QUESTIONS 1. What is a contract of guaranty? 2. Who are the parties to a contract of guaranty? 3. What are the special requirements in a contract of guaranty? 5. What is the usual consideration for the guarantor's or surety's promise? 6. When will a new consideration be required to support a contract of guaranty? 7. What is the difference between a guaranty of collection and a guaranty of payment? 8. Mention the different kinds of guaranty. 9. What is the purpose of a guaranty of title to real property? 10. Under what circumstances would an employer require a fidelity bond of an employee? II. What are fidelity bonds and who issues them? 12. What are the rules governing notice of acceptance by creditors? 13. In case of default, must notice be sent to the guarantor? plain. 14. How is the guarantor's liability fixed? 15. How may a guarantor be discharged from his contract? 16. What are the special rights of the guarantor? Ex 17. How does the liability of a surety differ from the liability of a guarantor? 18. What must the creditor do before he can proceed against a guarantor? Against a surety? 19. What is the right of subrogation? 20. When there are two or more guarantors and one settles the whole debt, what special right has he? 21. If the creditor and the principal debtor, without the consent of the guarantor, alter the original contract, how does this affect the guaranty? 22. What effect does the death of the guarantor have upon his con tract? IMPORTANT POINTS A contract of guaranty or suretyship is subject to all legal requirements of contracts in general. A guarantor's undertaking is collateral to that of his principal. A surety is one who makes his principal's debt his own debt. A guarantor is usually entitled to demand or notice within a reasonable time after default of payment. A surety is not entitled to demand or notice. He is bound whether notice is given or not. If one surety or guarantor pays the whole debt he is entitled to contribution. No additional consideration is required in a contract of guaranty or suretyship made concurrently with the original contract. A new consideration is required in all contracts of guaranty and suretyship which are entered into subsequent to the original contract. A guarantor's obligations are fixed by the terms of the contract. Causes which will discharge the principal will serve to discharge the guarantor or surety. An indorser's contract is collateral to that of the maker or principal the same as a guarantor's contract, while a surety's contract is primary and directly enforceable. TEST QUESTIONS 1. How must a contract of guaranty be evidenced? 2. What is the difference between an indorser's contract and a guarantor's contract? 3. When a guarantor is not notified of a default by the principal, what is the effect on the guarantor's liability? 4. May the creditor proceed against the guarantor without first proceeding against the principal? 5. How does the liability of surety differ from that of the indorser of a negotiable instrument? 6. Davis is indebted to Lamb and is unable to pay his debt. The debt was overdue when Davis induced Merritt, a friend of his, to sign a guaranty of the debt. Is Merritt liable on the guaranty? Explain. 7. In the case just mentioned, Lamb agreed to withdraw legal proceedings if Davis would get some one to guarantee the debt. Merritt was induced by Davis to guarantee the debt. Is Merritt liable? Explain. 8. Maxwell is a surety for Green on Green's debt. Maxwell pays the debt before any demand has been made on Green by the creditors. Is Maxwell entitled to be reimbursed by Green? 9. James is the guarantor of Burt's debt to Hinds. Hinds gave Burt a release. What effect does this have on James' obligation? Explain. 10. Has the surety a right to take advantage of any defenses that might be used by the debtor? CASE PROBLEMS Give the decision and the principle of law involved in each case. 1. Cochran wished to open an account with Dean and to purchase provisions on credit. Dean would not give Cochran credit unless some one would guarantee payment of the account. Cochran induced a friend of his, by the name of Jacobs, to sign a statement as follows: "I hereby guarantee to any person selling goods to Cochran, not exceeding $500, that if he does not pay the account when due, I will." Dated and signed, John C. Jacobs. When the account came due, Cochran failed to pay and Dean took action against Jacobs. Can he recover? 2. Had this guaranty been made in writing as shown above after the goods had been purchased and the credit given, could Dean have collected from Jacobs? 3. Sullivan contracted to erect a house for Bertine. Bertine required that Sullivan furnish a bond, signed by two responsible citizens, that he, Sullivan, would faithfully perform his contract and that he would reimburse Bertine for any loss. Sullivan failed to pay his subcontractors and the masons filed a mechanics' lien against the house. Bertine had to settle this lien, which was more than the amount he still owed Sullivan. He took action against the bondsmen. Can he recover from them? Explain. 