insisting upon an answer. This action was brought
to recover on the policy.
(5) Ripley v. JEtna Insurance Co., 30 N. Y. 136. -
Ripley insured his buildings with the defendant
company and, at the time the insurance was taken
out, plaintiff was asked if there was a watchman in
the buildings during the night. He answered,
* There is a watchman nights." According to the
custom at the mill which was insured, no watchman
was on duty from twelve o'clock Saturday night until
twelve o'clock Sunday night. The application in
CASES ON INSURANCE 21 1
which the above question was asked was made a part
of the policy. The loss having occurred by fire, this
action was brought to recover on the policy.
(6) White v. Insurance Co., 57 Me. 91. Plain-
tiff had certain personal property insured with
the defendant. A building situated near the one in
which the plaintiff's property was located caught fire,
and it seemed certain that the latter building would
be destroyed. Plaintiff caused his goods to be re-
moved from the building to save them from ap-
parent immediate destruction by fire, but the build-
ing in which they were did not burn. A reasonable
degree of care was used in the removal of the goods.
This action was brought to recover for such damage
as the goods sustained and also for the expense of
(7) Babcock v. Montgomery Insurance Co., 6
Barb. (N. Y.) 637. Plaintiff insured his property
with the defendant company, and one of the condi-
tions of the policy was that the insurer would be
liable for " fire by lightning." It was proved that
lightning struck the building and so shattered it as
to cause a very heavy loss. No ignition occurred.
This action was brought to recover on the policy.
(8) Lyons v. Insurance Co., 14 R. I. 109. Plain-
tiff's insurance policy was taken out on furniture
which was described as being contained in a house on
McMillen Street, Providence, R. I. Lyons moved
to another house on another street and did not notify
the insurer. The property having been destroyed
212 CASES ON INSURANCE
by fire, this action was brought to recover on the
(9) Sanders v. Cooper, 1 1 5 N. Y. 279. In this case
it was shown that the insurance policy contained
the usual clause providing that it would be void in
case of other insurance on the property insured, not
indorsed on the policy or consented to in writing by
the insurer. There was such other insurance and the
fact was not made known to the company. Should
the plaintiff recover on the policy ?
(1) Lett v. Insurance Co., 125 N. Y. 82. In this
case the insured sold the property covered by
the insurance policy and signed an instrument in
which he released his interest in the policy to the
purchaser. The insurance company was not notified
of the transfer. A fire having occurred, the pur-
chaser of the property sought to hold the insurance
company liable on its insurance contract.
(2) Corrigan v. Insurance Co., 122 Mass. 298.
The insurance policy in this case contained the usual
clause that if the house insured should remain vacant
or unoccupied for the space of ten days without
written notice to, and consent of, the company, it
should become void. It was shown that the tenant
had moved his family into another house, in which
they slept and took their meals, but he still retained
CASES ON INSURANCE 213
the key to, and left some of the furniture in, the
house covered by the policy. Upon the house being
destroyed by fire, an action was brought to recover
of the company.
(3) Bevin v. Life Insurance Co., 23 Conn.
244. Bevin gave $300 to Barstow, and some other
articles of personal property, under an agreement that
Barstow should go to California and labor there for
at least one year and then account to Bevin for
one half of the profits of his labor. Plaintiff then
insured Barstow's life with the defendant insurance
company for $1000. Barstow died and this action
was brought on the policy.
(4) Connecticut Mutual Life Insurance Co. v.
Lucks, 108 U. S. 498. - Two persons formed a
partnership with a capital of $10,000, of which each
was to contribute one half. One of the partners
being temporarily out of funds, the other partner
contributed the entire amount under an agreement
that he should be reimbursed for the $5000 advanced
for his partner. Upon the failure of the partner to
comply with his agreement, the one who had ad-
vanced the money took out an insurance policy for
$5000 on his partner's life. This action was brought
to recover on the policy.
