Case Name: The President &c. of the Oxford Bank versus Daniel P. Haynes
Court: Massachusetts Supreme Judicial Court
Jurisdiction: Massachusetts
Decision Date: 1829-10-05
Citations: 8 Pick. 423
Docket Number: 
Parties: The President &c. of the Oxford Bank versus Daniel P. Haynes.
Judges: 
Reporter: Massachusetts Reports
Volume: 25
Pages: 436–444

Head Matter:
The President &c. of the Oxford Bank versus Daniel P. Haynes.
Where upon the back of a promissory note made by S and A to the plaintiffs, were written the words, “ I guaranty the payment of the within note,” which were signed by the defendant, it was held, that he was a guarantee and not a surety.
The guarantee of a promissory note will be discharged by a neglect of the holder to demand payment of the maker and to give the guarantee notice of non-payment, provided the maker was solvent when the note fell due but has since become insolvent.
■Assumpsit upon a promissory note, dated on October 9, 1823, for 1000 dollars, payable to the Oxford bank in sixty days and grace.
On a case stated it appeared, that the note was made by Alpheus Smith and James Anderton as principal and surety, jointly and severally, and was offered at the bank for discount; but the bank refused to discount it, and the cashier wrote on the back of it the words, “ I guaranty the payment of the within note,” to which Smith procured the signature of the defendant. The note was then discounted at the bank, and the amount thereof was paid to Smith. A payment of 250 dollars was made by Smith at the maturity of the note, about the 1st of December, 1823, and no notice of the non-payment of the residue was given to the defendant. The note so remained until October 7, 1824, when an action was commenced upon it against Smith, and one Southgate was summoned as his trustee. Judgment was rendered in that action, in March, 1825, and Southgate paid on the judgment the amount in his hands, being 535 dollars ; and nothing has been paid upon the note or judgment since. 'Smith and Anderton were reputed to be men of property at the time of making the note and so continued until the time of their failures. Smith failed about the 23d of January, 1824, and Anderton in February following, each being possessed of visible and attachable property much exceeding the amount of this note, and which was attached and levied on by their other creditors. Since their failures they have continued insolvent.
Smith lived about ten miles from the Oxford bank and in the same village with Haynes, at the date and maturity of the note. Anderton lived between this village and the bank, and about six miles from the bank. .
On the 7th oT October, 1824, the directors of the bank chose a committee to go to Leicester to effect an adjustment of the affair, and notice was then given to Haynes that the note had not been paid. Haynes had never given the plaintiffs notice of the failure of Smith and Anderton, nor requested the plaintiffs to collect the note. Both Smith and Anderton, previous to their failures, were in the habit of doing business at the Oxford bank.
The plaintiffs were to become nonsuit or the defendant to be defaulted, according as the Court should order.
The declaration contained two counts ; one charging the defendant as an original promisor, the other as a guarantee.
Barton, for the plaintiffs.
No demand on the promisor, nor notice to the defendant, was necessary.
Sept, tms
A guarantee is one who undertakes to see the stipulation made by another performed, or to perform it himself. It is not a conditional undertaking, like that of an indorser, but an absolute one. The guarantee puts his name on the note to increase the security ; the indorser, to show that he relinquishes and assigns his interest in the note. The indorser’s undertaking is a mere implication of law ; it is implied that there shall be a demand and notice, and that then he will pay ; the contract of the guarantee is express. The analogy between a guarantee and a surety is most strict. A surety undertakes in the first instance to pay the debt of another ; a guarantee, that he will see it paid or pay it himself. This is the only difference. Now the law as to sureties is well settled. Hunt v. Bridgham, 2 Pick. 583; Crane v. Newell, ibid. 612. A guarantee by a blank indorsement has been regarded precisely ns a surety. Josselyn v. Ames, 3 Mass. R. 274 ; Moies v. Bird, 11 Mass. R. 436; Sumner v. Gay, 4 Pick. 311. In Upham v. Prince, 12 Mass. R. 14, which was an action against the guarantee of a negotiable note, the undertaking was considered to be unconditional. Allen v. Rightmere, 20 Johns. R. 365, is to the same effect.
