creditor is under certain obligations to protect the guarantor... But the rule does not apply to an unconditional undertaking to pay if the principal debtor fails to do so." 5 Read v. Cutts (1831) 7 Greenleaf (Me.), 186, 22 Am. Dec. 184; Providence Machine Co. v. Browning et al. (1903) 68 S. C. 1, 46 S. E. 550. |