(5) Glanzv. Gloeckler, 104 111. 573. A father took
out an insurance policy on his own life in favor of an
infant daughter and paid all of the premiums. He
retained the policy in his possession. The father
having died, the daughter claims the right to recover
214 CASES ON INSURANCE
on the policy, and this action was brought to require
the defendant, who was in possession of the policy,
to surrender it to the infant daughter, who was named
in it as beneficiary.
(6) Cushman v. Life Insurance Co., 63 N. Y. 404.
The insurance policy in this case stated that the
representations made by the insured in his ap-
plication were made a part of the contract, and pro-
vided that if they were untrue the policy would be
void. The applicant stated that he had never been
afflicted with a certain disease. It was shown that
he had twice been ill with this disease before the
policy was issued. What effect did his statement
have upon the policy ?
(7) Dwight v. Ger mania Life Insurance Co., 103
N. Y. 341. One of the questions in the application
for the policy involved in this case was as to whether
or not the applicant was then or had been engaged
in or connected with the manufacture or sale of in-
toxicating liquors. The applicant answered, "No."
In an action to recover on the policy it was shown
that the insured had kept a hotel for three and a half
years before taking out the insurance covered by this
policy, and that he had sold wine and liquors to his
guests, although he had kept no bar.
(8) Raddin v. Phcenix Life Insurance Co., 120
U. S. 183. Among the questions on the applica-
tion was this one, " Has any application been made
to this or any other company for insurance on the life
of the party ? If so, with what result ? " The ap-
CASES ON INSURANCE 215
plicant made no answer to this inquiry. The policy
was issued by the company without insisting on an
answer. The company now seeks to avoid payment
on the policy on the ground that other applications
had been made and that the failure of the applicant
to so state was a concealment which would avoid the
(9) Bigelow v. Life Insurance Co., 93 U. S.
284. The policy in this case contained a clause
which provided that it should be null and void if
the insured died by suicide, while either sane or in-
sane. The company proved that the insured died
from a pistol wound inflicted by his own hand and
that he intended to destroy his own life. Evidence
was offered tending to show that the suicide was a
result of unsound mind.
CONTRACTS OF GUARANTY AND SURETYSHIP
114. How THE CONTRACT MUST BE MADE.
113. Explanation. - There are several kinds of
contracts that are properly classified as contracts of
guaranty and suretyship. These contracts are those
in which one party undertakes to be responsible for
the payment of another party's debt, either abso-
lutely, or if the other party does not pay. This
lesson deals with both classes.
114. How the Contract must be Made. The
fourth section of the Statute of Frauds, which was
studied in connection with contracts, contained the
following : " No action shall be brought whereby to
charge any 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, shall be in writing, and signed by the party
to be charged therewith or some person thereunto
GUARANTY AND SURETYSHIP 217
lawfully authorized." It was found necessary to
make this requirement regarding this class of con-
tracts, as it was very easy for a creditor to misinter-
pret a statement made by a third party regarding the
payment of his debtor's obligation. A mere intro-
duction of a party who desired credit, might, under
certain circumstances, be construed as a guaranty
that he would pay his obligation, although it was not
the intention of the person giving the introduction to
assume any liability whatever. In such cases the
liability of the alleged surety was very difficult to
determine, owing to the fact that much time elapsed
between the time of the disputed statement and the
time when the case came before the court for adjust-
ment. To avoid this difficulty, it was required that
written evidence be submitted by any person who
sought to recover against one who had become re-
sponsible for the debt or obligation of another. It
is not required that the contract itself be in writing,
but that there be sufficient written evidence clearly
to establish the fact that such a contract was entered
into and what the terms of the contract were.
In this class of contracts there are three parties
known as the creditor, the principal debtor, and the
secondary debtor, who is called a surety, guarantor, or
A clear distinction must be made between a prom-
ise made to the principal debtor that his debt will
be paid, and a promise made to the creditor that he
will sustain no loss through the failure of the debtor
21 8 GUARANTY AND SURETYSHIP
to pay his obligation. It is only the latter kind of
contracts that we are concerned with in this lesson.
115. Consideration. It is not necessary that
there be a separate consideration for the promise of
the secondary debtor, when his promise is made at
the same time that the principal debtor makes his
promise to the creditor. Consideration which satis-
fies one promise will be sufficient for the other also.
