When we say the principal is primarily liable this only means he is primarily liable as between the principal and surety. Both principal and surety are directly liable to the creditor. The strict surety undertakes to pay the debt in the first instance, just as the principal does. On the other hand, a guarantor undertakes to pay only if the principal fails to do so; or, in case of a guaranty of collectability, if he is insolvent and unable to pay. This failure or inability of the debtor to pay the debt must first be shown, before the guarantor becomes liable. In a strict guaranty the guarantor does not undertake to do what the debtor is bound to do, but his obligation is that the debtor will perform the obligation, or, if he fails to perform, the guarantor will pay such damages as result from the failure. The contract of a guarantor is thus collateral and secondary, instead of direct like that of a strict surety. The term surety is commonly loosely used to cover both strict sureties and guarantors. The law as to the two discussed in this article does not differ greatly, except in cases involving the statute of frauds, so usually no attempt will be made to make any distinction. § 4. Guaranty a collateral undertaking. As was stated in the proceeding subsection, a guarantor promises to pay the debt if the principal does not do so. His undertaking is secondary-it is his own separate, independent contract distinct from that of the principal debtor. When one who owns a promissory note endorses it and transfers it to another, such endorser is a species of guarantor of the note, under special conditions imposed by the law of negotiable paper. See Negotiable Instruments, Chap ters VI and VII, in Volume VIII. He is liable to the owner of the note, if the maker does not pay. In other words, he promises the one to whom he transfers the note, that, if the maker does not pay it, he, upon the performance of certain conditions, will do so; and the transferee takes the note relying on this promise. It is clear here that the endorser made a contract separate and distinct from that of the maker of the note and founded on a distinct consideration, namely the taking of the note by the transferee. It is a collateral undertaking. Since a contract of guaranty is a contract independent of that out of which the debt of the principal arose, it always requires a consideration, but the same act or promise may be a consideration for the principal's contract and a guaranty made at the same time. For instance, when the guaranty is given in consideration of the creditor's advancing money or goods to the principal, such advances furnish good consideration for the guaranty. Where there is a guaranty of a pre-existing obligation, however, there must always be some new consideration in order to make a valid guaranty. § 5. Statute of frauds. The fourth section of the old English statute of frauds provided that no action should be brought whereby to charge the defendant upon any special promise to answer for the debt, default, or miscarriage of another person, unless the agreement upon which such action shall be brought, or some memorandum or note thereof, should be in writing and signed by the party charged therewith or by some other person thereunto, by him lawfully authorized. This section of the statute of frauds has been re-enacted throughout the United States with but few modifications. § 6. Contract of guaranty must be in writing. When the contract is merely one of guaranty, it is clearly a special promise to answer for the debt, default, or miscarriage of another person, and consequently is within the statute of frauds and must be in writing. If the special promise creates a liability to pay for another, that is, if the promisor agrees to pay if the debtor does not, the promise must be in writing. There must be a principal debtor, and the special promise must be made to the creditor to whom the principal debtor has already become liable, or is thereafter to become liable. It is evident that a contract of strict suretyship is not within the statute of frauds, because the surety promises the creditor, with out condition, that he will pay him and is directly and jointly (or jointly and severally, or severally) liable with the principal debtor. His is a direct unconditional promise to pay the debt, and not a promise to answer for the debt, default, or miscarriage of the princapal. This is illustrated by the old English case of Watkins v. Perkins (1) where the court said that if A promise B, a surgeon, that if B cure D of a wound, he will see him paid; that is only a promise to pay if D does not and therefore ought to be in writing, but if A promise, in such case, that he will be B's paymaster whatever he shall deserve, it is immediately the debt of A, and he is liable without writing. The question as to whether a promise is within the statute of frauds is important and arises frequently, because (1) 1 Lord Raymond, 224. contracts of guaranty are apt to be informally made. A person, in order to enable a friend or relative to get credit, will often use an expression like, "I will see that you are paid," or, "If he don't pay you I will." If the party to whom such a promise is made gives the desired credit and later sues on such promise, the question arises as to whether it was a promise within the statute of frauds and therefore must be in writing, or whether it is not within the statute and is therefore enforcable though orally made. § 7. When is a debt within the statute of frauds? Any sum of money due on express contract is, of course, a debt the payment of which may be guaranteed, but the question has arisen in respect to quasi-contractual and tort obligations, and it has been contended that a guaranty of such obligation is not within the statute of frauds especially when there is only a contingent liability. The leading case on this point is Buckney v. Darnall (2). In this case the defendant promised orally to answer for any injury to a horse, which might be caused by a third person to whom the plaintiff loaned the horse for a certain purpose. The horse was injured while in the hands of the person who borrowed him, and the defendant was sued on his promise to pay the damages. The court held the plaintiff could not recover because the contract was within the statute of frauds and must be in writing. This shows a pure tort obligation may be guaranteed. The language of the statute is broad enough to include all (2) 2 Lord Raymond, 1085. sorts of obligations and, beginning with the above case, the courts have so held. § 8. Necessity of principal debtor and promise to creditor. In order to bring a guaranty within the statute of frauds so that it is required to be in writing, it is necessary that there be a principal debtor who is liable to the creditor; for, if there is no such debtor, the promise to pay cannot be a guaranty. It is also necessary that the principal debtor be at some time contemporaneously liable with the guarantor. Thus, when the defendant in an action brought against him had promised orally to pay a certain person's funeral expenses, if the deceased's nephew did not, the court held that, since the nephew was not liable for any such expenses, there was no principal obligation and the defendant's promise was not within the statute; hence, though orally made, the defendant was liable on it (3). Furthermore, the special promise must be made by the guarantor to the creditor. For instance, when A was liable to B on a promissory note and D promised A orally that he would pay B, the court held the case could not be within the statute of frauds because the promise was not made to the creditor B (4). § 9. When promisor receives the benefit. The statute of frauds applies only to contracts which the promisor makes for the benefit of the principal debtor. It is often said that if the guarantor makes a promise which is chiefly for his own benefit, instead of for the debtor's benefit, his promise is not within the statute of (3) Mease v. Wagner, 1 McCord (S. Car.) 395. |