But admitting that the defendant was only conditionally liable, he had sufficient notice. He was not entitled to the same notice as an indorser, who is aided by the law merchant, but only to reasonable notice. It would have been futile to give a formal notice in this case. Smith lived in the same village with the defendant and his failure was notorious ; and the conduct of the defendant amounts to a waiver of notice. Boyd v. Cleveland, 4 Pick. 525.
Merrick, on the same side,
contended that this was not a contract of guaranty, but that it was an original engagement by the defendant as a surety. He cited Hunt v. Adams, 5 Mass. R. 358, and 6 Mass. R. 519; Cobb v. Little, 2 Greenl. 261; 3 Wheat. 148, note; Carver v. Warren, 5 Mass. R. 545; Phillips v. Astling, 2 Taunt. 206; Warrington v. Furbor, 8 East, 242.
Washburn, for the defendant.
A contract of guaranty differs, from that of principal and surety. An action cannot be brought upon it in the same way. The undertaking is collateral, and the remedy is by an action of special assumpsit. Fell on Guar. 188; 1 Wms’s Saund. 211, note 2; Mines v. Sculthorpe, 2 Campb. 215. This Court have recognised the principle, that a guaranty is a collateral undertaking. Carver v. Warren, 5 Mass. R. 546. Where the name has been indorsed in blank, the holder has been allowed to consider the indorsement either a guaranty or an absolute promise; as in Josselyn v. Mies and Moies v. Bird before cited, and Tenney v. Prince, 4 Pick. 385. But here the defendant elected to be a guarantee, and the plaintiffs are estopped to treat him as a surety. A guaranty is a conditional promise. Fell on Guar. 1; Phillips v. Mtling, 2 Taunt. 206. A guaranty was not allowed to be proved under a commission of bankruptcy, because it was contingent. Ex parte Mlney, Cowp. 460. It is an insurance of the solvency of the principal. Warrington v. Furbor, 8 East, 245. Here the principals were solvent at the time when the note fell'due ; and payment ought to have been demanded of them, and in a reasonable time. Com. Dig. Principal and Surety, K 2; Morris v. Cleasby, 4 Maule & Selw. 574; 8 East, 245; Moakley v. Riggs, 19 Johns. R 69. And notice of the demand and non-payment should have been given to the defendant. Bank of New York v. Livingston, 2 Johns. Cas. 409; Sturgis v. Robbins, 7 Mass. R 301; 2 Taunt. 206; Holbrow v. Wilkins, 1 Barn. & Cressw. 10. The notice must be reasonable ; not always so immediate as in the case of an indorser, but the holder shall not delay so long as to cause an injury to the guarantee. Chitty on Bills (Amer. ed. 1821), 264; Nicholson v. Gouthit, 2 H. Bl. 612; 3 Stark. Ev. 258, 650; [l Dane’s Abr. 416.] Here a new credit of ten months has been given to the principals, without notice to the guarantee ; and the delay discharges the guarantee, though it would be otherwise in the case of a surety. And if the delay alone is not sufficient, here was gross loches. Cremer v. Higginson, 1 Mason, 339; Russell v. Perkins, ibid. 368; Duval v. Trask, 12 Mass. R. 154; 3 Wheat. 154; Peel v. Tatlock, 1 Bos. & Pul. 419; Gibbs v. Cannon, 9 Serg. & Rawle, 202.
Oct. 5th, 1839

Opinion:
Parker C. J.
delivered the opinion of the Court. It is very clear from the facts stated, that the bank might easily have secured the amount of the note, had they attempted to do it when it became payable, or within a month afterwards ; and that Haynes, the defendant, had he been seasonably called upon and been notified of the non-payment of the note, might without difficulty have obtained security from the property of either or both of the promisors. Had he been an indorser of the note, most clearly by the above facts he would have been discharged, not only because the condition of giving notice was not strictly complied with, but because there was gross negligence on the part of the bank, and a new credit given to the promisors without the consent of the indorser.