If, however, the contract of the secondary party is
entered into after the original contract of the prin-
cipal debtor, a separate consideration will be re-
quired. This may be any benefit to the promisor or
any detriment to the promisee, as in the case of all
116. Subrogation. By subrogation is meant the
right which any surety or guarantor has upon full
payment of the debt to succeed to all the creditor's
rights against the principal. A surety, immediately
upon the payment of the principal's obligation, has
a right to any security for the debt belonging to the
surety which may be in the hands of the creditor, pro-
viding he asserts his right promptly. For example,
A was surety on a note made by X in favor of Y.
The note was secured by ten shares of United States
Steel Company's stock. Upon default in payment
by X, A paid the entire amount. He is entitled to
the benefit of the stock held by Y as security.
Immediately upon the payment of the debt of the
principal, the surety has a right to begin an action
against the principal for the amount so paid, together
with any expense that may be incurred. Such action
is brought on the express promise of the principal,
or on a promise of the principal to repay, implied by
law from the fact that the surety has paid the prin-
117. Contribution. When one of two or more
sureties or guarantors has to' pay an obligation, he
can immediately begin an action against his cosure-
ties for contribution of their just share of the total.
119. KINDS OF GUARANTIES.
120. NOTICE OF DEFAULT.
118. Guarantor. A guarantor is one who agrees
to become responsible for the debt or obligation of
another, and whose contract is conditioned upon the
failure of the principal to perform in accordance
with the terms of the contract, and upon receiving
notice from the creditor that such default has been
made. In this respect the contract of guaranty dif-
fers from the contract of surety. The surety has
unconditionally promised to pay the debt of the
principal debtor, but in a contract of guaranty, the
guarantor agrees to pay, if he receives notice that
the principal debtor has not done so. His obligation
is a secondary one.
119. Kinds of Guaranties. - There are several
kinds of guaranties that are recognized in the common
General Guaranty. In this guaranty the guaran-
tor promises to pay any debts or obligations of a
designated person that may exist at the time of en-
tering into the contract of guaranty, or that may be
subsequently incurred by the party named. Such
a guaranty is usually addressed " to whom it may
concern," and it is not necessary for one who extends
credit upon the strength of this guaranty to notify
the guarantors that he has accepted the guaranty.
It is sometimes provided, in the offer to become re-
sponsible for the debt of another, that such respon-
sibility shall attach only upon receiving notice that
the third party has acted upon the offer to become
responsible. This form of guaranty is not desirable
and is being used much less than formerly.
Special Guaranty. A special guaranty is one that
is given, not to the public, but to a certain individual
or firm, and provides that the guarantor will be re-
sponsible for the debt or default of a person named.
Continuing Guaranty. This is a guaranty by
a guarantor who does not limit his contract of
guaranty to one transaction or one time, but agrees
to be responsible for the debt of another up to a
certain amount and for a definite time. By giving
notice, the guarantor may bring his contract to an end.
Limited Guaranty. A limited guaranty is one
that is limited to one transaction or one time, and
unless acted upon by a creditor in accordance with
its terms, the guarantor is not liable.
Guaranties that are of such a nature as to indicate
that the guarantor did not intend that notice should
be given him of the acceptance of the guaranty, are
said to be absolute, and no such notice of acceptance
120. Notice of Default. As has been stated
above, contracts of guaranty require that notice of
default shall be given to the guarantor, unless the
guaranty was in such form as to indicate clearly that
he did not expect to be notified of such default.
Guaranty of Payment. - When the guarantor
guarantees the payment of an obligation, he indicates
his intention to be notified, as otherwise he could
not know that the payment had not been made.
Immediately upon default in such cases, it is neces-
sary for the creditor to notify the guarantor that he
is expected to make payment. Failure to notify,
in order to be available to the guarantor as a de-
fense, must have caused loss to the guarantor. For
example, if the principal debtor was solvent at the
time the obligation became due, but did not pay the
debt, and the guarantor was not notified of his
failure to pay, the guarantor would be released if sub-
sequently he was notified of the failure, and in the
meantime the principal debtor had become insolvent.
