DEMAND ON PRINCIPAL BEFORE ACTION

AGAINST GUARANTOR.

The statement that a demand upon the principal for performance of his contract, must be made, as a condition precedent to an action against the guarantor, is so often made by the courts that the question, when a demand is necessary in order to fix the guarantor's liability, is one of importance.

The general rule applying to demand is, that it is required only to place the party upon whom it is made in default. If he is already in default there is no necessity for a demand upon him to perform his contract, and such formality is meaningless.

In contracts where both parties are to perform acts dependent upon each other, or in which the conditions are concurrent, demand before suit, is required, as otherwise the plaintiff is unable to show that he is himself in a better position to complain of the defendant, then the defendant is to complain of him. But when the contract is by one to pay money to another, whose duty is only to receive it, the authorities agree that no demand by the payee is necessary before he can sue, but that, on the other hand, the duty is upon him who has promised payment to seek the other party and tender payment to him.1

Even when the promise is to pay money on demand, it is generally held that no demand is necessary as a condition precedent to an action on the promise. Courts say that in such a promise the debt is immediately due, and the suit thereon is a sufficient demand, 2

It may well be asserted that in all cases in ordinary contracts, where a demand is required to put the opposite party in default, under similar conditions in contracts of

1Nelson v. Bostwick (N. Y. 1843) 5 Hill 37; Quimby v. Lyon (1883) 63 Cal. 394; Clarke v. Charter (1880) 128 Mass. 483; Princeton v. Gebhart (1878) 61 Ind. 187; Lake Ontario &c. Co. v. Mason (1857) 16 N. Y. 451; Deel v. Berry (1858) 21 Tex. 463; 73 Am. Dec. 236.

2 Cotton v. Reavill (Ky. 1810) 2 Bibb. 99; Ross v. Lafayette & I. R. Co. (1855) 6 Ind. 297; Dyer v. Rich (Mass. 1840) 1 Metc. 180; Locklin v. Moore (1874) 57 N. Y. 360; Miss. & T. R. R. Co. v. Green (Tenn. 1872) 9 Heisk. 588; Nelson v. Bostwick (N. Y. 1843) 5 Hill 37; 40 Am. Dec. 310.

guaranty, a demand must be made upon the principal, and notice of this demand given to the guarantor, as a condition precedent to an action against him on his contract of guaranty. On this proposition there is perhaps no dispute. But the proposition conversely stated, that demand on the principal will not be required, except in those cases where generally a demand is necessary to place the other party to the contract in default, while apparently logical, is disputed in many jurisdictions. In California it is said. that the liability of a guarantor is the same as that of an indorser, and that demand on the maker of a note is required to fix the liability of the guarantor.1

Judge Story in his Treatise on Promissory Notes, says: "The guarantor contracts, upon the dishonor of the note, that he will pay the amount upon a presentment being made to the maker, and notice given him of the dishonor of the note within a reasonable time."

In Massachusetts it is held that the guarantor of a promissory note is discharged by the neglect of the holder to demand payment of the maker provided the maker was solvent when the note fell due, and afterward became insolvent. But it is also there said that the same strictness of proof as to the demand and notice, is not necessary to charge a guarantor as is required to charge an indorser.3

In the American and English Enc. of Law, it is said: "That by the prevailing authority the general rule may be stated to be, that where the guaranty is collateral and not absolute, a demand upon the principal is a prerequisite to an action against the guarantor, in the absence of circumstances amounting to a waiver or an excuse." In the American Digest, it is said that "Demand of the principal is necessary to charge a guarantor of future transactions." On the same page it is said that "if the guaranty is conditional, demand upon the principal must be made within a reasonable time."

1 Riggs v. Waldo (1852) 2 Cal. 485; 56 Am. Dec. 356; Lightstone v. Laurencel (1854) 4 Cal. 277; Pierce v. Kennedy (1855) 5 Cal. 139.

2 2T472.

3 Oxford Bank v. Haynes (Mass. 1829) 8 Pick. 423; Talbot v. Gay (Mass. 1836) 18 Pick. 534, citing Warrington v. Furbor (1807) 8 East 242; Nicholson v. Gouthit (1796) 2 H. Bl. 609.

(2nd ed.) Vol. 9, p. 206. 5 Vol. 25, p. 131.

Many authorities are cited to sustain these propositions, nearly all of which appear to be in point.1

In Ohio, as in many of the other States, the courts became involved with this question. In Green v. Dodge3 the court held that a guarantor of payment of a promissory note cannot be charged unless payment be demanded of the maker, when due, and notice of nonpayment be given to the guarantors. But not until 1841 in Parker v. Riddle3 do we find a record of the real situation of that court on account of the discussion of this question. At page 108 the opinion proceeds as follows: "One member of the court holds the promise as original. The majority, however, hold it to be collateral, and subject in some degree, to the usage of mercantile law as applied to the indorser of mercantile paper. It is holden by two of the judges that a demand upon the maker, when such note becomes due, and reasonable notice to the indorser would be necessary to charge the defendant as a guarantor. All unite in the opinion that the name of the payee in blank, appearing upon the note, is not a guaranty, but an indorsement, while the name of a person, out of the note, appearing upon it would be a guaranty. In such case, a majority of the court are of opinion to charge the guarantor, demand of payment must be made when the note becomes due, and notice, before suit brought, given to the guarantor; while one member holds that the guarantor is not liable, unless the maker be prosecuted to insolvency and notice thereof given to the guarantor.”

