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REVIEW QUESTIONS AND PROBLEMS

SECTION 81. What is capital? What is working capital? What is credit? How is it estimated? How are checks used for credit purposes? Explain the methods of a clearing house. What is a clearing-house certificate? What is money? What is currency? What is legal tender? State the kinds of United States money. Which are legal tender and to what amount? What is exchange? What two kinds of foreign exchange? What sends foreign exchange above par or below par? What is the natural limit of such fluctuation? What determines the commercial price of exchange? What is payment? What is the effect of refusing it? How is it applied if there be different debts? Must the creditor give a receipt? What is its effect?

Result?

Problem 1. B owes C $32. B tenders C silver in payment as follows: 15 silver dollars, 20 half dollars, 25 quarter dollars, 7 dimes, I nickel. C refuses to accept this, alleging it is not legal tender. C then sues B, and to avoid costs and interest B pleads the prior tender. Problem 2. B owes C a debt for $25 contracted in 1898, and one of $36 contracted in 1901. B in 1903 pays C $25 and directs C to credit it on the debt of $36. C credits it on the debt for $25. In 1905, after the debt for $25 is "outlawed," C sues B for $36. B pleads payment of $25. How much may C recover?

Problem 3. In above case B makes no request as to application of payment. How will it be applied?

82. What is interest? What is usury? What is the effect of usury upon a contract? What is the legal rate and the maximum rate of interest in your state? What debts carry interest? What is compound interest? When is it allowed?

Problem 4. B bought goods of C to the amount of $215 on three months' credit which expired July 7. On September 3 C brought suit in New York against B for this debt. On November 10 a judgment was entered for C. On January 15 this judgment was paid. (a) Assuming that the disbursements and costs allowed C by the court amounted to $24.25, how much should the judgment be entered for? (b) How much would be paid to discharge it on January 15?

Problem 5. B borrows of C in New York $100 for one year, and gives his promissory note for that amount with 6% interest. In addition B pays Ca bonus of $5, that is, C really pays over to B on the loan only $95.

C sues B on this note. B pleads usury. Result?

Problem 6. In the above case B is a corporation. Result?

83. What is a bank? Name and describe the different kinds of banks. How much capital must a national bank have in your city or village? Is there a state bank there? a savings bank? a trust company? a private banker? What advantages have trust companies over state or national banks? What are live accounts? What banks take deposits and allow interest?

84. What is the relation of a bank to a depositor? Who loses the money paid by a bank upon a forged check? If one has a note due and payable at a bank, explain what is done on the due date. What is a certificate of deposit ?

85. Explain the process of borrowing money at a bank. What is discount? How great may it be? What is purchasing a note? For what price may a bank purchase a note made by X and owned by A? For what price may an individual purchase it? In what forms may one give security for a loan? What is a mortgage?

CHAPTER VIII

THE CONTRACT OF GUARANTY

86. Guaranty defined. A guaranty 1 is a promise to be answerable for another's debt, default, or obligation. It is a contract collateral to the main contract of the principal party

Example. B purchases goods of C on credit; D gives C a guaranty that B will pay for them, or in case B does not that D will.

The guarantor is he who gives the guaranty. The guarantee is he to whom the guaranty is given, that is, the creditor. The principal is he whose debt is guarantied, that is, the debtor. The word surety is sometimes used interchangeably for guarantor. But strictly a surety is one who is bound with the principal upon the original contract and in the same terms, while a guarantor is bound upon a collateral contract to make good in case the principal fails.

"We, A. B. as principal and C. D. as surety, hereby agree, etc.," would be a case of suretyship; while "I, A. B., hereby agree, etc.," followed by the indorsement, "I hereby guaranty 2 the performance or payment of the within contract. C. D.," would be a case of guaranty.

An indorsement of a negotiable instrument is a special form of guaranty, the indorser promising that he will be answerable for the amount of the note in case the holder makes due presentment to the maker, gives due notice of dishonor to the indorser, and in case of a foreign bill of exchange makes due protest. This is considered under the head of Negotiable Instruments.