Guaranty of Collection. When a guarantor guar-
antees the collection of an obligation, he indicates
that he does not expect to be notified of default of
payment at the date of maturity. When such a
guaranty is made, it is necessary for the creditor to
proceed against the principal debtor and exhaust
all legal means to recover the amount due, before
he can proceed against the guarantor. The guaran-
tor who has merely guaranteed the solvency of the
debtor cannot be held liable unless the original
debtor is proven insolvent.
121. Suretyship. A surety is one who under-
takes to become responsible for the payment of the
debt of another party, and whose obligation is not
conditioned upon the failure of the principal debtor
to pay. The surety's obligation is an absolute one
and the creditor need not even proceed against the
principal debtor, but may look to the surety at once
for the payment of a debt at the date of maturity.
He may even neglect to take steps to collect from the
principal debtor, or to notify the surety, without in
any way interfering with his right to proceed against
the surety at any time. In some states statute law
has modified the common law in this respect, and
creditors are obliged to proceed against the principal
debtor and exhaust all legal means of collection be-
fore looking to the surety for payment. This is not
A common illustration of suretyship is seen in the
case of a note made in favor of C and signed by A
and B. Even though there is nothing in the instru-
ment to show that A is the principal debtor and B
merely a surety, parol evidence may be introduced
to show that such was the case in nearly every juris-
diction. To fix the liability of B, the. surety, it is
not necessary, as has been stated above, for C to
attempt to collect of A. He may proceed against B
at once. When one or more of the parties signing
an instrument are sureties, the word " surety "
should be written after the name of each, in order
that their relation to the instrument may clearly
There are several ways in which the surety may be
released from his obligation, and in this respect he
differs from a joint maker in a note like the one
referred to above. If the creditor makes a binding
agreement with the principal to extend for a definite
time the payment of the debt, without first securing
the consent of the surety, the latter will be released
from further obligation on his contract. This is on
the ground that the contract upon which he became
liable has been modified and he is no longer respon-
sible for its payment. When such an extension is
made, it also may interfere with the right which the
surety has to protect himself by attaching property
of the principal debtor. However, it is not neces-
sary that the surety sustain a loss by reason of the
extension in order to release him from his obligation.
It has been held that where the surety is secured
against loss by chattel mortgage or collateral secur-
ity, an extension of time does not release the surety.
The surety may be released if the collateral se-
curity, which has been given to secure the payment
of the debt by the principal debtor, is surrendered
by the creditor without the knowledge and consent
of the surety. This is necessary in order that the
surety may not be deprived of his right of subroga-
tion ; that is, that he may have the right to the
collateral security to reimburse him for any payment
which he may have to make for the principal debtor.
The creditor may agree to release the surety and
such an agreement will be binding on him. Thus, if
a surety upon an obligation which has become due
asks the creditor to accept payment at once if he
wishes to hold him, the surety, liable, and the creditor
states that he will look to the principal debtor and
not to the surety, the surety is released from all
further responsibility on his contract. This con-
tract to release the surety may be made either orally
or in writing.
A material alteration of an instrument upon which
one has become surety, made by a party to the con-
tract, will release the surety, as its effect is to change
the obligation upon which he became liable. This
CASES ON GUARANTY AND SURETYSHIP 225
is so, even though the change would not cause the
surety any loss or be any disadvantage to him. If
the surety consents to the change, or agrees to be-
come further responsible for the payment of the debt
with knowledge of such change, his obligation will
122. CASES ON GUARANTY AND SURETYSHIP.
(1) Hoisted v. Francis ; 31 Mich. 113. One Rice
executed and delivered to Francis a valid promissory
note. Halsted orally promised Rice to pay to
Francis the amount of the note, in consideration of
the sale and delivery by Rice to Halsted of a horse
and wagon. When the note fell due, it was not paid,
and Francis sued Halsted for the amount.