Haynes therefore cannot be liable, unless by the form of his contract he became answerable at all events, and unconditionally, for the payment of the note. And it is contended that this is the legal effect of the contract of guaranty into which he entered
It is somewhat extraordinary, that the nature of this contract, and the extent of the liability it creates, are not very clearly settled in the books. It has been sometimes held to be an absolute, sometimes a conditional obligation. Sometimes a guarantee has been deemed a surety, and at others, not more than an indorsee. And this perhaps has arisen from the different forms in which the contract has been made. In several cases, where the party put his name on the hack of the note, without any words written over it at the time, he not being the payee of the note, he has been charged as an original promisor, being considered in the light of a surety, and he has been declared against as such ; but in these cases his signature was given at the time of making the note, or in so short a time afterwards, and under such circumstances, as to have relation to the making of the contract originally. The case of Josselyn v. Ames is of the first class, and that of Moies v. Bird, of the second. In other cases, the signature of a third party, not named in the note, has been given a long time after the making of the note, and without any circumstances showing that this third party had any concern in the original contract. Such was the case of Ulen v. Kittredge, 7 Mass. R. 233.
In the first class of cases, the holder of the note has been allowed to treat the person whose name is on the back, as a surety or original promisor, without any proof of consideration, other than as against the person who signed his name under the note, or of any actual promise on his part to pay, except what is derived from his signature to the note. In the second class of cases, proof has been required of the promise or engagement to become liable, and he is to be charged in no other form than is consistent with that engagement; and it being a collateral engagement to pay the debt of another, there must be proof of a consideration for the promise. The distinction is clearly stated in the case of Hunt v. Adams, 5 Mass. R.' 361.
But the cases above cited, where the party signing on tne back of the note has been held to be an original promisor, are where the signature is in blank, and not where a special undertaking is written over it. In such cases the party chargeable, the note not being negotiable, gives authority to the payee or holder to write over his signature such words as will bind him to the payment, not as indorser, for he cannot be such technically to a note not negotiable, but as promisor, surety or guarantee, at his election. No such authority exists, where the tenor and form of the undertaking are already drawn out before the signature of the party.
In the case before us, the signature of the defendant was not in blank, but under the words written by the cashier, the agent of the plaintiffs, which import a guaranty only. This is the only character in which he can be made liable, and if by law a guarantee is not an original promisor, he cannot be sued as such.
We therefore must consider what is the liability of a guarantee upon a promissory note ; whether he is liable at all events, or only upon condition ; and if the latter, whether the condition has been here performed.
This is the point which we think is undecided in this Commonwealth, though there have been many allusions to it in cases such as have been mentioned, in which the question was in relation to the liability of a surety, or of one who put his name on a note not negotiable, or where the party so putting nis name had no authority to assign, not being the payee. But no case, in which the contract was in terms a guaranty, and so intended by the parties, has been presented to the Court. That a guarantee differs in character from a surety, cannot be questioned, for he cannot be sued as a promisor, as the surety may ; his contract must be specially set forth. That he differs from an indorser is equally clear, and for the same reason ; and also because he warrants the solvency of the promisor, which the indorser does not, he being answerable on a strict compliance with the law by the holder, whether the promisor is solvent or not. There are cases which adopt a distinction which is reasonable and just, in which the guarantee is discharged'only by the joint effect of negligence on the part of the holder, and an actual loss or prejudice to the guarantee in consequence of that negligence. It is certainly conformable to the general principles of right and justice, that the creditor who knows of the delinquency of his debtor, and withholds informat"on of it from the guarantee, by reason of which the debt is actually lost, when it might have been saved by either, should not throw the loss upon the guarantee. It is contrary to the general principles of equity, upon which the law of contracts is considered to rest. Can it be supposed that a creditor holding the note of one thought to be in good credit, and who has ample means of paying, shall have a right, when he finds there is an inability to take up the note on its becoming due, to receive partial payment, give further credit, and thus put the debt in jeopardy, and after he has indulged the debtor ad libitum, shall call upon the guarantee for the deficiency, when absolute insolvency has taken place and all other creditors have saved themselves out of his effects ? This would offend all the analogies of the law, which require good faith and diligence, to enable a creditor to call upon parties consequentially liable, and would place a guarantee in a worse condition than a surety ; who, being an original promisor, may take up the note when it becomes due and sue the principal immediately. The glaring injustice of such a position has been discountenanced by those courts which have had the question presented distinctly to them.