Later cases in Ohio have practically solved the difficulties here suggested. In Forest v. Stewart the court said that the law merchant which defines the terms of the

1 Douglas v. Reynolds (U. S. 1833) 7 Peters 113; Lane v. Levillian (1842) 4 Ark. 76; 37 Am. Dec. 769; Read v. Cutts (Me. 1831) 7 Greenl. 186; 22 Am. Dec. 184; McCollum v. Cushing (1861) 22 Ark. 540; Rankin v. Childs (1846) 9 Mo. 673; Sage v. Wilcox (1826) 6 Conn. 81; March v. Putney (1875) 56 N. H. 34; Hernandez v. Stilwell (N. Y. 1878) 7 Daly 360; Lewis v. Harvey (1853) 18 Mo. 74; 59 Am. Dec. 286; Benton v. Gibson (S. C. Law 1833) 1 Hill 56; Rhodes v. Morgan (Tenn. 1872) I Baxter 360; Cox v. Brown (N. C. 1858) 6 Jones 100; Bashford v. Shaw (1854) 4 Ohio St. 263; Virden v. Ellsworth (1860) 15 Ind. 144; Dole v. Young (Mass. 1837) 24 Pick. 250; Howe v. Nickels (1842) 22 Me. 175.

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2 (1825) 2 Ohio 436. II Ohio 102.

Forest v. Stewart (1863) 14 Ohio St. 246; Clay et al. v. Edgerton (1869) 19 Ohio St. 549.

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implied contract, created by the indorsement and delivery of commercial paper and the consequent rights and obligations of the parties thereto, can have little or no application to the case of a special assignment and guaranty. But in New York, in Allen v. Rightmere,1 the court said that proof of demand and notice were not necessary, that it was the duty of the debtor to seek the creditor and pay the debt on the very day it became due. It was there said that a demand is necessary only to fix the liability of an indorser or a surety whose undertaking is conditional; and that no demand is required to fix the liability of a guarantor.

What can be the purpose of making a demand upon a principal who is already in default, that is, upon one whose debt is already past due? A demand of payment made upon him does not change his position toward the creditor, nor does it in the slightest degree change the creditor's position toward him. He was in default and could have been sued before demand, and hence no advantage has been gained by the demand.

If the guaranty referred to an indorser of commercial paper, guaranteeing that he would pay in accordance with his contract as indorser, then it would be incumbent upon the holder of the paper to demand payment of the maker when the paper fell due and to give notice to the indorser before he could be held. Such steps therefore would be necessary to hold his guarantor. But in none of the cases requiring demand upon the principal was this question of so holding an indorser involved.

It is settled law that in many contracts of guaranty notice of the principal's default must be given the guarantor in order that he may protect himself against the principal. Now suppose the principal failed to pay when his obligation fell due, and the creditor duly notified the guarantor of this fact, may the guarantor when sued plead that while he was notified of the principal's failure to pay, he is nevertheless not responsible, because the creditor failed to make demand upon the principal? No court would sustain this position. But if not, why will courts require a demand except where it is necessary to fix the principal's liability or place him in default? It is true that a guarantor 1 (1823) 20 Johnson 365.

is entitled to make any defense which would be available to his principal; and if the principal has been discharged by the negligence of the creditor the guarantor is thereby discharged.

It is sometimes claimed that this rule applies to securities held by the creditor and that any loss of these securities by the creditor's neglect discharges the guarantor pro tanto; so that if the indorser of a negotiable instrument fails to make the proper presentment demand and notice thereby discharging the drawers and indorsers, the guarantor of such instrument is thus deprived of indemnity and may defend to the extent of whatever damage he has sustained in this regard.1

In Brown v. Curtis the court said: "If there had been an endorser on the note prior to the guaranty, and the plaintiff had allowed him to be discharged by neglecting to demand payment and give him notice, it may be the defendant would have had a good answer to the action." Russell v. Hesters and Powell v. Henry sustain this view. In those cases it is held that the receipt of a note before its maturity upon which there is a solvent indorser as collateral security for the payment of a debt, imposes on the creditor the necessity of doing those acts which will preserve the liability of the indorser, and if he fails to do so he is responsible for the injury sustained to the person from whom he received it. To the same effect is Trotter v. Crockett,"

There is substantial reason for the position that where one has guaranteed a negotiable instrument before maturity which has been indorsed, the holder should do whatever is required to hold the indorser, so that in the event the ⚫ guarantor is required to pay, he may be subrogated to the rights of the holder to proceed against the indorser. But on the other hand it may well be claimed that the guarantor of payment must himself be diligent. He may pay the debt and make demand upon the principal and give notice to the indorser. Having failed to do so, why shall he de

12 Am. Lead. Cases 124, citing Ex parte Mure (1788) 2 Cox Eq. Cases 63; Williams v. Price (1824) 1 Simon & Stewart 581; Beale v. Bank (Pa. 1836) 5 Watts 529; Goodloe v. Clay (Ky. 1845) 6 B. Monroe 236; Philips v. Astling (1809) 2 Taunton 206; Jones v. Pierce (1857) 35 N. H. 295. (1849) 2 N. Y. 225, 228. (1846) 10 Ala. 535. 1 (1855) 27 Ala. 612.

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(Ala. 1835) 2 Porter 401.