(2) Moles v. Bird, n Mass. 436. Moies sold a
piece of land to defendant's brother, and agreed to
accept as part of the purchase price a note signed by
defendant as surety. Defendant signed the note
without receiving any consideration, the note was
delivered to the plaintiff, and the land conveyed to
defendant's brother. When the note fell due and
was not paid, suit was brought against the defendant.
(3) Taylor v. Tarr, 84 Mo. 420. Tarr made a
promissory note and executed a deed of trust as
security for the note. Taylor signed the note as
surety. When the note matured, it was paid by
226 CASES ON GUARANTY AND SURETYSHIP
Taylor, and he brought suit against Tarr and the
(4) Paulin v. Kaighn, 29 N. S. L. 480. Paulin,
Kaighn, and Cooper became sureties on a bond from
the Camden Ferry Company to one Champion in
the sum of $30,000, all sureties being equally liable.
Kaighn and Cooper held security for the benefit of
the sureties amounting to $12,000. The company
defaulted on the bond and it was paid by Kaighn
and Cooper equally. They sold the security and
partially reimbursed themselves, and Kaighn alone
brought suit against Paulin.
(5) Kennebec Bank v. Tuckerman, 5 Me. 130. On
October 27, Adams gave his promissory note, with
defendant as surety, to the plaintiff bank. The
note was due on December 27. When it became due,
Tuckerman requested the bank to collect the note
from Adams. Instead, the bank orally agreed with
Adams, for a good consideration, to extend the note,
and continued to extend it for several years. Fi-
nally the bank brought suit against Tuckerman.
(6) Douglass v. Reynolds, 7 Pet. (U. S.) 113.-
Douglass wrote a letter to Reynolds, reading as
My friend, Mr. Chester Haring, to assist him in business, may
require your aid, from time to time, either by acceptance or in-
dorsement of his paper, or advances in cash ; in order to save
you from harm by so doing, I do hereby bind myself to be re-
sponsible to you, at any time, for a sum not exceeding eight
thousand dollars, should the said Chester Haring fail to do so.
CASES ON GUARANTY AND SURETYSHIP 227
Reynolds wrote Douglass and accepted the guar-
anty. Various advances and indorsements were
made for Haring until he became indebted to Rey-
nolds for $20,000, but no notice of these transactions
was ever given to Douglass. When Haring failed to
pay his indebtedness, notice was given to Douglass
and suit commenced by Reynolds.
(7) Ward v. Henry, 5 Conn. 595. Ward signed a
note with Henry at Henry's request and Henry
agreed absolutely to hold Ward harmless and to
indemnify him against loss. Ward paid the note
and brought suit against Henry without giving him
any notice of the payment.
(8) Day v. Elmore, 4 Wis. 190. Bassett gave his
promissory note to Day, and Elmore signed a guar-
anty reading as follows : " I guaranty the collection
of the within note for value received." The note
was not paid by Bassett at maturity and Day took
no proceedings to collect it for over two years there-
after. When he did proceed against Bassett, he
could recover nothing, and brought suit on the
(9) Brookins v. Green, 23 Mich. 48. Green owned
a patent and was about to organize a company to
manufacture the article. He agreed orally with
Brookins that, if Brookins would subscribe for shares
in the company and give his note for the price, he
would secure a purchaser for the shares and Brookins
would not be put to any expense in the matter.
Green failed to carry out his agreement and Brookins
228 CASES ON GUARANTY AND SURETYSHIP
was forced to pay the note. He then sued Green
for the amount so paid and Green defended on the
ground that his promise was void, being an oral
promise to answer for the debt, default, or miscar-
riage of another.
(10) Rogers v. Glenn, 3 Md. 312. Glenn bought a
horse from Barber, who warranted its soundness,
which warranty was guaranteed orally by Rogers.
The price of the horse was paid by Rogers upon the
written request of Glenn. Glenn refused to pay
Rogers the money so advanced, on the ground that
the horse was unsound, that Rogers had made him-
self responsible for the warranty, and that Glenn had
a claim against Rogers on the warranty equal to the
claim Rogers had against Glenn for money loaned.
Rogers then brought suit for the money.
(1) Paton v. Stewart, 78 111. 481. Bankruptcy