In 8 East, 242, Lord Ellenborough says the same strictness of proof is not necessary to charge the guarantee, as would have been necessary to support an action on the bill itself, that is, against an indorser, where, by the law merchant, a demand upon and refusal by the acceptors must have been proved in order to charge the other party on the bill, and this, not withstanding the bankruptcy of the acceptors. Guarantees insure the solvency of the principals, and therefore if the lattei become bankrupt and notoriously insolvent, it is the same thing as if they were dead, and it is nugatory to go through the ceremony of making a demand upon them. Laiorence J. says, though proof of demand of the acceptors, who had become bankrupt, were not necessary to charge the guarantees, yet the latter are not prevented from showing that they ought not to have been called upon at all, for that the principal debtors could have paid the bill if demanded of them. Le Blanc J. says, it is sufficient as against a guarantee, that the holder of the bill could not have obtained the money by making a demand upon the bill.
And in 2 Taunt. 206, it was decided that a guarantee is entitled to notice, if the parties to the bill are not insolvent at the time it is due.
But the principle is more accurately and intelligibly stated by Duncan J. in the case of Cannon v. Gibbs, 9 Serg. & Rawle, 202. " I think," says he, " upon a review of these cases, the line is clearly marked out. It is this ; that the guarantor is discharged, if notice is not given of non-payment to him, that he may avail himself of proper presentment, demand and of due notice of non-payment where the drawer and indorser, or either of them, are solvent at the time the note became due. But where both are then insolvent, this would be primá facie evidence that a demand on them, and notice to the guarantor, would be of no avail, and therefore, the giving notice to a guarantor, not a party to the bill, would be dispensed with, the presumption being, that the guarantor was not prejudiced by the want of notice."
And this seems to be the true ground ; for it leaves the loss upon the party whose gross negligence is the cause of loss to any one, instead of throwing if upon him who would suffer entirely from the carelessness of the party who would recover of him. Upon this principle we decide the present case in favor of the defendant, without trenching at all upon the decisions relating to the liability of sureties, or those who, by signing their names in blank upon notes not negotiable, are regarded as quasi sureties ; this being clearly a contract of guaranty only, in its form, and subject to the rules which govern that species of contract. It is clear that both the promisors in the note were solvent when it became due, and that they had abundant property liable to attachment. But the plaintiffs, with the knowledge of their delinquency, lay by nine months, during which time their property was sacrificed and all hopes of obtaining payment were by that means lost. Some intima tians were made in the argument, that it was the usage of the bank, when notes have been discounted, to suffer a renewal from time to time, on the payment of a certain portion of the sum loaned, as the notes should become due. It is not stated in the case agreed, that there was such a usage, or that the defendant knew of it. If at the time he gave his guaranty there was any such usage, or any stipulation to that effect, and this was known to the defendant, it may be questionable whether the want of notice would avail him in defence.
Plaintiffs nonsuit.
See Leonard v. Fredenberg, 8 Johns. R. 29; Tenney v. Prince, A Pick. 386; S. C. 7 Pick. 243; De Wolf v. Rabaud, 1 Peters's Sup. C. R 476; Wheehight v. Moore, 2 Hall, (New York,) 143; S. C. 1 Hall, 648; Dearborn V. Paries, 5 Greenleaf, 81.
See Aldridge v. Turner, 1 Gill & Johns. 427; Tenney v. Prince, 7 Pick. 243; Flagg v. Upham, 10 Pick. 148; Neelson v. Sanborne, 2 N. Hamp. R. 414; Read v. Cutts, 7 Greenleaf, 190; Elliott v. Giese, 7 Har. & Johns. 457.
See Seymour v. Van Slych, 8 Wendell, 403.
Salisbury v. Hale, 12 Pick. 424; Thomas v. Davis, 14 Pick. 355; Green v. Dodge, 2 Hammond, 430; 3 Kent, (3d edit.) 123; Read v. Cults, 7 Grecnleaf, 186; Sage v Wilcox, 6 Connect. R. 81; Men v Brightmore, 20 Johns. R. 365; Douglass v. Reynolds, 7 Peters, 113; Breed v. Hillhouse,7 Connect. R. 523; Wooleij v. Sargent, 3 Halsted, 262; Grice v. Ricks, 3 Devereux, 65; Bradley v. Carey, 8 Greenleaf, 234 ; Tru v Harding, 3 Fairfield, 195; Hall v. Rand, 8 Connect. R. 561; Bayley v. Hazard, 3 Yerger, 487 Williams v. Granger, 4 Day, 444; Chitty on Contr. (4th Am. ed.) 397.