4. Rupert guaranteed the collection of a certain note. When the note became due, the holder presented it to the maker, who refused payment, and then sent notice to Rupert that payment had been refused and that he would look to him for the payment of the note. Rupert paid no attention to this and very soon after the holder of the note took action against Rupert to recover payment. Can he succeed? 5. Hersh purchased a building lot and had the title searched and insured by the Central Title Guaranty Company. Some time after, Hersh received notice that there was a tax lien of several dollars against the property. He notified the title company and they refused to pay the lien, claiming that they were not responsible for tax items. Hersh took action against the title company to recover damages. Can he succeed? 6. Clary secured a position as messenger with a local bank. The bank required that Clary furnish a fidelity bond of $1000, which he did. Clary was found guilty of appropriating bank funds to his own use. The bank notified the Bonding Company and forwarded a claim to them for the funds which Clary had appropriated, but did not discharge Clary. The Bonding Co. refused to reimburse the bank for the loss and the bank took action to recover. Can it succeed? Explain. 7. Harding guaranteed the payment of a 3-months note given by Murry to Philips. After Harding had guaranteed the payment of this note, Philips changed the time to 6 months and added with interest at 6%. Harding did not hear anything from his contract. When the note became due, Murry failed to pay and Philips notified Harding. Harding discovered the alterations and refused to settle. What are the rights of the parties? 8. On October 27 Adams gave his promissory note to Marsh, with Wendell as surety. The note was due on December 27. When it became due Wendell requested Marsh to collect the note. Instead, he orally agreed with Adams for a consideration to extend the note for one year. At the end of this time Adams failed to pay and Marsh took action against Wendell to recover. Can he succeed? 9. Ward signed a note with Harvey at Harvey's request and Harvey agreed to hold Ward harmless and to indemnify him against loss. Ward paid the note and brought suit against Harvey without giving him any notice of his payment. Can he collect? 10. Baker was surety on a bond of an executor. The executor misappropriated funds belonging to the estate, and when demands were made on him by those who were entitled to the estate, he said he was unable to pay. Suit was then brought against Baker as surety, who defended on the ground that no demand had been made on him. Is he bound? Explain. BAILMENT 1. IN GENERAL Definition. Bailment is defined as a delivery of some chattel by one party to another, to be held according to the special purpose of delivery, and to be returned or redelivered when that special purpose is accomplished. As we have already seen, a bailment differs from a sale, in that the title to the property does not pass in a bailment. Practically every case in which one receives and holds or handles the personal property of another, without buying it or receiving it as a gift, is a case of bailment. When one borrows or lends a book, hires a horse, or sends a package by express, he is within the rules of bailment. Where the possession but not the title has passed to the vendee, which case we have considered in the chapter on sales, the vendee holds as bailee. The parties to a bailment are the bailor, or the owner of the chattel who delivers it over, and the bailee, who is the party vested with the temporary custody of the chattel. All loans of articles to be used for a certain purpose and to be returned by the borrower when that purpose has been accomplished; all storage agreements whereby one party takes into his custody and care for a compensation or otherwise the goods or property of another; and all cases of hiring the use of any article or chattel for any particular purpose are bailments. Whenever an article is found and taken into custody by the finder; when an article is taken to a shop to be repaired; and, in fact, whenever there is a change of possession of goods for a purpose agreed upon by the parties without a change of ownership, the agreement is a bailment contract and subject to the rules and laws governing bailments. How Created. A bailment is created by a contract between the bailor, the party who owns or controls and delivers the goods, and the bailee, the party to whom the goods are delivered. (Goods in this connection may be any personal property.) The contract should specify the purpose for which the bailment is created, the duration of the bailment, the use that is to be made of the thing bailed, and any other facts which may be necessary to determine the respective rights of the bailor and bailee. |