1 This is the same word as warranty, having preserved the Norman-French g, which has been converted into the English w in warranty, as the French Guillaume becomes William in English. A warranty is a guaranty of the title or quality of goods. A guaranty is a warranty of credit, solvency, etc. (see Guaranty Insurance, sec. 74 ante).

2 The verb is either "guaranty

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or "guarantee." Sometimes one, sometimes the other, is used. So also the noun is written in both forms.

A guaranty of payment differs from a guaranty of collection. In the first case the guarantor agrees to pay if the principal does not; in the second he agrees to pay if the debt cannot be collected of the principal.

A continuing guaranty is an agreement to be responsible for moneys, goods, or services to be furnished the principal from time to time in the future.

87. A guaranty must be in writing. Under the Statute of Frauds (see sec. 22 ante) a promise to answer for the debt, default, or miscarriage of another must be in writing and signed by the party to be charged. Hence a guaranty of another's debt or promise must comply with this provision.

If the contract is strictly one of indemnity, namely, a promise to save another harmless from the results of some transaction into which the promisor induces him to enter, it is to be distinguished from a guaranty and need not be in writing. In such a case there are but the two parties.

Examples: 1. B promises C, an officer, that if the latter will attach D's goods he will guaranty him against loss or damage. This is an indemnity and not a guaranty, and need not be in writing. There are really but two parties here.

2. Sometimes it is very difficult to say whether a contract is one of guaranty or indemnity. B promises C that if the latter will go upon D's bail bond he (B) will make good any loss C may suffer. In England and in many American states this is treated as a contract of indemnity, while in other states it is treated as a contract of guaranty.

3. Again, the promise may be an original instead of a collateral one, in which case it is not a guaranty and need not be in writing. "If you will let B have these goods, I will pay for them." The promisor is primarily and not collaterally liable. Had he said, "I will pay for them if B does not," it would have been a guaranty.

4. Again, the promise may be to pay the debt out of funds put into the hands of the promisor for that purpose. D has moneys of C put into his hands to pay for goods sold to C by B. D promises B to pay. This is not within the Statute of Frauds. It is really a case of a trust.

In all doubtful cases it is safer to have the promise put into writing and signed. In some states it is necessary, also, that the writing should express the consideration upon which the guarantor's promise is based.

88. Consideration. When the contract of guaranty is made at the same time as the contract which it guaranties, the consideration which supports the principal's promise will also support the guarantor's.

When the contract of guaranty is made subsequent to the main contract, a new consideration is required to support it.

Examples: 1. "If you let B have these goods, I will guaranty payment for them. C." The delivery of the goods supports B's promise and also C's. 2. B owes A for goods already sold and delivered. C writes A, “I will guaranty B's debt to you." There must be some new consideration for this or the promise will be unenforceable. Such a consideration might be that A should bind himself to give B an extended time in which to pay.

89. Notice of acceptance by guarantee. Whether the creditor (guarantee) must notify the guarantor that he accepts the guaranty has been a very much discussed question. It is not necessary, of course, in the case of a contemporaneous guaranty, that is, a guaranty made at the same time as the main contract. The difficulty arises in a case of a guaranty as to future advances.

Example. C writes A, "I will guaranty payment of all goods you may let B have during the next year." Must A notify C that he accepts the guaranty, or will the delivery of goods to B constitute an acceptance? Generally in this country it is held that notice must be given in such a case, because the guarantor is entitled to know that his offer of guaranty has been accepted. In England and in some of our states no notice is necessary, the acceptance consisting in the doing of the act specified, that is, letting B have the goods. In view of this conflict it would always be safer to notify the guarantor that the guaranty has been accepted.

90. Notice to guarantor of the default of the principal. Whether the guarantee must notify the guarantor that the principal has defaulted in the payment or other obligation covered by the guaranty is also a disputed question. Some states require no notice, while others require notice, but do not agree as to the cases in which it must be given.

In states requiring notice these different holdings are found : 1. That the guarantor is always discharged for want of such notice if he is damaged thereby.

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